In today’s complex business environment, innovation teams often find themselves with the need to acquire technology commercialize a product. Often this technology is not public knowledge. In this case the product developer must acquire the technology from a third party. A Small business can acquire an existing technology license and avoid commercialization delays and risks associated to in-house or non-core technology development.
What is a License? A license is an agreement between the technology developer and the technology seeker. The technology developer provides the rights to use or manufacture a technology within an industry or region. The license provides at a minimum (1) the rights to use the technology in products, (2) sufficient know-how to use or manufacture the technology and (3) Intellectual Property (IP) protection;
- The rights to use the technology provide ability to use any of the processes or formulations of the technology in products or services. Additionally the rights can be exclusive, specify the field of application (industries) and the region of which the technology can be used.
- The license can also include know-how transfer. When the technology requires significant amount of commercial development. It is helpful to have a clear definition of what is to be transferred and how much post license support is to be provided by the licensor. This is an essential part of the license that could create significant issues if not provided.
- The license should offer some type of intellectual property protection in the form of a patent or trade secret. A patent requires the disclose IP during the application process, becoming public once the patent is awarded. A trade secret is information that provides an economic value by keeping it confidential but requires the company to actively maintain the information secret.
What are the Terms? The financial terms of the license usually includes the repayment of the licensor investment as short-term payments and the upside potential of the technology as a long-term payments.
The short-term payments include a licensing fee, milestones payments and patent expense repayment. The licensing fee is an upfront payment for the right to use the technology. The milestones payments are usually related to the commercialization timeline, such as customer validation, completion of physical testing and securing of customer purchase order. Finally if there is IP protection, a repayment of the patent fees and legal expenses is customary.
The long-term fees are structured as royalty payments, sub-licensing fees. The royalties are setup as a percentage of sales. The royalties can range from 1%-15% depending on the industry and type of technology. Licensors usually have minimums to protect themselves in case the technology is not properly exploited. In case the technology is sublicensed to a 3rd party, the licensor can ask for additional fees on top of the royalties.
What is a Good Technology License? A good license supports your business objectives, providing revenue-generating opportunities. The license must provide enforceable rights to the technology. The IP has to be able to be enforced in court. The license contract should be clear and complete, and comply with law.
For Further Contact
Technology & Business Innovation
Tel: +1 248.924.5436