Unlike most other kinds of property, Intellectual property, such as patents, trade secrets, trademarks and copyrights, is intangible it is a product of the mind. But like other property, intellectual property (IP) can be sold, given away or licensed to generate revenue or other valuable assets.
An IP license is an agreement between a licensor and a licensee allowing the licensee to use the licensor's IP in exchange for something valuable (often a royalty). Like a car lease, a license does not transfer ownership; rather you give permission to use the IP. Before embarking on an IP licensing program, consider these issues:
1. Protect Yourself
- Be sure your IP is well protected during your initial and follow-up conversations with potential licensees. Steps you should consider include securing rights in your IP, (like filing patent applications, and obtaining assignments of IP from your employees and consultants), and maintaining records of your inventions and ideas.
- Use Non-Disclosure Agreements (NDA's) with your potential partners and any other party you do business with. Often, before entering into a license, a licensee will want to learn about your technology to evaluate the potential business opportunities. Tread lightly. Enter into an NDA, which obligates the party receiving the confidential information to keep it secret. An NDA will also spell out with whom the recipient may share the information, under what conditions the information can be used, and the time limit for keeping the information confidential.
2. What and Who to License.
- Gather your engineers, marketers and consultants to brainstorm potential commercial applications for your technology. Consider factors that drive particular markets, determine potential sales revenues and think about the impact your technology will have on cost, convenience, performance or reliability. Then, target companies in those fields.
| A licensing program can provide your company with many benefits: * Turn dormant projects into revenue. * Penetrate new markets. * Evaluate future business partners. * Fund future R&D with royalties. |
- Package it. Develop a beta test product, perform a small scale production run, and do a market test. Essentially, offer a turn-key opportunity for your licensee.
- Consider industry leaders. They know the market and have the customer base, manufacturing capability and name recognition to carry your technology to its highest potential.
- An OEM may not want to deal with a small company. In the automotive industry, for example, the barrier to gaining access to the car company is high. So, work with a supplier that has the relationship with the OEM and they'll carry your technology through a door that would otherwise be closed.
3. Trust.
- Know your licensee. Licensees that don't perform well may produce inferior products; and poorly managed licensees may cause harm by damaging your reputation. Customers may attribute the poor marketing or manufacturing to poor technology - or worse, poor technology that you developed. Choose a reputable licensee, or the cost of licensing may outweigh its benefits.
- Even though you've entered into an NDA with you licensee earlier in the negations, it is good practice to include confidentiality obligations in your license for information you disclose. Moreover, limit any disclosure to only that which is required to practice the invention you don't want to unnecessarily create future competitors.
- Include termination provisions to allow you to cut your licensee loose if they don't meet your expectations.
| Thompson/Delphion lists over 34,000 patents available for licensing. source www. delphion.com |
4. Administrative Drain.
- Is your licensee accountable or do you need to be vigilant in policing their activities and royalty payments? Audits can be costly.
- Make sure your licensee marks the product and future generations with your patent number. This can enhance the amount of money you can obtain from an infringer.
- Your licensee may want access to your key personnel to help commercialize the technology. Limit this so your engineers and scientists can work on your future technology.
A well-crafted license agreement helps maximize financial and technological profits and reduce risk. With careful planning and the help of your intellectual property attorney, you can attain your business objectives.
Neil P. Ferraro is a shareholder in the intellectual property firm of Wolf, Greenfield & Sacks in Boston. For more information on this or other IP-related topics, reach Neil at nferraro@wolfgreenfield.com.