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Licensing
Many high-tech companies and research organizations use licensing to either acquire or exploit technologies. Technology licensing is a contractual arrangement in which the licensor's patents, trademarks, service marks, copyrights or know-how may be sold or otherwise made available to a licensee for compensation negotiated in advance between the parties. This compensation is referred to as royalties and may consist of a lump sum royalty, a running royalty (based on volume of sales), or a combination of both. Because of the complexity of licensing agreements, it is recommended that companies obtain expert advice for technology valuation and legal assistance for setting up a licence agreement.
Licensing-In Technologies
Technology companies may elect to use licensing-in technologies to acquire rights to the intellectual property or technology developed as a result of working with research organizations, such as government labs or universities. If yours is a start-up company, this may be an effective way to increase your proprietary technology position, knowledge and patent portfolio required for product development. Also, this may be one of the ways that companies prevent competitors from accessing technologies developed outside the company.
Licensing-Out Technologies
Often, the objective of licensing-out technology is to increase the probability of commercial success of one's technology or to raise enough money to continue with one's corporate objectives, i.e., fund future product development in other areas. First, it is important to value your technology in terms of fair market value so that you are in a better negotiating position. Technology valuation is a complex process, and many companies get outside help to objectively assess the value of their technology. There are specialized experts who can help in this area.
Licensing Agreements
Licensing agreements should never be written without consulting a lawyer specializing in the area. The following is a list of some of the issues that are covered in a licensing agreement. "Licensor" refers to the party granting the licence (the owner[s]) and "licensee" refers to the party acquiring the licence.
- Exclusive/Non-Exclusive Licence: An exclusive licence grants only one licensee the rights to the licence. An exclusive licence may be appropriate when there is significant investment required to bring the product to market and an exclusive licence provides the incentive to make such an investment. An exclusive licence means that even the licensor can no longer use the technology. The licensor may want to consider granting a sole licence, which means granting only one licence.
- Territory: A licence is often granted for a specific territory, so that more than one licence can be issued. Worldwide licences may be appropriate when significant investment is required to bring the product to market and such a licence provides the incentive to make such an investment. Also, a worldwide licence may be appropriate if the licensee has the capability to sell products worldwide.
- Fields of Use: Granting a licence for all fields of use is usually not done because rarely will a licensee have the capability to sell products for all the fields of use that are anticipated. The exception would be when the investment required to bring a product to market was so large that granting such a licence would provide the incentive to make such an investment. Even in this case, the licensee should have the capability to sell products for most fields of use.
- Sub-Licensing Rights: Generally, if the owner wants to retain the greatest control, the right to sub-license should not be granted. If you do allow sub-licensing, require a payment that is at least the same, per unit, as if those sales had been made by the original licensee.
- Limited Time vs. Perpetual: Generally, a licence is granted for a five-year renewable period or the length of patent.
- Licensee Performance Terms: You may want to consider including a clause demanding the right to terminate some or all of the licensed rights if the licensee is not diligently exploiting them.
- Payment Terms: Normally, an initial payment, an annual licence maintenance fee, and a royalty will be required from the licensee. These terms usually depend on the value of the technology. Royalty payments, i.e. a payment based on rate, can be a percentage of sales dollars or of net revenue. They can also be a fixed dollar value per unit. If the technology is in the early stages, a series of milestone payments may be appropriate.
- Intellectual Property Protection: Either the licensee or the licensor retains the responsibility for intellectual property protection.
- Confidentiality: Generally, there are terms that bind both parties to confidentiality.
- Additional Terms:
Generally, the licensee is required to:
- provide accurate, timely reports on progress toward commercialization and all information required to calculate the royalties payable;
- consult with the licensor before commencing any action with respect to infringement; and
- retain general comprehensive liability and product liability insurance.
Generally, the licensor is required to:
- provide scientific liaison sufficient for preparation and prosecution of patents and, if required, for the purpose of technical development; and
- provide limited access to facilities.
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