In this age of endless corporate cost-cutting, it might seem the only way to compel a company to license ones technology is through litigation or threats of litigation. After all, why would a company agree to pay large sums of hard-earned dollars for the use of intangible property unless it absolutely has to?
Well, they do. While patent lawsuits grab the big headlines, plenty of licensing takes place without threats or coercion. Often it results from business discussions between willing participants. The licensor may be unwilling or unable to fully develop and commercialize its technology, while the licensee may believe use of the technology will generate increased revenue or other benefits that should outweigh the costs of licensing.
Take Microsoft, for example. They license out a variety of technologies that improve the performance of computers, monitors, keyboards and more. But, they hit a jackpot with their android patents, licensing their technology to cell phone manufacturers who paid more than $400 million in licensing revenue in 2012. Or consider IBM, Intel, Qualcomm and Texas Instruments, each generating roughly $1 billion in annual licensing revenue. Of course, those are extreme cases, but the point is licensing deals are often entered into not in response to litigation but as a strategic, mutually-beneficial business transaction.
Of course, it’s not easy locating potential licensing partners and convincing them that paying royalties makes business sense. In fact, it usually requires a great deal of work. But, technology licensing agreements are often negotiated as a business deal, with the licensor wielding a carrot not a stick, sparing both parties the stress and expense of litigation. I know, because my former employer, on several occasions, succeeded in doing the same.
Here are 10 tips intended to help your company out-license its technology through business means.
1. Develop a Plan. Before taking action one should define the objectives. Is your company seeking revenue from its non-core patents, or looking for a partner to commercialize its technology? Does it hope to grant a pure IP license or transfer all of its rights concerning a product or technology and assist with the development, manufacturing, training and maintenance? Is it considering one ad hoc deal or a regular out-licensing program? Regardless of the objectives, success will depend on carefully formulating a plan, discussing with top management and receiving their full support.
2. Develop a Team. In addition to the support of management, contributions will likely be required from various functions within the company, including business units, R&D and marketing, as well as outside counsel, licensing professionals and more. Ideally, the company will establish a dedicated licensing team to lead and coordinate efforts. Companies like Phillips, Toshiba and Hitachi, for example, have hundreds of employees devoted specifically to the licensing of their companies’ patents. Your company may not be on the same scale, but even a staff of one or two dedicated licensing professionals can help handle the heavy workload, send a company-wide message about the importance of out-licensing and ensure that licensing projects are handled in a systematic manner.
3. Do your Due Diligence. Locating potential partners and convincing them to license will require in-depth knowledge of not just your company’s patents, products or technology, but those of potential partners and an understanding of the industries, markets and business environments within which they operate.
What benefits does your technology offer? What are its primary applications and other potential uses? How does it compare to competing technologies, in terms of performance, cost, reliability and other factors? How strong is the IP? How easily can it be designed around? What industries might benefit from it? What types of companies make up those industries? Who are the decision-makers in those companies? What are the primary factors that drive their purchasing decisions? What are the product life-cycles in those industries and how does your technology fit in? What are the regulatory requirements, the pricing policies, and so forth?
In short, it will be difficult selling another company on your technology unless you have a thorough grasp of that company and the technical, legal, marketing and business factors that affect it. Once that research has been performed, it’s time to prepare a brief prospectus, describing your product or technology and demonstrating precisely how it will benefit the other company with respect to new customers, new markets, increased sales and the like.
4. Create a Buzz. Because it can be difficult foreseeing all potential applications for a technology, it may help to actively publicize your technology. On your company website, in press releases, at seminars and trade shows, in announcements by your CEO, do whatever it takes to get out the word that your company is making available its innovative technology that will benefit some lucky business partner. And, after signing up each licensee, a press release announcing the deal may be a good way to help generate future business, so long as the announcement does not violate confidentiality obligations.
5. Study Potential Partners. Any potential partners should be subject to additional scrutiny. Do they appear to have the necessary expertise in business, technology, marketing, management, sales and distribution, to make a deal worthwhile? Do they appear to be capable of fulfilling their financial obligations and honoring their half of the deal? Particularly if it’s a product or technology license, and not merely an IP license, confidence in your licensing partner is critical.
6. Prepare Preliminary Documents. Preparation of a sales prospectus was mentioned above, but it may also help to prepare a term sheet for internal use, listing issues to be addressed in the intended license, defining the subject matter (i.e., patents, other IP, technology, specifications, software, etc.), scope of rights granted (i.e., make, use, have made, reproduce, modify, etc.), term, territory, exclusivity, financial terms, and so forth. Discuss the proposed terms internally and seek consensus before discussing them with potential partners. And, don’t forget to prepare a Confidentiality Agreement to be signed prior to any detailed external discussions.
7. Meet Potential Partners. Try to arrange for a face-to-face meeting as early as possible. In a non-threatening, business manner, present your proposal, show your prospectus and bring along any supporting documents, such as patents, specifications, product sheets, test results, calculations, public information, and so forth. Come prepared to explain any technical, legal and business issues, but recognize that a series of meetings will be required. Do they wish to see samples or schedule meetings between technical staffs? What issues require further clarification and exploration? Try to establish an agreed timetable to move the process forward and schedule a date for the next meeting.
8. Negotiate Wisely. All of the standard advice concerning negotiating applies. Engage in principled, good faith discussion based on objective standards. Listen closely and focus on interests, rather than positions. Search for high value/low cost concessions. Invent options to expand the pie for mutual gain. Know your BATNA and don’t yield to pressure, but work together amicably, exploring all options in search of a win/win solution.
9. Get a Signed Formal Agreement. I can’t count how many times I’ve been called in to help, because the business guys negotiated a deal, deliverables were delivered, payments transferred, equipment purchased, tooling designed and substantial other investments made, before a major dispute arose and it was discovered the parties never did sign an agreement. Don’t make that mistake. Considerable risks and uncertainty can be avoided by ensuring that a proper agreement is negotiated and drafted by an attorney, signed by both parties and filed where it belongs.
10. Maintain the Agreement. Whether it’s a pure IP license or a more complex technology transfer, it may be prudent to check from time to time for any concerns that may need addressing. Does the agreement contain milestones that must be met? Are royalty payments being timely made? Does the licensee require assistance with the technology? By showing your concern and making a few simple inquiries, you never know what other opportunities may arise.
These ten tips are aimed primarily at companies seeking licensees who are not yet using your technology – introducing it to them and convincing them of its value. However, even where a company appears to be already using your technology, business solutions are almost always more efficient than litigation, so it usually can’t hurt to offer them a carrot first, and maybe a celery or a parsnip, and save the stick for later.
If you have any questions or require assistance, please contact a Taiwan licensing lawyer.