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Licensing, Deal Making & the Art of Negotiation
- 1. Licensing, Deal Making & the Art of Negotiation Presentation by Ian Murphy Professional support for commercialisation and internationalisation
- 2. Speaker credentials • 28 years international business experience • Hundreds of licensing deals in many countries in sectors from aerospace, electronics and renewable energy to pharmaceuticals and genetics (even music) • Trained in industry, experienced in technology transfer in Universities, MBA • Currently negotiating IP for equity deals for a leading University, working independently, and co-founding a technology start-up • Also international marketing & business development experience Professional support for commercialisation and internationalisation
- 3. Recent Activities • Head of Licensing – ERI • Commercialisation Specialist • Chair / Director of Start- up based on in-licensing Professional support for commercialisation and internationalisation
- 4. Why Consider Licensing? • Sharing risk • Revenue generation • Market penetration • Reducing costs • Reducing time to market Professional support for commercialisation and internationalisation
- 5. Challenges in Licensing • Identifying a compatible / motivated partner • Valuing your IP • Negotiating a good deal • Managing your partner(s) • All the usual business threats and challenges Professional support for commercialisation and internationalisation
- 6. When to License? • Established companies have well developed channels to market; – This will enable rapid and comprehensive exploitation • The market is moving rapidly • The market is highly distributed • The invention may complement a wider product range, but not be sufficiently broad or disruptive to merit investment as a stand-alone proposition. Professional support for commercialisation and internationalisation
- 7. What types of IP • Patents • Trade secrets / confidential materials • Trademarks • Designs • Copyright • Database Rights • Combinations of the above categories Professional support for commercialisation and internationalisation
- 8. Patents Professional support for commercialisation and internationalisation
- 9. Patents • Do not actually confer on you the right to practice the invention; rather • Gives you the right to exclude others from practising the invention for the life of the patent, in the territories covered • This right has to be actively exercised – Sadly, there is no “patent fairy” Professional support for commercialisation and internationalisation
- 10. Patentability • Novel • Non-obvious, Inventive step • Capable of industrial application – (may or may not be any use to anyone!) • Not covered by certain exclusions – Discoveries – Business methods Professional support for commercialisation and internationalisation
- 11. Novelty • In 1982 the examination report in response to Paul Usher's Patent Application for a Dog Doorbell cited as 'prior art' the publication of the same invention on the front page of another journal. • The Beano - Dennis the Menace’s enemy Walter the Softy had one already for his poodle! Professional support for commercialisation and internationalisation
- 12. Non-obvious / Inventive step • The blue squash ball was considered non- obvious and to involve an inventive step. • It may seem obvious to a layman, to try different colours, but previously they were all green! Professional support for commercialisation and internationalisation
- 13. Patenting – the process UK Priority Date • Initial search report • 12 months before next step Transform into PCT • Recognised by every nation worth worrying about (and then some) • International Examination • 18 months before next step National Phase • Declare which countries are of interest (limit based on cost and strategy) • Gradual process of examination and grant in each jurisdiction. Slow process. (Translation fees, renewal fees, fees, more fees, ££££££££££) Professional support for commercialisation and internationalisation
- 14. Copyright • Covers; – Literary works – Musical works / sound recordings – Dramatic works – Drawings / Pictures / photographs – Choreography – Architecture – Software • Does not cover – Ideas, facts, short names or slogans Professional support for commercialisation and internationalisation
- 15. Rights under copyright • Protects against unauthorised copying, reproduction, distribution, public performance, display (includes derivations) • Originality is a defence against alleged copyright infringement – The Chiffons vs. George Harrison (£1m) – David Lodge and Pauline Harris (£0) Professional support for commercialisation and internationalisation
- 16. Anatomy of a Licence Professional support for commercialisation and internationalisation
- 17. What is a Licence? • A legally binding written agreement • In which someone having definable rights in certain property • Transfers all or some part of those rights to someone else • In return for a consideration Professional support for commercialisation and internationalisation
- 18. Common Licence Terms • Parties • Recitals • Definitions • Define IP to be licensed • Field of use • Territory • Exclusivity • Duration • Right to sublicence? • Patent defence • Performance Obligation • Fees for the licence • Verifying Accounts • Warranties/Indemnities • Termination – By time – On breach • Governing LawProfessional support for commercialisation and internationalisation
- 19. Usual Big Issues (for Licensor) • Performance Obligations – Milestones – “Use or lose” – Expenditure or efforts in marketing – Minimum Annual Royalties • Payments – Levy on net sales, NEVER on profits – Cover inflation, exchange rate risks, late payments Professional support for commercialisation and internationalisation
- 20. Good Practice • Secure a right of audit • Use it! – Underpayment is common. Possibly in 80% of cases. – Underpayment may be up to 25% – Negligence is common, fraud is rare – Audit is low-cost, often high value investment Professional support for commercialisation and internationalisation
- 21. Negotiations • Both sides must share enough information to enable each to understand the perspective of the other • Respect the right of the other side to negotiate • Know your own fall-back position • Choose your partners carefully • Understand cultural differences • You may need to take time to build the relationship Professional support for commercialisation and internationalisation
- 22. Preparing for Negotiations • Do your homework; – On the technology – On the inventor – On the company – On the negotiator(s) – Know your own BATNA – Best Alternative To No Agreement Professional support for commercialisation and internationalisation
- 23. Valuation of IP Professional support for commercialisation and internationalisation
- 24. The scientific approach • (A x B – C) *0.25 • A = Net present value of future profits • B = Likelihood of them being made • C = The cost of development of invention to commercial sales • You don’t actually know A, B or C, so the margin of error makes this is pretty worthless Professional support for commercialisation and internationalisation
- 25. Valuing IP (1) • A genuine value only exists in the presence of a willing buyer and a willing seller • Otherwise it is an aspiration • Licensors and Licensees both have a right to negotiate, cut a deal or walk • Valuation - “It’s a funny old game” • Best advice – get out there in the market! Professional support for commercialisation and internationalisation
- 26. Valuing IP (2) • A lot of people ask me about the valuation of their IP • Usually their questions focus on the royalty rate • Rarely are they thinking enough about the multiplier! Professional support for commercialisation and internationalisation
- 27. Incentivisation – the win/win “It is also possible for an inventor who accepts an extremely small royalty percentage to become much richer than one who negotiates a high royalty percentage. The difference depends on the number of units sold. For example, the inventor of the drinks can ring-pull got only a tiny royalty percentage - but he is reputed to be the world's wealthiest inventor.” - From the website of the European Patent Office Professional support for commercialisation and internationalisation
- 28. Relationship Advice • Licences – more like a marriage than like a sale • After the party is over you have to live together for a long, long time • Stuff happens - Unknowns will arise in your joint future, you will need goodwill to get through • As in any relationship good communication will minimise “opportunistic or exploitative behaviour” • Breaking up is hard to do… Professional support for commercialisation and internationalisation
- 29. In conclusion • Licensing can be a great way to extend your outreach • It can help you to minimise time to market • It can allow you to generate cash from one part of your business to invest in others • It is easy to say you are selling direct, but if you do you must be clear – how will you get your products or technology to the customer in Uruguay, Kenya or China? Professional support for commercialisation and internationalisation
- 30. Thank you for listening! Ian Murphy Ian.Murphy@innovibusinessgrowth.co.uk Twitter: @Commercialiser Professional support for commercialisation and internationalisation
Notas del editor
- Sharing Risk – Licensor avoids the risk of manufacturing, promoting and selling.Licensee avoids the risks involved in R&DRevenue Generation – Possibly overall, but also note that the Licensor may themselves sell and distribute in one field (or territory), but license to somebody else to sell in a different field (or territory).Market penetration – Into both new territories and new fields.Reducing costs – avoid investment in manufacturing infrastructure or sales and distribution infrastructure. Especially if somebody else already has all that is needed in place. You may also avoid import tariffs etc.Reducing time to market – e.g. partner with somebody who can globally distribute ASAP, while demand is at peak.
- Sharing Risk – Licensor avoids the risk of manufacturing, promoting and selling.Licensee avoids the risks involved in R&DRevenue Generation – Possibly overall, but also note that the Licensor may themselves sell and distribute in one field (or territory), but license to somebody else to sell in a different field (or territory).Market penetration – Into both new territories and new fields.Reducing costs – avoid investment in manufacturing infrastructure or sales and distribution infrastructure. Especially if somebody else already has all that is needed in place. You may also avoid import tariffs etc.Reducing time to market – e.g. partner with somebody who can globally distribute ASAP, while demand is at peak.
- Costs – highTiming – uncertain. How deep is the patent examiner’s in-tray!
- Duration of copyright The 1988 Copyright, Designs and Patents Act states the duration of copyright as;For literary, dramatic, musical or artistic works 70 years from the end of the calendar year in which the last remaining author of the work dies.If the author is unknown, copyright will last for 70 years from end of the calendar year in which the work was created, although if it is made available to the public during that time, (by publication, authorised performance, broadcast, exhibition, etc.), then the duration will be 70 years from the end of the year that the work was first made available.Sound Recordings and broadcasts 50 years from the end of the calendar year in which the work was created, or,if the work is released within that time: 50 years from the end of the calendar year in which the work was first released.Films 70 years from the end of the calendar year in which the last principal director, author or composer dies.If the work is of unknown authorship: 70 years from end of the calendar year of creation, or if made available to the public in that time, 70 years from the end of the year the film was first made available.Typographical arrangement of published editions 25 years from the end of the calendar year in which the work was first published.Broadcasts and cable programmes 50 years from the end of the calendar year in which the broadcast was made.Crown Copyright Crown copyright will exist in works made by an officer of the Crown, this includes items such as legislation and documents and reports produced by government bodies.Crown Copyright will last for a period of 125 years from the end of the calendar year in which the work was made.If the work was commercially published within 75 years of the end of the calendar year in which it was made, Crown copyright will last for 50 years from the end of the calendar year in which it was published.Parliamentary Copyright Parliamentary Copyright will apply to work that is made by or under the direction or control of the House of Commons or the House of Lords and will last until 50 years from the end of the calendar year in which the work was made.
- Exclusive licencesAn exclusive licence typically grants the licensee an exclusive territory or an exclusive set of customers. The effect is to exclude the licensor either from that geographical territory or those customers for however long the licence lasts.Sometimes there are exceptions to that exclusivity. The Licensor may reserve itself the right to serve certain existing customers or certain larger customers who deal with it direct or certain Government bodies who are its customers or customers with a network across several countries. In general under English law the licensor can carve out as many exceptions as it wants from an exclusive licence. However if it does none of these things then using the word "exclusive" means that the licensor is excluded. It cannot then intrude in the territory otherwise it will breach the licence and can be sued for damages by the licensee.Sole licencesIf the licence is a "sole licence" this means the licensee is the only licensee in that territory or for that group of customers. This is different from an exclusive licence where the licensor itself will not compete. Sole licences mean that the licensor remains free to compete with the licensee but simply that other licenses will not be granted.
- Sales via affiliates etc.
- Breaking up is hard to do - Neil Sedaka, August 1962.