Patent Licence Agreement in India: The Legal and Commercial Clauses That Matter

A university technology transfer office in Gujarat has a granted process patent, a manufacturer in Vapi that wants to use it, and a downloaded draft agreement written for Delaware. Type "patent license agreement India" into a search bar and that is mostly what you find: foreign templates with Indian names typed in.

Indian law treats patent licences differently. The Patents Act, 1970 voids certain clauses outright, makes an unregistered licence hard to prove, and puts reporting duties on the licensee as well as the patentee. This guide covers those rules, the commercial clauses, a checklist and a worked example.

Quick answer

A patent licence in India is valid only if it is in writing, with all its terms in one duly executed document (section 68 of the Patents Act, 1970). It should then be registered with the Controller on Form 16 under section 69, since an unregistered licence is generally not admitted as evidence of the licensee's interest. Of voluntary licensees, only an exclusive licensee can sue infringers (section 109). Section 140 makes tie-ins, exclusive grant-backs, no-challenge clauses and coercive package licensing void. The patentee and every licensee must each file Form 27 once every three financial years. Royalty attracts 18% GST and tax deduction at source.

What the Patents Act requires before anything else

Three sections of the Patents Act, 1970 do the legal work.

Section 68: writing, and everything in it. A licence is not valid unless it is in writing and reduced to "a document embodying all the terms and conditions" governing the parties' rights and obligations, duly executed. A term sheet, email trail or MoU with "detailed terms to follow" is not a licence, and a discount buried in a side letter invites a fight. Put amendments in signed writing too.

Section 69 and Form 16: registration. A licensee must apply to the Controller to have notice of its interest entered in the register; the licensor may apply instead. It goes on Form 16 with certified copies of the agreement (rules 90 and 91 of the Patents Rules, 2003). The official fee is ₹1,600 per patent for natural persons, startups, small entities and educational institutions filing online, and ₹8,000 for others. Section 69(4) lets either side ask that the licence terms stay undisclosed except under a court order.

The Act sets no deadline for Form 16, which is why it gets forgotten. The cost sits in section 69(5): an unregistered document is not admitted by the Controller or any court as evidence of title or interest unless they direct otherwise for recorded reasons, and a licensee that sues must first prove its licence.

Section 70: who can grant. The registered proprietor may grant licences, subject to rights "of which notice is entered in the register". An unrecorded licence is weaker against a buyer or lender who relies on the register. Where a university and a company co-own the patent, section 50(3) bars either from licensing without the other's consent, unless their agreement says otherwise.

Exclusive, sole or non-exclusive: who can sue

The label matters less than section 2(1)(f), which defines an exclusive licence as one conferring a right "to the exclusion of all other persons (including the patentee)". Leave the patentee free to work the invention and you have a sole licence, which the Act does not treat as exclusive.

Because the definition speaks of "any right", a licence exclusive within one field or territory should, on the wording, still qualify, provided the patentee is shut out of that slice too.

Section 140: the clauses the law strikes out

Section 140(1) makes it unlawful to put into a licence to make or use a patented article, or to work a patented process, any condition "the effect of which may be" to:

• require the licensee to acquire from the licensor or its nominees, or restrict it from acquiring elsewhere, any article other than the patented article or the product of the patented process;
• prohibit or restrict its use of non-patented articles the licensor does not supply, or of any process other than the patented one;
• "provide exclusive grant back, prevention to challenges to validity of patent and coercive package licensing".

Any such condition is void.

Tie-ins. You cannot make the licensee buy its enzyme or catalyst from you, and a separate supply agreement does not save the condition (section 140(2)). Section 140(4) still allows a condition restricting the licensee to selling one person's goods, and a reservation of the right to supply new parts and repairs for a patented article.

No-challenge clauses are void. A right to terminate if the licensee attacks validity is the usual workaround, but section 140 looks at effect and we know of no Indian ruling on the point. Treat it as a risk, not a cure.

Grant-backs. Only an exclusive grant-back is caught. Ask for a non-exclusive licence back on improvements.

The sting is section 140(3): in an infringement suit against any person, it is a defence that a contract relating to the patent with a void condition was in force at the time, unless the plaintiff was not a party and did not know of or consent to it. A careless tie-in can arm an unrelated infringer. Section 3(5) of the Competition Act, 2002 is similar: it shields only "reasonable conditions, as may be necessary" to protect patent rights.

Working statements: Form 27 after the 2024 rules

Section 146(2) requires every patentee and every licensee, exclusive or otherwise, to report on working in India. Since the Patents (Amendment) Rules, 2024 (in force 15 March 2024), rule 131(2) requires Form 27 once for every period of three financial years, counted from the year after grant, within six months of the period ending. Delay can be condoned, or time extended, by up to three months on Form 4 (online, ₹2,000 a month for natural persons, startups, small entities and educational institutions; ₹10,000 for others). Form 27 itself is free.

The form now asks only whether each patent is worked, the reason if not, and whether it is available for licensing. There are no revenue or quantity figures, and the form notes that importing does not, by itself, make an invention unworked. The Patent Office's August 2024 FAQs set the first cycle for patents granted on or before 31 March 2023 as FY 2023-24 to FY 2025-26, due by 30 September 2026.

The licence should still require data from the licensee:

• When the licensee does the working, only it knows what the patentee is certifying. Under section 122, a false statement attracts a penalty of half a per cent of turnover or ₹5 crore, whichever is less; failing to file, up to ₹1 lakh plus ₹1,000 for each day it continues.
• Under section 146(1), the Controller can demand working information at any time, answerable within two months.
• Section 84 lets any person interested seek a compulsory licence three years after grant if the public's reasonable requirements are unmet, the price is not reasonably affordable or the invention is not worked in India. Your defence is evidence the licensee holds, and section 84(2) says admissions in a licence do not stop the licensee itself applying.

So require units, net sales, place of manufacture and imports, annually and within 30 days of any request. Compulsory licences are rare; our patent valuation and licensing guide explains the risk for unworked patents.

The commercial clauses that decide whether money arrives

Grant and royalty

List the patents by number, then fix the field, territory, type of licence and the acts licensed: making, using, selling, importing. Build the payment from an upfront fee, a running royalty on net sales, a minimum annual royalty and milestones on defined events. Without a minimum, an exclusive licensee can shelve the technology and block everyone else. Define net sales as invoice value less GST, discounts actually allowed and documented returns, nothing more.

Reporting, audit, improvements, sublicensing

Quarterly statements in an annexed format, payment on the same date, and an annual audit by an independent chartered accountant, at the licensee's cost if it finds underpayment above an agreed threshold. Keep any grant-back non-exclusive. Sublicensing should need consent, carry the same restrictions down and share sublicence income at a stated percentage.

Costs, enforcement and warranties

Say who pays renewals and files Forms 16 and 27; an unpaid renewal ends the patent under section 53(2), as our patent renewal fees guide explains. Say who decides on suing and who keeps recoveries. A licensor should warrant title, authority and no conflicting licences, but not validity or freedom to operate: nobody can promise a patent will survive a revocation petition. Product-liability indemnity usually runs from the licensee, which controls manufacture. Confidentiality should survive termination.

Term, termination and disputes

Run the term to expiry of the last licensed patent, allow termination for uncured breach, insolvency and change of control, and stop royalty on any patent that lapses or is revoked. Section 141 lets the licensee end the licence on three months' written notice once every patent that protected the product when the contract was made has ceased to be in force, whatever the contract says, so price know-how separately if it should outlast them. Arbitrate royalty disputes, but not validity: in Vidya Drolia v. Durga Trading Corporation (Supreme Court, 2020) the grant of patents was treated as a sovereign function with effect against everyone, outside arbitration. Revocation lies with the High Court under section 64.

A clause checklist for the negotiating table

Tax and regulatory pointers

• GST. "Temporary or permanent transfer or permitting the use or enjoyment of Intellectual Property (IP) right" has been taxed at 18% since 1 October 2021, and the rate changes effective 22 September 2025 left that entry untouched. Patent licences sit in SAC group 99733, most likely 997335 (research and development products) or 997339 (other IP); confirm the code with your adviser. Where the licensor is abroad, the Indian licensee generally pays GST under reverse charge.
• TDS. The licensee deducts tax from royalty before paying. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and renumbered its provisions, so check the current entry before drafting. Under the old Act, royalty to a resident suffered 10% once payments crossed ₹50,000 a year; royalty to a non-resident, 20% plus surcharge and cess unless a treaty gave a lower rate, which needs the licensor's tax residency certificate.
• FEMA. Royalty and lump-sum payments to a foreign licensor have needed no government approval, and faced no percentage caps, since the 2009-10 liberalisation. Banks still want the agreement, invoices and tax paperwork.
• Stamp duty is a State subject. Check the schedule of the State of execution, pay at or before signing, and remember that an under-stamped document is not admitted in evidence until the deficit and penalty are paid.

Worked example: licensing a university process

Illustration only. The parties are hypothetical and the figures show mechanics, not a suggested market rate.

A university in Anand holds a granted Indian patent on an enzymatic process that cuts effluent in making a textile dye intermediate. A Vapi manufacturer wants it. The university's IP policy confirms it owns the patent outright (see who owns a patent from university research). They agree:

• Grant: exclusive licence in India to work the process for dye intermediates; research and teaching use reserved.
• Payments: ₹10 lakh on signing; ₹5 lakh on the first commercial batch; 3% of net sales; a ₹6 lakh minimum annual royalty from year 3, credited against that year's royalty.
• Diligence: termination right if there is no commercial production by the end of year 2.
• Compliance: the licensee files Form 16, reimburses renewals and sends working data by 30 June each year; each party files its own Form 27.

Production starts late in year 2, with negligible sales that year. In year 3, sales of ₹1.5 crore give a royalty of ₹4.5 lakh, below the minimum, so ₹6 lakh is paid. In year 4, sales of ₹3.2 crore give ₹9.6 lakh and the minimum falls away. Over four years the university receives ₹30.6 lakh, with GST added to each invoice and tax deducted at source.

Notice what is absent: no enzyme supply tie and no ban on challenges or competing processes, all void under section 140. The minimum royalty and diligence clause make exclusivity pay, lawfully.

How MYCrave can help

MYCrave Consultancy & Services works on the patent side of licensing, alongside your advocate and chartered accountant:

• Licensing through IP BANK India: valuation inputs, term sheets and deal routing for granted patents;
• Patent-side review of draft licences: patent schedule, section 140 screening, working-data and termination clauses;
• Post-signing compliance: Form 16 recordal, Form 27 for the patentee and each licensee, and renewal docketing;
• Technology transfer support for institutions: IP policies, inventor revenue sharing and portfolio licensing;
• Freedom-to-operate searches for licensees checking what else stands between them and the market.

Sign it, stamp it, record it, diarise it

In our experience, licences rarely come apart over the royalty rate. They come apart because a co-owner never consented, Form 16 was never filed, a tie-in voided a clause, or a renewal fee went unpaid. That is housekeeping, and it belongs in the week after signing.

So before the celebration lunch: pay the stamp duty, file Form 16, diarise the renewals and the next Form 27 cycle, and put the working-data request in both calendars. A licence you can prove, enforce and report on is worth more than a better rate on paper.

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