The Problems of License Patent Agreement in Indonesia

Agung Sujatmiko

Faculty of Law, Airlangga UniversitySurabaya, Indonesia.

Keywords: Agreement, License, Patent.

Abstract: This paper will elaborate the legal principles used in a patent license agreement. To analyze this

substantive, this work will apply normative legal research. At the end, this work offers some substantive and

pragmatic approaches. The substantive approach will discuss and examine some theories, norms, and

policies. The freedom of contract principle is the main principle of contract to legalize a patent license

agreement. Freedom of contract is applied in the manufacture of a patent license agreement. According to

the freedom of contract, the parties are free to formulate the license agreement including but not limited to

royalty payment, dispute resolution, and the end of the license agreement. The other basic principle of

contract covering a patent license agreement is mutual benefit. This principle requires that the parties must

obtain economic value (profit) on the agreement. Licensor is willing to obtain royalty payments from the

licensee. The royalty belongs to economic rights which are transferable in order to maximize benefit of the

patent to the licensor. In addition, another principle is the principle of equality. Equality does not mean only

the licensor who has a right to terminate the license agreement but also the licensee does.

1 INTRODUCTION

Indonesian Patent Law regulated by Law Number

13 Year 2016. Article 76 (1) states that a patent

holder shall have the right to grant a license to other

person on the basis of a licensing agreement in

order to perform acts as refered to in article 16.

Article 76 (2) said, unless agreed otherwise, the

scope of a license as referred to in paragraph (1)

shall cover acts as referred to in article 19 and shall

continue for the term of the license granted, and

shall be effective for the entire territory of the

Republic Indonesia. Article 16 cover exclusive right

of patent holder. The exclusive right contain of

rights and obligation of a patent holder. As one of

business contracts, patent license agreement also

contains some principles on the law of contract

which become the foundation for the parties in

making and performing the contract. The principles

on the law of contract are stipulated in Burgerlijk

Wetboek. Those principles are the basis that must be

obeyed by the parties, so that the license agreement

is made not to harm any of the parties and also can

be performed fairly.

2 DISCUSSION

Patent license agreement use the principles of

contract law contained in the general agreements of

contract. Regarding the principles of contract, once

the decision to license has been made, a suitable

strategy must be developed (Robert C. Megantz,

1996).

The principles used in the formation and

performance of a patent license agreement are :

2.1 Principle of Freedom of Contract

This principle asserts that the trademark license

agreement is made under the freedom of contract.

Freedom of contract is applied in the formation on

trademark license agreement. The parties are free to

determine the contents of the license agreement in

accordance with their wishes concerning royalty

payment, dispute resolution, and the termination of

the license agreement.

Based on this principle, the parties are expected

to gain their expected profits. The trademark owners,

called licensor, will have huge economic benefits, as

well as the licensee. This is as stated by Yohanes

Sogar Simamora that the freedom of contract is very

important in supporting the interests of economic

672

Sujatmiko, A.

The Problems of License Patent Agreement in Indonesia.

DOI: 10.5220/0007549306720675

In Proceedings of the 2nd International Conference Postgraduate School (ICPS 2018), pages 672-675

ISBN: 978-989-758-348-3

actors, (Simamora, 2005). Yohanes Sogar

Simamora’s opinion was inspired by Atiyah’s

opinion stated that the contents of the contract

generally relates to economic exchange, (Simamora,

2005).

Therefore, Yohanes Sogar Simamora further

stated that the law of contract is a legal instrument

governing the exchange of it and provide protection

to the injured party, (Simamora, 2005).

The principle of freedom of contract is also

known in English law. As stated by Anson "a

promise is more than a mere statement of intension

for it imports a willingness on the part of the

promiser to be bound to the person to whom it is

made" (Soenandar Et All, 2001). Because of this, the

principle of freedom of contract was applied

universally.

While according to the Taryana Soenandar, the

Principles of International Commercial Contracts

(UNIDROIT) embodiment of freedom of contract

are: (Soenandar, Et. All, 2001).

a. freedom to determine the contents of the

contract;

b. freedom to determine the form of the

contract;

c. contract binding as law ;

d. mandatory rules as an exception, and

e. international characteristics and the purpose

of UNIDROIT principles that must be

considered in the interpretation of the

contract.

2.2 Principle of Consensualism

This principle is based on the provisions of Article

1320 BW governing the validity of terms of the

contract, which requires for :

1. consent of the parties ;

2. the capability to make an agreement;

3. certain objects ;

4. lawful cause

2.2.1 The Agreement of the Parties.

Consent is the basis of the occurrence or the birth of

an agreement, including trademark license

agreement. An agreement is considered to occur at

the time of the meeting of minds by the parties to

make a contract. Consent implies that the parties

mutually express their interests to close a deal and

the will of the parties in accordance with the will of

the other party, (Thamrin, 2007). The terms of this

agreement, each party's position is principled,

because it directly concerns against what the will of

the parties. The will is what is really desired to do by

the party, (Thamrin, 2007). Subekti argues that

consent is the meaning of consensus, means that

between the parties concerned reached a conformity

of will, what was intended by the party is also

intended by another, (Subekti, 1985).

2.2.2 The Capability to Make an

Agreement;

The second terms in the license agreement, that this

has to be made by a notarial deed. In the deed, of

course, as the notary public officials will require that

the parties must fullfil the requirements of Article

1330 BW about the capability for the person. When

the parties come before the Notary, they will be

asked concerning the age of each party at the time

when they enter into a contract. If the parties do not

fullfil the age requirement, the notary must refuse to

make deed of the contract.

2.2.3 Certain Objects;

The third requirement is a particular case has two

meanings, mean an object and non- material object,

(Thamrin, 2007). Understanding of a material object

is as set out in Article 1333 and 1334 BW using the

word goods, which include motion goods, the goods

remain, and intangible goods, both existing and or in

the future. While the notion of a non material

suggests that the reference to a particular thing is a

performance in a contract. The performance may

give something, do something or not to do

something. The patents are categorized as movable

intangible things. As movable intangible things,

patents can be the object of the agreement, in this

case is in the form of a patent license agreement. In

this context, it seems more appropriate if certain

things are given meaning as an object of an

agreement which has had a clear character for both

parties in the agreement. Clarity about the object of

the agreement has an important meaning, because it

will make it easier for the parties in performing the

rights and obligations. If the object of the agreement

is unclear, vague or are not likely to be

implemented, this will result in the null and void

agreement.

2.2.4 Lawful Cause

Article 1337 BW asserts that any reason is

prohibited, to the extent prohibited by law, or if

contrary to morality or public policy. According to

that provisions relating to the validity of the

agreement as the fourth provision that lawful cause

The Problems of License Patent Agreement in Indonesia

673

means the agreement must not be contrary to law,

morals and public policy. According to

Niuwenhuiscausa is the goal of the agreement, the

goal to be achieved by the parties to an agreement,

(Saragih, 1985). Niuewenhuis requires that the causa

or lawful reason in principle agreements must not be

contrary to the law, morality and public policy.

2.3 Principle of Equal Position

If we see the rights and obligations as explained

before, the licensor and the licensee have the same

position (equals). That Equal position is proved in

the termination of a contract, which is not only

owned by the licensor but also owned by the

licensee. So, in the license contract, when the

licensor can not properly fulfill its obligation, the

licensee may request cancellation of the agreement,

and vice versa. This is a reflection of equality

between them. In addition, the right to propose a

lawsuit and trademark infringement is not only

owned by the licensor as the owner of the trademark,

but also by the licensee. In this case the position of

the licensee to ask for the compensation damages for

patent infringement is also given by the Patent Act.

2.4 Principle of Mutually Beneficial

This principle requires that the parties must obtain

economic value (profit) on the agreement they made.

Licensor obtains royalty payments received from the

licensee. That payment is a benefit to the licensor,

because the economic value on the trademark

contribute to its owner.

As one of property rights, patent contains the

economic rights that can provide benefits in the form

of royalties. In fact, the economic rights can be

diverted or transferred to anyone else (transferable),

so that the other person as a recipient of transfer of

rights can also take some benefits. The economic

benefits gained by a licensee is without spending a

lot, the licensee can use the patents that have been

well known to consumers, so as to make easier on

marketing. Remembering, both gain the economic

benefits, that’s why the principle of mutual benefit is

very familiar to the patent license agreement. It was

as stated by Theofransus Litaay, “Licensing is a

system for the holder of rights may benefit

economically from the right without have to lose

their property”, (Litaay. 2007). The opinion

emphasizes that each party obtain significant

economic benefits of the agreement made, without

the party, in this case, the licensor of the patent

owner loses the ownership of patent rights. The

economic benefits of its form is the benefit that can

be valued in money. It was also as said by Agus

Yudha Hernoko that the significance of contracts in

business practice is to ensure the exchange of rights

and obligations fairly to the parties, so as to create a

contractual relationship that is safe, fair and

mutually beneficial, rather than vice versa, to the

detriment of either party or even detrimental to the

contracting parties, (Hernoko, 2007).It is in line to

Hayyanul Haq which states, provide benefits and

happiness for the wider community is the goal of the

establishment of the State listed in the Constitution

of the State. (Haq, 2014).

2.5 Principle of Good Faith

Yohanes Sogar Simamora stated that the principle of

good faith has a very important function in contract

law. The principle of good faith applies not only at

the stage of performance, but also before the signing

and closing of a contract phase, (Simamora, 2006).

Yohanes Sogar Simamora further argues that there

are two meanings of good faith. First, in relation to

the performance of the contract as specified in

Article1338 Paragraph (3) BW. In this regard, good

faith or bonafides should be interpreted as reasonabe

and fairness behavior between the the parties

(redelijkheid en bilijkheid). Knowing whether a

behavior was reasonable and fair is based on

unwritten objective norms. Second, good faith is

also defined as a state not aware of any defects, such

as payment in good faith as provided in Article 1386

BW, (Simamora, 2005).

The provision is clearly to protect the good faith

of the licensee that they have the right to use a patent

be void by the courts. Furthermore, Article 97

paragraph (2) and (3) Law Number 14/2001 states

that the Patent Art as a person act in good faith, he

was not required to pay royalties to patent owners

are void, but the real owner of the patent. If the

advance royalty payment was paid at once on the

licensor, the licensor must give the part of a royalty

to the patent owner who isn’t void comparable to the

remaining time of the license agreement. What is

contained in the provisions above is a proof that the

principle of good faith has become one of the

requirements in the making of a patent license

agreement. The parties must uphold these principles,

so that the license agreement can be run properly

and not cause problems later on.

The principles of the patent license agreement

are basically general principles contained in BW.

This is because the practice of the Patent License

Agreement in Indonesia is based on principles set

ICPS 2018 - 2nd International Conference Postgraduate School

674

out in BW, before the Government Regulations

governing patent licenses is mandated in Article 80

of Patent Act.

The Problems of Patent License Agreement

There are some problems regarding patent license

agreement that are:

Firstly; when the parties do not obey the obligations.

It caused the other party lose some incomes.

Secondly: when the licensee use a new patent in the

same kind. Thirdly; when the patent become public

domain. It means that the duration of licensee

agreement quite long than the patent. The

registration of patent of patent license, so far not

running well, (Ana Nisa Fitriani, 2014). It can make

uncertainty in implementation patent license

agreement. The problems must be solved, because it

caused the goal not running well. To overcome the

problems, the government must make a regulation

regarding patent license. The supporting regulation

must be ready, and the supervision of patent license

agreement must be strengthened. It is in line to

Loughlan that there are also some areas of patent

law in which patentees are prevented from

exercising to the full the exclusive rights given by

the patents regime (Patria Loughlan, 1998).

3 CONCLUSIONS

The government should immediately submit a Draft

of Government Regulations governing patent

licenses which is set out the form, content and

procedure of listing application of license

agreement, therefore, there is a legal certainty and

the dispute between the parties of the agreement can

be resolved. The existence of government regulation

that will govern the patent license is also very useful

for the Directorate General of IPR to control any

license agreement which is contrary to the Patent

Act.The draft must be suitable to the problems of

patent license agreement.

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