- The licensor (inventor-owner) does not have to finance the commercialization process.
- The innovation may have a greater chance to implementing a go-to-market strategy faster because a larger, more experienced company is handling the commercialization.
- The innovation may reach more markets if the licensee is a large, well-funded enterprise.
- The licensor will not have to build and manage a commercialization team.
- The licensor will not have execution risk (although if the licensing agreement is based on sharing revenue from the commercialization of the technology by the licensee, execution risk exists for the licensor).
- The licensor should be protected from product liability issues if the licensing agreement is properly written.
- The licensor retains ownership of the intellectual property.
- Will you offer an exclusive license or a non-exclusive license?
- Are you or your licensee responsible for defending your patent? With the high cost of litigation, it is advised that you shift this responsibility to your licensee should your patent be challenged or infringed.
- How will royalty payments be determined?
- What conditions constitute grounds for early termination of the licensing agreement?
- Will you allow for renegotiating the agreement after a period of time has passed?
- Does the agreement guarantee a minimum or maximum royalty per contract period? Does the agreement have provisions for assessing penalties for late royalty payments?
- What happens if the licensee goes bankrupt or is acquired? Better get that into the contract as well.
"Before a company considers licensing out its technology, however, it should consider whether other ways of taking advantage of its property, such as joint ventures and strategic alliances with other companies, would better compliment its economic position. Once licensing is decided upon, the nature of the company as well as the particular property it wishes to utilize should be carefully considered before deciding the architecture of the license."
Exclusivity in licensing should only be done after careful consideration has been paid to the potential licensee, the market and the licensor’s other intellectuals property obligations. This may come as a surprise to you, but I have personally dealt with situations where a lack of such care resulted in multiple exclusive licenses needing to be "unwound" by amendments so that the appropriate intellectual property rights were in place. Assuming any grant-back rights, as a general rule exclusivity basically hands a licensee a set of intellectual property rights that cannot be exercised by the licensor for the duration of the license. Tying the hands of the licensor under an exclusive license should be met with appropriate royalties, minimum guarantees and, in some cases, even upfront fees or advances depending upon the nature of the underlying deal. Further, additional responsibilities are placed upon the parties in exclusive licenses (i.e., joinder of the licensor in intellectual property infringement litigation). Sometimes a non-exclusive construct with specific restrictions may work equally well for the parties. In any event, when it comes to exclusivity in intellectual property licenses, always proceed with caution.
For those who are considering patenting their technology, I am often asked: "But isn't it expensive to file a patent application?" It can be a lot less costly that you may think. Mr. Phillp published a post of his firm's blog that says while "[f]iling a US patent application can cost less than $1,000 for a do-it-yourself version, or more than $16,000 for a complex application (such as for software or a complex machine) drafted by a patent lawyer, the US Patent and Trademark Office (USPTO) makes things a little easier for small businesses by providing discounts to those who qualify for small or micro entity status. For example, the basic filing fee for a utility patent application is $320. It’s $160 for a small entity and $80 for a micro entity."
- "China Licensing Agreements: The Key Provisions," Oct. 16, 2010
- "China Technology Licensing," July 8, 2012
- "Eight Tips for China Licensing Agreements"
- "China Licensing Agreements: The Extreme Basics," Oct. 12, 2015
- "China Licensing Agreements: Giving Your Technology a New and Profitable Life," Mar. 31, 2016
- "China Difficulties, Netflix, and Why We Love Licensing," Apr. 26, 2017
- "China Technology Licensing: The Questions We Ask," May 12, 2017
- "China Licensing Term Sheets," July 18, 2018
- "China Licensing Deals so Horrible They are Hard to Believe," Sept. 24, 2018
- "How to do Business with China Without Having to go to China: Licensing Deals," Feb. 29, 2020
- "China IP Licensing Deals," Sept. 14, 2020
- "China Technology and Trademark Licensing Agreements," Sept. 15, 2021