CEO, IP Dome
10 THINGS TO REMEMBER WHEN YOU ARE READY TO COMMERCIALISE YOUR TECHNOLOGY
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
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.