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How Businesses make Big Money by Licensing their Technology

Technology License, IP, Agreements, Interim agreements, feasibility agreements and prototype agreements

Technology License, IP, Agreements, Interim agreements, feasibility agreements and prototype agreements

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Technology licensing occurs only when one of the parties owns valuable intangible assets, known as Intellectual Property (IP). A License Agreement is a consent by the owner to the use of IP in exchange for money or something else of value.

Technology that could be licensed to make money:

  • patents (inventions),
  • copyright
    • Works of authorship including technical manuals
    • Software,
    • Specifications,
    • Formulae,
    • Schematics,
    • Documentation
  • know-how
    • Expertise,
    • Skilled craftsmanship
    • Training capability
    • Understanding of how something works
  • Trade secrets
    • Protected formula or method
    • Undisclosed customer or technical information
    • Algorithms
  • Trademarks
    • Logos
    • Distinctive names for products and services
  • Industrial designs

Different kinds of technology licenses:

  • License to practice an identified patent or to copy and distribute a certain work of authorship.
  • Licenses may be for all the IP rights of any kind that are necessary to reproduce, make, use, market, and sell products based on a type of technology.
  • A license may also be for all the IP rights necessary to create and market a product that complies with a technical standard or specification

Preparing the License:

This stage involves due diligence followed be negotiation which would address following questions:

  • How will this license agreement make money for each party?
  • What must each party gain in order for this agreement to be worthwhile?
  • What is the best result that can be obtained from each party?
  • What outcome does each party want to avoid?
  • Where would the IP be used or implemented?
  • What is the scope of rights will the licensee receive?
  • What does each party want to obtain or provide? It could be:
    • Assistance in using the IP (know-how)
    • Training
    • Development of technology or a product
    • Manufacturing rights or capabilities
    • A supply of products or equipment for sale or purchase
    • Multiple products
    • Investment in R&D or the party
    • Distribution of products or technologies
    • A license (consent) to use a patent or copyrighted material or trade secret
    • A license to use a trademark or logo
    • A license that will enable you to comply with a technical standard or specification
  • What leverage does each party have?
  • What is the time frame for signing the license agreement?
  • What data and documents do you or the other party need?
  • What specifications, protocols, public information, product sheets, and patent abstracts and texts, and all other information are relevant to the technology?
  • In what country or region do you plan to use the technology?

Each party must consider the license from the perspective of one receiving rights (license in), or giving rights (license out), or both receiving and giving rights (cross license)? If this is a license in, will the licensee pay money to the licensor? If this is a license out, will licensor receive money from the licensee? Will there be money paid or received in a cross license? Is payment of money the primary benefit/value that will be provided in exchange for the license or are there other benefits/values?

Remember the use of IP in a development program can be infringement, it is risky to begin to work on a technology project before a definitive agreement has been reached. Negotiating and signing a license agreement is an important step.

Preliminary agreements that you will need:

  • Confidentiality agreements (non-disclosure agreements) are often important to protect business and technical disclosures that are made during the negotiations.
  • Interim agreements, feasibility agreements and prototype agreements. These are sometimes useful when you need more information to know whether a technology license would be a good idea.

Note: Do not use Standstill agreements or agreements to negotiate on an exclusive basis are almost never desirable and should generally be refused.

The scope of rights:

Once you have had a clear understanding of WHAT you wish to license in or license out, you will need to reflect on what you need to be able to DO with the IP/technology to use it effectively in your business. This is referred to as the scope of the license. A license with broad scope gives you a great deal of flexibility. A license with a narrow scope will be less flexible but probably also less expensive.

Note:

The technology licensing often does increase the ability of both partners to compete as well as with other competitors. Ideally, it is important to involve lawyers from the beginning of the negotiations until the end, who will consider the term sheet and will provide you thorough legal review before drafting the contract and during the drafting process.

It is advised you (owner of IP) know information related to the business of the other party e.g. public information on revenues, employees, financial history, technology press releases, website information, etc. Gather samples and forms of agreements that seem relevant to this transaction.

Technology License agreement is an important guide to what should happen in a complex, technology-based business relationship. Technology licenses and corollary agreements are generally more complex and often impose important conditions, the violation of which can create legal liability and business mistrust. Without any further due, consult a lawyer and discuss all the question you have in mind upfront. Happy to help, let’s talk!

 

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