A patent owner has the right to use, sale, transfer, license, mortgage and pledge the patent. The law on license of patent is well founded in India though there are very few judicial pronouncements in this regard. A license to use a patent can be with or without the transfer of any interest in the patent. It can be a transfer of any right that rests with the owner of the property. Indian Patent Act contains specific provisions with regard to licensing of patents. Broad features of the law relating to patent licensing are as follows:

Royalty is the consideration, which the registered user pays to the registered proprietor for a grant of permission to use the trade mark. The Trade Marks Act does not stipulate any particular rates of royalty. The Act requires that the royalty and any other remuneration payable by the registered user to the registered proprietor should be disclosed in the Agreement between the registered user and the registered proprietor. The determination of the rates of royalty is a matter of contractual freedom. However, it generally varies between 5% to 10% of the sale price of each product.

The Trade Marks Act provides that registration as a registered user does not imply an approval of the agreement in so far as it relates to the transmission of any money, as consideration for the use the said trade mark to any place outside India. Such royalty payments are subject to the provisions of the Foreign Exchange Management Act, 1999 and rules made there under. The Foreign Exchange Management (Current Account Transactions) Rules, 2000 requires a registered user to seek approval of the Reserve Bank of India before drawal of foreign exchange for remittance of the royalty to the registered proprietor. However, this rule does not apply where the payment is made out of funds held in Resident Foreign Currency Account of the registered user.

The issue regarding calculation of royalty for use of trade mark and brand name has been examined by the Government and it has been decided that the following formula for calculation of royalty for use of a trade mark and brand name be adopted.

"Royalty on brand name/trademark shall be paid as a percentage of net sales, viz., gross sales less agents’ dealers’ commission, transport cost, including ocean freight, insurance, duties, taxes and other charges, and cost of raw materials, parts, components imported from the foreign licensor or its subsidiary/affiliated company.

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