Under an option agreement, the owner of the IP agrees not to commercialise it with any other party for the time being. Instead they grant to the option holder a temporary but exclusive right to negotiate a licence on reasonable commercial terms.

This can be most helpful where the prospective licensee needs some time to evaluate an invention, but does not want to commit the resources to do so unless the IP position is secured for them. If at the end of the option period (typically 1 to 12 months) the option holder has not elected to negotiate a licence, then their right to do so will lapse and the IP owner is free to negotiate a commercial deal with others.

An option of this sort would generally be granted in return for a fee, together with the reimbursement of any patent costs.