Technology Licensing
Swapna Sundar
CEO, IP Dome
10 THINGS TO REMEMBER WHEN YOU ARE READY TO
COMMERCIALISE YOUR TECHNOLOGY
INTRODUCTION
A ‘license’ is a permission or
authorisation granted by the holder of an IP right by which she authorises
another party to use her IP for certain purposes in return for commercial
consideration. The holder or owner of the IP is called the ‘Licensor’ and the
person acquiring the authorisation to use the IP is called the ‘Licensee’. A
license is granted as an agreement between the two parties. In practice
‘Licensing’ refers to the signing of the license agreement to make it binding,
and as part of the process of commercialising a technology. Irrevocable
transfer of all of all rights to make, sell, offer for sale and import, is
deemed an assignment; an agreement that transfers anything less is deemed a
license.
Licensing is a major tool to generate
revenue from IP. It enables transfer of knowledge from the creator of the IP to
the industry and to the market. Through licensing, the creator of the IP can
reach a larger market, and exploit its market potential better through one or
more well-established market players. This enables returns so that the inventor
of the IP can invest further sums in adding value to his or her IP.
Licensing is a complex process, requiring
several important decisions and an understanding of the balance between
monopoly and collaboration. Here I give you some important points to remember
when undertaking licensing activity when you are the holder of IP.
1. A good understanding of the nature of
the industry where your invention or copyright or other IP is to be
commercialised is important. Some industries are highly standardised, for
instance electronic goods. In such cases, a new invention would have to be
readily classifiable in one of the recognised industry standards for quick
adoption by the industry and approval by regulatory authorities. Some sectors
are risk averse and do not readily adopt new technology, such as the automobile
industry. Knowing and adjusting your invention to the nature of the industry
could ensure speedier returns on your investment.
2. Industry players are looking for
technologies that are readily adaptable in their current business model.
Innovations that expect the promoters or decision makers to make marginal
changes to their existing infrastructure or processes are more acceptable than
those that require overhauling of the entire system. For instance, an
attachment to a packaging machine which reduces the time taken to seal a doy
pack is far more acceptable to a promoter who has only 2 years ago bought the
latest machines for his factory, than a new and as yet untested packaging
machine. In such cases, experimental prototypes may have to be provided to
enable the promoter to test out the feasibility of replacing the existing
machines with the new ones.
3. Entrepreneurs/Promoters
are looking for inventions that have been proved effective in large scale
operations. They are reluctant to undertake scaling-up activity, unless they
have budgeted for it or have funding. For instance, the owner of a dyeing unit
would not be interested in a water cleaning technology unless he can see its
effectiveness demonstrated on a fairly large scale. In such sectors, the
inventor would have to find the funding for at least initial scaling-up efforts.
4. When promoters scout
for inventions, they are not comfortable dealing with more than one or two
people. If the invention was the output of a collaborative effort between 4 or
5 inventors, it is better that the entire team appoint one or two spokesperson
to speak for them, or hire an IP consultant or attorney to represent their
interests. Typically, in the case of universities or research institutions,
commercialisation is hampered by the fact that unless each of the inventors
agrees with the terms of license, the licensor cannot have the technology
transferred to his company.
5. It is essential that
the IP be disclosed in one or two or perhaps three documents in their entirety.
Normally, the patent document would contain the specification of the core
technology, while allied processes, know-how and manuals would be available in
the form of copyrights. When an industry person is looking at the technology
with a view to licensing it into the company, she would ensure that she is
licensing in every component. Proper documentation of the invention and its
components are essential. Also if manuals have not been written as yet, it
would benefit the inventor to develop at least the preliminary process related
content so that the promoter/licensee is able to understand and use the
invention and assess its effectiveness.
6. The inventor should
have a basic idea of the value of his invention to the industry and the value
that a promoter would pay for the invention. Typical license values may be
identified based on similar transactions in the industry. If the license fee is
2% of the sales value in similar class of goods, your invention is not likely
to fetch more. The inventor should also know what it cost him to develop the
technology, the cost of the technology currently in use in the market, and the
cost of developing an alternative technology. If the cost of developing the
alternative technology is significantly higher than retaining the current
technology, then the promoter/entrepreneur would study the situation to
understand if the new technology would yield far greater returns than retaining
the old.
7. The inventor should
attempt to familiarise herself with the process of taking new technologies to
market in her industry. In general, for new technologies, the value of the IP
in the product is considerably less compared to the value of the product. For
instance, in a blockbuster medical device, the value of the new technology
would be about 2-3% of the value of the product. The value of the brand, the cost
of branding, the supply chain and logistics, the cost of ensuring that the
product is accessed by the consumer ensures the success of the product. In
pharmaceuticals, on the other hand, the value of the patent constitutes a
comparatively higher value in the value of the product.
8. Industry players are
bound by budgets and are inherently suspicious of unproven technologies – and
rightly so. Inventors with a reputation for strong commercial inventions have a
better chance of getting higher royalty rates for their technologies.
Independent inventors can add value to their technologies by having them
validated by reputed organisations such as the CSIR-URDIP, or an IIT research
team. Of course, this must be done in the strictest confidentiality.
9. If the invention
consists of Free/Open Source Software, or elements of other inventions,
patents, copyrights or is the output of significant contribution by person/s
other than the holder of the IP, it is a good idea for the inventor to have
documentation regarding such elements. If extensive use has been made, then a
professional due diligence must be made. This will ensure that the promoter or
industry partner desiring to take the technology to market is not caught by
surprise when third parties object to his commercialising the invention. A
‘Freedom to Operate’ (FTO) study is recommended. This may lead to unpleasant
and often costly disputes in the future. On the other hand, if the risks are
known and measured and informed to the buyer, then it would be possible for the
buyer to seek licenses from third parties and go to market with a strong
position.
10. A written license
agreement is the most preferred form of licensing as it is unambiguous, and
often mandatory in law. Often law requires registration of such an Agreement,
and failure to register can have costly consequences. It can be exclusive –
that is, granted to only one person, or non-exclusive. The rights to apply the
invention to different industries or even to different market segments can be
given to different people. The owner of IP may license to one party the right
to make an invention and to another party the right to sell it. A license
agreement must consist of:
a.
The names of the parties
b.
Definitions
c.
The list of IP to be licensed including registration numbers and status of
applications
d.
The authorisation or license clause, and regions, or segments to which the
authorisation is granted
e.
Validity of patent, trademark etc.
f.
Obligations of licensor and licensee
g.
Conditions of license – royalty payments, purpose etc.
h.
Rights in improvement
i.
The region, country etc. where the agreement is valid and where the parties
must go in case of disputes
j.
The date on which the agreement comes into effect, for how long, and how it can
be terminated;
k.
In international licensing, the choice of law applicable,
l. Venue and mode of
dispute-settlement.
Confidentiality
Agreement: It is also necessary for the inventor to have a prepared
confidentiality agreement so that he can have the document signed before
demonstrating the invention, or disclosing valuable information while offering
IP for licensing.
Disclaimer: Although this
article provides crucial information regarding licensing, it may not be
considered to be legal advice or opinion. For further information, please
contact the author at Swapna@ipdome.in.
Copyright
notice: This copyrighted material is being provided for information purposes
only. It may not be copied or reproduced in any manner except with the express
and written permission of the author. For authorisation and license, please
contact the author at Swapna@ipdome.in.
