With successful licensing agreements the goal of both tech transfer offices and tech scouting teams, how are these deals successfully negotiated? While many open innovation platforms focus on finding the technology, not enough focus is given to how to acquire the technology in question. As such, here are a few basics on licensing.
While licensing is a complex means of exploiting intellectual property, the beginnings of any licensing agreement is understanding the reason behind why a technology is licensed. Intellectual property (IP) can be used both defensively and aggressively, usually in response to market pressures to frustrate competitors, maintain market share, control access, and to protect products from assault by competing firms.
It is important to understand that technology licensing only happens when one party owns exclusive rights to the IP. However, IP is a very broad concept and includes works ranging from inventions to formulas, schematics, and technical documentation. In reference to technology licensing, IP involves the tangible and intangible factors involved in a technology.
Types of Licenses
There are also different kinds of licensing agreements that a firm can participate in. These exist in three categories: licenses for specific activities (i.e. a license to use a specific patent or print a copy of a book), licenses for universal use of IP rights (i.e. all the components needed to develop a technology), and licenses to operate in a standardized market (i.e. all the components needed to create a USB-compatible device).
It’s also important to consider the licensing deal within the context of other agreements that both parties may have; a successful licensing deal depends on both parties to the agreement seeing an objective benefit to the partnership. Furthermore, it’s also important to acknowledge the reality that technology licensing is not the same as technology transfer; unless practical knowhow, trade secrets, is also included.
Technology transfer only occurs when the licensee fully understands the use, adaptation, and implementation of the technology and all of its components. For a licensing deal to be successful and lead to further partnerships, the licensor has to actively engage the licensee to use and adapt the technology.
Leverage and Weaknesses
When negotiating a licensing deal, it is important to consider what the business reason for the agreement is for both parties. Questions as to how the deal profits both organization and what both organizations seek to gain from the agreement are important in order to identify the kind of deal that should be sought as well as its structure.
These questions help determine what leverage each party has against the other; in these kinds of agreements, the party with the least interest/benefit tends to have the leverage needed to set out favorable terms (i.e. if a licensee depends on a successful license to keep competitors out of a key market, the licensor has an enormous advantage in negotiations).
Timing is a component in determining leverage, since if one party has a timing deadline for a successful deal (i.e. product launch, major investment closing, conference announcement, etc), a major advantage can be gained to achieve more favorable terms.
At its core, identifying and exploiting leverage is a game of concealing your own weaknesses in negotiations while exploiting those of the other party. However, it is important that leverage is not used to strong-arm the other party; a successful licensing agreement depends on both parties benefiting, so leverage can only be taken so far.
By considering the factors behind a technology license, organizations are better able to identify and execute on promising opportunities while ignoring those that offer less favorable terms. To see how companies take advantage of licensed technology below.
WIPO: Successful Technology Licensing (IP Assets Management Series)