LICENSING “One Way of Putting Your I.P. to Work for Your Organization” Inventing and Patenting Seminar May 16, 2001
Establishing a well-conceived licensing policy that will contribute to your firm’s bottom-line financial performance and support achievement of the firms strategic objectives
Types of Licensing 1. In-Licensing - The practice of obtaining access to the rights for a technology by procuring such rights from the owner through a license agreement 2. Out-Licensing - The practice of granting rights to technology from a firm having such rights to another firm through a license agreement
“Things to Consider” The intrinsic value of an intellectual property is mainly derived from its being utilized in the marketplace
“Things to Consider” Tangible property is simpler to market than intangible property
The Tangibility of a Technology Paper Patent Lab Model Prototype Test Results of Performance Manufacture Track Record in the Marketplace
“Things to Consider” Licensing is a function of market participation rather than patent law
Market Considerations for Licensing 1. Produce and sell directly into the market 2. Find a local partner with an avenue to the market 3. License to a third party with established participation in the market
“Things to Consider” How do I find the best candidate to offer a license for my technology?
Steps to Finding a Licensee 1. What market is best suited for your technology? 2. Who are the present players in that market? 3. Which of the candidates have the resources needed to commercialize your technology? 4. Who are the risk-takers?
“Things to Consider” How do I determine a reasonable royalty for my technology?
Technology Valuation First and foremost ALWAYS follow the “Golden Rule of Licensing” All Licensing Deals Must Be WIN - WIN DEALS
“Things to Consider” Is there a specific or set percentage charged for licensing an invention?
NO! Treat each opportunity on a case-by-case basis However, there are certain standards (i.e. “Rules of Thumb)
Types of Royalties for Consideration Lump Sum Per Unit Royalty Percentage of Sales Royalty Equity Position
Lump Sum Large One-Time Payment –Least risk: vs: lowest return Periodic Fixed Installments –Easier for licensee to handle –Riskier for licensor
Per Unit Royalty Fixed royalty for each unit of product sold, transferred or used –Set royalty per piece –Use escalation clause to share in profit increase in later years of the license –Use of indices to determine escalation
Percentage of Sales Royalty Royalty determined as a percentage of the “selling price” of each product “sold” under the license Licensor & Licensee share in the sales derived from the technology Riskier approach for Licensor, may be mitigated through down payments and minimum annual royalties
Percentage of Sales Royalty Selling price may include deductions from the actual “list price” –Freight, packing and nonlicensed materials –customer discounts Make the royalty calculation and recordkeeping simple Negotiate royalty rate after all deductions are agreed to
Equity Position Ownership in lieu of cash Most risky and most difficult to value Requires “exit strategy” May be needed in “start-up scenario” Must determine your degree of control May include running royalty as well
Factors in Valuing a License Protection –Nature & protection offered to licensees –Infringement enforcement Exclusivity: vs : Non-exclusivity –Field-of-use –Field-of-area Utility/Advantage –Usefulness technology confers –Amount of advantage
Factors in Valuing a License Commercial Success –Technology proven in the marketplace Refinement –Immediate application and use –Ready for manufacture License Commitment –Licensor technical support –Length of time of license
Rules of Thumb Royalties should be considered as “profit sharing” in determining their value - in general 25% to 35% of the expected profit Studies have shown many license agreements have royalty rates between 1%-7% of the sales price of the royalty bearing product
Rules of Thumb Higher rates are charged for exclusive licenses Lower rates for nonexclusive licenses “Field-of-use” restrictions “Area-of-use” restrictions Length of time of agreement
Rules of Thumb Be very careful of linking license deals into sales of parts or components to your licensees Obtain a sales forecast from the prospective licensee
Intellectual Property Responsible for assessing patentability of the technology Conduct prior art review –novelty –obviousness Work with outside counsel on patent applications and infringement issues
Marketing Determine the market for the technology Target entities with possible interest in the technology Develop “business plan”
Licensing Set licensing end strategy Contact prospective licensees Valuation of technology/IP Write and negotiate agreements
Administration Responsible for recordkeeping and all licensing documentation Obtaining royalty reports Collecting royalties Conducting periodic audits of licensee
Technology Advisory Panels (TAP’s) Faculty Members –Life Sciences –Physical Sciences Review UB inventions –Test Scientific Rigor –State of Development –Next Steps to Commercialization
TTL: Evaluation Process Disclosure Patent Marketing TAP’s Commercialization Plan
Inventor Rewards Satisfaction of seeing your invention in practice.