Friday 22 February 2013

Technology Licensing

Swapna Sundar
CEO,  IP Dome


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

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

National Seminar on IPR in Electronics & IT Sector:“Enabling Electronics & IT sector to leverage IPR for Competitiveness

S. Jagathis
IP Dome

Swapna Sundar, CEO, IP Dome – IP Strategy Advisors was invited to address two sessions at the National Seminar on IPR in Electronics & IT Sector:“Enabling Electronics & IT sector to leverage IPR for Competitiveness”on 8 February 2013, at Hotel Aditya Park, Hyderabad. The programme was organised jointly by the CII, the Andhra Pradesh Technology Development and Promotion Centre, and the Department of Electronics and IT. An eminent panel of speakers gave their opinion and advised the delegates on a variety of issues concerning the intersection between IP and the Electronics and IT sector including protection, enforcement and licensing.

The inaugural speakers gave a historical account of the socio-economic underpinning of the sector.

Drawing upon their vast experience in the sector,the speakers - Prof.SouravBharti, IPR faculty NALSAR university of law,  Dr.VishwanathanSeshan, India - Head of IP&S India at Philips Electronics India Ltd., Dr.SubhadipSarkar, Director- IP, Cognizant Technology Solutions Ltd., Mr.Tabrez Ahmad, Chairman of the IP committee, Manufacturer’s Association for IT, Mr. Dawn Jos, patent strategy manager, Texas Instruments, Mr.Lakshmeesha, IP Manager, GRC Pace, GE India, and Mr. R. Muralidharan, IP attorney addressed the various concerns arising from the use and infringement of IP in the Electronics and IT sectors, and recommended strategies to overcome them.

Swapna Sundar addressed two sessions. In her first session as opening speaker of the technical  sessions, she spoke about the Importance of IPR for the E&IT sector from her experience of working with SME entities in the E&IT sector.  The importance of IPR for business cannot be stressed enough, there being only two ways of increasing the output of any industry: either the input would have to increase, or the cleverness with which input is used is improved to see increased output from the same input. IP is a tool that enables business to leverage their input and resources to increase their output.

IPRs provide a basis for businesses to prevent copying of products, but also enable them to increase their brand identity, identify and protect their product lines and markets from competitors and fulfil several critical functions to ensure sustainable competitive advantage. IPR enables the economy to generate more jobs and also pay workers better. Tacit knowledge of manufacturing, stacking of technologies, shorter product life of technologies and ubiquitous implications for pervasive technologies are some peculiar characteristics in the E&IT sector that have impacted the form of IP that is valuable in the sector.

The evolving uses and importance of IPR in the sector differs from enterprise to enterprise based on several criteria including size, maturity and strategic goals. In a small and successful IT company looking for funding, IP provides much needed leverage and assets, and convinces the investor of the technical competency of the team. In mature E&IT companies, IP enables safe and effective diversification and exploration of new channels of revenue. IP also enables the company to create new product lines. In a start-up with a single, but highly effective technology, IP enables development of the product, sustainable advantage, licensing opportunities and opportunity to get acquired by a larger entity. It is important for a company intending to build an IP portfolio to align IP creation with strategic goals of the company and the present and future technical competence of the team. Specific requirements such as AICTE regulations, or sponsored research grants from the government can provide impetus to such a goal.

In the last session of the day, she followed an engaging presentation by Mr.Muralidharan to handle Winning global litigation strategies in the E&IT sector. The Apple V. Samsung battle in various jurisdictions has provided analysts and excellent opportunity to study the sector and different fora for litigation and enforcement of IP rights. Beginning with the Apple/Samsung design battle at UK, Swapna explored the subtle nuances of the role played by Design rights in E&IT products. Five lessons can be drawn from this litigation for Indian companies. Among them, perhaps ‘creative learning’ from JV partners, and intelligent revisions to existing designs are important. Apart from this, Indian companies should also learn to develop and protect their own IP so that they can be leveraged in negotiations and also independently licensed out.

Litigation strategies adopted by different companies in the global arena were highlighted in the session. The Apple/Samsung battle demonstrates several interesting strategies including use of multiple courts and jurisdictions, pre-litigation strategies including injunctions, and use of public relations and customer satisfaction with products. Other strategies deserving mention are ‘bifurcation’ of causes such as filing revocation petition at the IP Appellate Board simultaneously with a declaratory suit at a civil court, deciding on speedy or slow trials and courts, and strategies to keep costs low.

Both sessions were well-received.