Patent Licence Agreement Template for Canada

A patent licence agreement is a contract in which a patent holder (licensor) grants another party (licensee) permission to make, use, sell, or import the patented invention within Canada for a defined period and territory, typically in exchange for royalties or a lump-sum fee. Without a licence, a third party using a patented invention infringes the patent under the Patent Act.

An exclusive licence grants the licensee sole rights to exploit the patent in a defined field or territory; the licensor typically cannot grant further licences to others in the same scope. A non-exclusive licence allows the licensor to grant the same rights to multiple licensees. An exclusive licensee in Canada may have standing to bring an infringement action independently, which a non-exclusive licensee generally cannot.

Registration with the Canadian Intellectual Property Office (CIPO) is not required for a patent licence to be effective between the licensor and licensee. However, a registered licensee gains protection against subsequent dealings (such as assignment to a third party) that might affect their rights. Exclusive licences are commonly recorded at CIPO to put third parties on notice.

Royalty income earned by a Canadian resident is subject to federal and provincial income tax in Canada. Where a licensor is a non-resident, Part XIII of the Income Tax Act imposes a 25% withholding tax on royalties paid to the non-resident, reduced to 0-15% under Canada's tax treaties with many countries (including the Canada-US Tax Convention, which reduces this to 0% for arm's-length payments).

Yes, within limits. Field-of-use restrictions, territorial limits, and exclusivity provisions are generally permitted as legitimate licensing conditions. However, conditions that fix prices, allocate markets between competitors, or prevent the licensee from challenging the patent's validity may attract scrutiny under the Competition Act. The Competition Bureau assesses patent licensing terms that substantially lessens competition.

Once a Canadian patent expires (typically 20 years from the filing date under the Patent Act), the patented technology enters the public domain. A licence agreement that purports to continue collecting royalties on the expired patent after expiry may be unenforceable and could violate the Competition Act's provisions on tying or abuse of dominance. Licences should specify how royalties are handled post-expiry.

A licensee can only sublicence if expressly authorised to do so in the licence agreement. Without that right, sublicensing constitutes infringement of the patent. Sublicence authorisation should specify whether the licensee can grant sublicences freely, only with the licensor's consent, or not at all, and should address the effect on sublicences if the head licence is terminated.

The agreement should specify who has the right and obligation to enforce the patent against third-party infringers, how the costs and proceeds of enforcement are allocated, and what happens if neither party chooses to enforce. In Canada, an exclusive licensee typically has statutory standing to bring an infringement action under section 55 of the Patent Act. Non-exclusive licensees generally must join the patentee as a party.