Patents are only good if they are used. Use of a patent can entail securing of a market segment, litigation against infriging parties violating the patent protection of a disclosed invention or sharing of the technology with third party manufacturers in exchange for royalties and licensing fees. The latter is by far the most desirable and easiest approach, particularly if the two parties involved share mutual interests and the willingness to cooperate. Often enough the expectations of the licensor are somewhat different from those of the licensor, in that case, a third party mediator can be invaluable.
Intellectual Property as Corporate Asset and Revenue Strategies
Intellectual property, specifically patents, not only serve the purpose of protecting technology within the manufacturing repertoire of the patent holder but can also be used to generate revenues through licensing fees, royalties, and selling the technology to interested second parties. Finding products that infringe on the patented technology and asserting the claims against them may generate a similar revenue stream. Instead of taking the assertive (stick) licensing approach by finding infringement and taking legal action against infringing parties, a more rewarding approach can be pursued through a synergistic (carrot) licensing campaign. The rationale is the same as that originally used in the inception of the patent system, that is, making available cutting edge technologies to second parties who see a business opportunity in manufacturing and further developing the technologies protected by international patent rights under the umbrella of a mutually beneficial relationship.
In the approach outlined above, it is essential that both parties engaged in the licensing agreement benefit from this transaction. For the licensee, the immediate benefit is the access to the technology disclosed in the patent; for the licensor the benefits can be more or less immediate, depending on the structuring of the agreement. What should be considered is the issue of immediate or short-term revenues vs. total revenues over the life cycle of the patents and continuations thereof. In some cases, it may be better to accept a one-time licensing transaction for a lump sum for which the rights to use the patented technology is granted. In other cases, it may be better to accept a smaller up-front payment with periodic renewals of the license and a royalty stream that depends on the sales of products that use the patented technology. As discussed below, this is particularly true for leading-edge technology that is likely to become an industry standard.
Mutual Benefits of the Synergistic (Carrot) Licensing Approach
In the majority of cases a long-term strategy will yield more rewarding results. This is particularly true in situations where emerging technologies are disclosed. The reasons are as follows:
* 1) During embryonic stages of any given technology, the revenues from products within that technology field are still minimal.
* 2) R&D costs need to be amortized.
* 3) The manufacturer will need to show revenue or revenue potential in order to stay in business.
The above three points stress the need for considerate negotiations. If the licensing is perceived as a penalty rather than a mutually beneficial purchase of knowledge and intellectual property, chances are that the manufacturer of the embryonic technology will move on into other technology areas or find ways to work around the patents, often at the expense of an inferior product. Therefore, the best approach is to offer the technology at an initial price point that is reasonable and yet grants the licensee a competitive advantage in the field by allowing him to implement the technically most elegant and cost effective solution in their emerging line of product. This type of initial purchase is generally referred to as token payment.
Having an agreement in place further protects the licensee from similar patents that may have been filed later than those licensed and will allow the manufacturer of the product to accelerate the product development cycle and protects them from potential lawsuits in the future. In addition, the licensor is often pursuing technologies that are complementary to the patented invention and a licensing agreement can be used to initiate a more profound business relation between both companies. Again, both parties win.
Typically, this type of licensing is referred to as synergistic or carrot licensing since it results in a reward for both parties. In the majority of cases, agreements are structured on a tiered royalty schedule that will take into account the levels of market acceptance, amortization schedules of R&D and finally End Of Life when reduced profit margins and competition enter the market place. These different phases will need to be evaluated separately with custom-tailored royalty schedules, performance incentives and technology cross-pollination agreements interwoven with the payment schedule.
Market Acceptance as a Measure of Patent Value
A different aspect of any partnership originating from a licensing agreement is that every patent is only as valuable as the acceptance of the patented technology in the market place. The most elegant technical solution and patent may not generate revenues if no one uses the technology during the life cycle of the patent. Therefore, it is mandatory for any patent holder to actively pursue early adaptors and to grant them favorable conditions, knowing that adaptation of the technology in the market will draw more licensees for additional royalty opportunities.
The Need for a Third Party Mediator
Among the obstacles often faced when negotiating a synergistic licensing agreement is the perception that each party will relentlessly pursue their own interests to maximize the benefits to themselves. Associated with this perception is the need for keeping company trade secrets concealed. The result is often a lack of communication that can stall the negotiations or cause the entire business transaction to fail.
The most efficient way to prevent politics and personal issues from keeping the business transaction from being successfully concluded is to engage a trusted, impartial, third party coordinator with experience in setting up licensing agreements and a thorough understanding of the technology, patent management, and the market place. This coordinator needs to have access to the "full picture" of expectations of both parties in order to custom-tailor the most mutually beneficial business plan.
Intellectual Property as Corporate Asset and Revenue Strategies
Intellectual property, specifically patents, not only serve the purpose of protecting technology within the manufacturing repertoire of the patent holder but can also be used to generate revenues through licensing fees, royalties, and selling the technology to interested second parties. Finding products that infringe on the patented technology and asserting the claims against them may generate a similar revenue stream. Instead of taking the assertive (stick) licensing approach by finding infringement and taking legal action against infringing parties, a more rewarding approach can be pursued through a synergistic (carrot) licensing campaign. The rationale is the same as that originally used in the inception of the patent system, that is, making available cutting edge technologies to second parties who see a business opportunity in manufacturing and further developing the technologies protected by international patent rights under the umbrella of a mutually beneficial relationship.
In the approach outlined above, it is essential that both parties engaged in the licensing agreement benefit from this transaction. For the licensee, the immediate benefit is the access to the technology disclosed in the patent; for the licensor the benefits can be more or less immediate, depending on the structuring of the agreement. What should be considered is the issue of immediate or short-term revenues vs. total revenues over the life cycle of the patents and continuations thereof. In some cases, it may be better to accept a one-time licensing transaction for a lump sum for which the rights to use the patented technology is granted. In other cases, it may be better to accept a smaller up-front payment with periodic renewals of the license and a royalty stream that depends on the sales of products that use the patented technology. As discussed below, this is particularly true for leading-edge technology that is likely to become an industry standard.
Mutual Benefits of the Synergistic (Carrot) Licensing Approach
In the majority of cases a long-term strategy will yield more rewarding results. This is particularly true in situations where emerging technologies are disclosed. The reasons are as follows:
* 1) During embryonic stages of any given technology, the revenues from products within that technology field are still minimal.
* 2) R&D costs need to be amortized.
* 3) The manufacturer will need to show revenue or revenue potential in order to stay in business.
The above three points stress the need for considerate negotiations. If the licensing is perceived as a penalty rather than a mutually beneficial purchase of knowledge and intellectual property, chances are that the manufacturer of the embryonic technology will move on into other technology areas or find ways to work around the patents, often at the expense of an inferior product. Therefore, the best approach is to offer the technology at an initial price point that is reasonable and yet grants the licensee a competitive advantage in the field by allowing him to implement the technically most elegant and cost effective solution in their emerging line of product. This type of initial purchase is generally referred to as token payment.
Having an agreement in place further protects the licensee from similar patents that may have been filed later than those licensed and will allow the manufacturer of the product to accelerate the product development cycle and protects them from potential lawsuits in the future. In addition, the licensor is often pursuing technologies that are complementary to the patented invention and a licensing agreement can be used to initiate a more profound business relation between both companies. Again, both parties win.
Typically, this type of licensing is referred to as synergistic or carrot licensing since it results in a reward for both parties. In the majority of cases, agreements are structured on a tiered royalty schedule that will take into account the levels of market acceptance, amortization schedules of R&D and finally End Of Life when reduced profit margins and competition enter the market place. These different phases will need to be evaluated separately with custom-tailored royalty schedules, performance incentives and technology cross-pollination agreements interwoven with the payment schedule.
Market Acceptance as a Measure of Patent Value
A different aspect of any partnership originating from a licensing agreement is that every patent is only as valuable as the acceptance of the patented technology in the market place. The most elegant technical solution and patent may not generate revenues if no one uses the technology during the life cycle of the patent. Therefore, it is mandatory for any patent holder to actively pursue early adaptors and to grant them favorable conditions, knowing that adaptation of the technology in the market will draw more licensees for additional royalty opportunities.
The Need for a Third Party Mediator
Among the obstacles often faced when negotiating a synergistic licensing agreement is the perception that each party will relentlessly pursue their own interests to maximize the benefits to themselves. Associated with this perception is the need for keeping company trade secrets concealed. The result is often a lack of communication that can stall the negotiations or cause the entire business transaction to fail.
The most efficient way to prevent politics and personal issues from keeping the business transaction from being successfully concluded is to engage a trusted, impartial, third party coordinator with experience in setting up licensing agreements and a thorough understanding of the technology, patent management, and the market place. This coordinator needs to have access to the "full picture" of expectations of both parties in order to custom-tailor the most mutually beneficial business plan.
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