Introduction to IP and technology licensing for technology executives by Fas Mosleh, ex-HP Director, Patent/IP strategy and sales and ex-VP, Kanzatec IP group
The document provides an overview of intellectual property (IP) licensing for technology companies. It defines different types of IP and explains why companies may choose to license their IP rather than sell it outright. The summary discusses the key components and attributes of IP licensing agreements, including defining the licensed IP, payment structures, exclusivity levels, improvements, and termination clauses. It emphasizes the importance of understanding both perspectives in negotiations to establish mutually beneficial long-term relationships between licensors and licensees.
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Introduction to IP and technology licensing for technology executives by Fas Mosleh, ex-HP Director, Patent/IP strategy and sales and ex-VP, Kanzatec IP group
1. UNLOCKING THE VALUE OF YOUR IPUNLOCKING THE VALUE OF YOUR
The Licensing of IP
A Brief Introduction for
Technology Companies
Fas Mosleh
IP M&A
+1650 468 0401
Los Altos, California
Source: Compiled and adapted from multiple publications and materials
Rights to trademarks referenced
herein, other than Kanzatec
trademarks, belong to their
respective owners. We disclaim
proprietary interest in the marks
and names of others.
2. UNLOCKING THE VALUE OF YOUR IP
What is IP?
• Intellectual property (IP) refers to creations of the mind, such as inventions; literary and
artistic works; designs; and symbols, names and images used in commerce.
• IP is protected in law by, for example, patents, copyright and trademarks, which enable
people to earn recognition or financial benefit from what they invent or create. By
striking the right balance between the interests of innovators and the wider public
interest, the IP system aims to foster an environment in which creativity and innovation
can flourish. Source: WIPO
• IP is a broad concept and includes many different intangibles e.g. patents (inventions),
copyright (works of authorship including technical manuals, software, specifications,
formulae, schematics, and documentation, among other things), know-how (e.g.
expertise, skilled craftsmanship, training capability, understanding of how something
works), trade secrets (a protected formula or method, undisclosed customer or
technical information, algorithms, etc.), trademarks (logos, distinctive names for
products and technologies), industrial designs (the unique way a product looks such as
a computer’s molding), and semiconductor mask works (the physical design of
semiconductor circuits).
3. UNLOCKING THE VALUE OF YOUR IP
Technology Licensing
• Licensing implies an agreement between parties who
receive and exchange approximately equal benefits and
value. A voluntary license must be a win-win
arrangement in order to be successful
• Technology licensing only occurs when a party owns
valuable intangible assets (Intellectual Property), and
because of that ownership has the legal right to
prevent the other party from using it
• A license is a consent by the owner to the use of IP in
exchange for money or something else of value
• Technology licensing doesn’t occur without IP!
4. UNLOCKING THE VALUE OF YOUR IP
Why License?
• Either we sell the patent/technology outright or license it
• If licensed, the licensor retains ownership and title and the
power to reverse the license in case the licensee breaches
its duties
• A license is less expensive for the licensee while more
flexible in providing significant shared upside if the
technology succeeds
• A recurring revenue stream could be established with
multiple licensees, that provides predictable income
• Licensing could be a way to increase the chances of market
success for a new or nascent technology (multiple go to
market licensees buying access ‘affordably’)
5. UNLOCKING THE VALUE OF YOUR IP
Three Broad Categories of IP Licenses
• A License for certain IP rights only (e.g. a license to practice an identified patent or
to copy and distribute a certain work of authorship).
Pure IP License
• The IP rights of any kind that are necessary to reproduce, make, use, market, and
sell products based on a type of technology (e.g. a license to develop a new
software product that is protected by patent, copyright, trademark and trade secret
law).
Product or Technology License
• A license for all the IP rights necessary to create. market a product that complies
with a technical standard or specification (e.g. a group of enterprises has agreed on
a technical standard to ensure interoperability of devices—the group agrees to pool
their IP rights and license to each other all rights each will need to manufacture and
sell the product).
Standards License
6. UNLOCKING THE VALUE OF YOUR IP
Key Attributes of Licensing IP
What IP?
Rights
Licensed
Degree of Exclusivity
Payment Formula
Contract
Limitations
7. UNLOCKING THE VALUE OF YOUR IP
Key Attributes of Licensing IP
What IP?
Rights
Licensed
Degree of Exclusivity
Payment Formula
Contract
Limitations
Software, design, copyright,
trade secret, patent,
trademark, music, song etc.
Non-exclusive, perpetual,
exclusive, sole, right to
sublicense
Improvement rights;
Rights to enforce
patents;
Assignment rights
Term, termination,
releases, diligence
(performance),
records & reporting
Geographical, Field
of use.
Annual Minimum
Royalty, Rates
8. UNLOCKING THE VALUE OF YOUR IP
Some Components of a License
Defining what
is being
licensed
The terms of
the grant
The
consideration
Reps &
warranties
Records &
reporting
Release
Rights for
pursuing any
enforcement
Improvements Exclusivity
9. UNLOCKING THE VALUE OF YOUR IP
Grant Clause
• Sets forth what patent rights are being conveyed
• The grant can be exclusive (i.e., only the licensee
has the right to exploit the patent rights) or
• non-exclusive (i.e., the licensor can grant similar
rights to other parties)
• The grant can be limited by geography (such as
U.S., Asia), and field of use (such as for tablets
but not cameras)
10. UNLOCKING THE VALUE OF YOUR IP
Consideration
• The license agreement
– typically requires a licensee to pay an upfront license fee as well as
ongoing royalties based on a percentage of sales or on a per-unit basis
– can require annual minimum royalties (AMR) or minimum annual
product sales to be sure the licensee is diligently marketing the
products or services covered in the patent
– can also require that the licensee provide reports to the licensor, e.g.,
of sales or revenue, to ensure accurate royalty payments
• Milestone payments are an excellent way to cope with the
speculative nature of IP rights so that the licensor shares in the
success of commercialization. E.g. milestone payments upon
capitalization of the licensee, or product volume exceeding 100,000
units or say the FDA approval of a product that embodies the IP
• A licensor may propose the licensee take over the cost of IP
maintenance in return for the rights of enforcement
11. UNLOCKING THE VALUE OF YOUR IP
Improvements
• A patent license defines each party’s rights to
improvements of the patented technology
• Depending on the negotiation, improvements
might be solely owned by the licensor, licensee,
or jointly owned by both
• The party with more bargaining power often
insists on controlling the rights to
improvements
12. UNLOCKING THE VALUE OF YOUR IP
Transferability
• License agreements can provide the licensee a
right to sublicense or assign the IP.
– The licensor can require approval of any such
sublicense or assignment. E.g. the licensor avoids
a competitor from obtaining license to the IP
• It is important for the licensee to have some
ability to assign the license without restriction
or else it may impact their business unduly
13. UNLOCKING THE VALUE OF YOUR IP
Due Diligence & Reporting
• License agreements can require due diligence by the licensee
to develop and/or commercialize the IP
– Such terms help ensure that the IP is used and not just put on the
shelf. E.g. the licensee can be required to use reasonable efforts
to develop and commercialize products covered by the license
• License agreements can include milestones that must be met
for the licensee to maintain the license
• They can also require submission of periodic reports of the
licensee's activities related to the development and testing
and the sales and marketing progress of the products
covered by the licensed IP
14. UNLOCKING THE VALUE OF YOUR IP
Exclusivity Level
• Non-exclusive, exclusive, semi-exclusive or
sole license
• if you license technology that still requires a
lot of development from a university, you may
want to negotiate for an exclusive license to
justify the expense you’ll put into it.
15. UNLOCKING THE VALUE OF YOUR IP
Rights for Pursuing Enforcement
• A patent license can also control each party’s responsibilities
for enforcing the patent rights along with apportioning
liability if the licensee is sued for infringement
– Generally, each party wants to have control of any infringement litigation but
also wants to avoid being required to defend or indemnify the other party
• Depending on the terms, an exclusive licensee can have the
right to sue for infringement. The license agreement can
determine how the costs of litigation are apportioned
between licensor and licensee
– E.g. the license may provide a licensee the right to withhold all or part of
royalties to offset costs of litigation. It may define how the proceeds of
successful litigation are divided. Damages could first be allocated to cover
litigation costs and then divided between the parties according to
predetermined percentages
16. UNLOCKING THE VALUE OF YOUR IP
Termination
• License agreements can include negotiated provisions
that establish how and for what reasons the agreement
can be terminated. E.g. the agreement can specifically
provide for termination upon breach of certain terms
of the agreement
• Clauses that provide for automatic termination of the
license agreement if one party seeks or is placed under
bankruptcy protection may not be enforceable
• But clauses that provide for termination for failure to
pay royalties may be enforceable regardless of
bankruptcy
17. UNLOCKING THE VALUE OF YOUR IP
Dispute Resolution
• License agreements can require the parties to provide
notice of any breach of the agreement and can specify
periods during which any such breach can be cured
• The license agreement can provide in advance for
arbitration or mediation of disputes. E.g. The
agreement can require binding arbitration vs. litigation
• Binding arbitration weakens a powerful licensor’s
ability to pursue critical breaches and hence will not be
favored when they perceive the need to carry a big
stick
18. UNLOCKING THE VALUE OF YOUR IP
Indemnities and Product Liability
• Licensors and licensees can provide various indemnifications to each other
in a license agreement.
• The license can include representations and warranties concerning the IP
and can require indemnification against any inaccuracy or loss arising from
those representations and warranties
– Licenses can include representations by the licensor that they own clear title
to the IP, that the IP is valid and enforceable, and/or that none of the products
produced under the IP are known to infringe other IP held by third parties.
– Licensor can require the licensee’s compliance with applicable laws, such as
export controls, tax codes, etc.
• The license agreement can also include indemnification terms ensuring
that liability for defective products produced by the licensee does not
extend to the licensor, who likely has limited if any control over the actions
of the licensee.
– Alternatively or in addition, the licensor can require that the licensee carry
sufficient liability insurance
19. UNLOCKING THE VALUE OF YOUR IP
CSFs
• Experienced product/technology/licensing team
• Skilled, proven licensing attorneys
• Preparation - In depth research of the prospective
licensee, business, plan, market, competitors, needs
• Understanding your leverage (including licensee needs)
• Awareness and understanding of infringing products
• Weaving technology licensing into an overarching
business partnership if any
• Win-win strong negotiation – with good will retained
for long term success
20. UNLOCKING THE VALUE OF YOUR IP
Your Leverage
Understanding what leverage you possess in
negotiations is critical
• Why does the other party want this agreement? (i.e.
what leverage do you have that will make it more
likely that the other side will agree to your terms?)
• Is your leverage based on the advantages of terms
of the potential agreement or on something else?
(e.g. the terms of another agreement, possible
investment, threat of litigation, etc.)
• Are there other companies with whom you could
reach agreement to meet your objectives
(alternatives)?
– Can you negotiate with both parties simultaneously?
21. UNLOCKING THE VALUE OF YOUR IP
Preparation is Key to Negotiation
• Technology licensing involves
reaching agreement on a complex
set of terms, each of which has
several possible solutions
• Advance preparation is essential
• Before approaching the licensee,
the licensor may spend months
defining business objectives,
assessing leverage, researching the
other party, its culture,
understanding the market,
deciding positions on key terms,
preparing documentation, and
protecting IP + …
Negotiation
Preparation
22. UNLOCKING THE VALUE OF YOUR IP
Example Questions to Prepare 1
• How will this license agreement make money?
• What must you gain in order for this agreement to be worthwhile?
• What is the best result that can be obtained from this agreement?
• What outcome do you want to avoid?
• From a business perspective, is the best result a license to IP rights only
(pure IP license) or a broader set of related agreements (business
partnership)?
• Will this be a license from the other party to you (license in), or from you
to the other party (license out), or a license from one side to the other
(cross license)?
• Is payment of money the primary benefit/value that will be provided in
exchange for the license or are there other benefits/values? Strategic
value? E.g. overtake competition; jump start market for licensor’s
products; learn from licensee go to market experience
23. UNLOCKING THE VALUE OF YOUR IP
Example Questions to Prepare 2
Ideally, do you want to obtain or provide:
• Assistance in using the IP (know-how)?
• Training?
• Development of technology or a product?
• Manufacturing?
• Purchase of products or equipment?
• Multiple products?
• Investment in R&D or other?
• Distribution of products or technologies?
• A license (consent) to use a patent or copyrighted material or trade secret
(or other IP) that belongs by law to the other party?
• A license to use a trademark or logo?
• A license that enables you to comply with a technical standard or
specification?
24. UNLOCKING THE VALUE OF YOUR IP
Think Long Term Relationship
Not Transaction
• "You need to start to understand what are the negotiable points
and what are the 'don't even try because it's our policy (points)'.
You can waste a whole lot of time and a whole lot of good will.
License agreements aren't like selling a used car. You don't get the
best deal you possibly can and run. You're going to be living
together for a long time. Circumstances change, you need
modifications, you don't know what your company's going to look
like in five years. You've got to leave good will and understanding on
both sides because you're going to be living with each other. You're
really to some extent partners: (the company) wants stuff to get
developed, (the licensee) wants you to be successful but at the
same time they want a fair deal. It's a different style of negotiation.“
-Lita Nelsen, director of the Technology Licensing Office at the
Massachusetts Institute of Technology
25. UNLOCKING THE VALUE OF YOUR IP
Flexibility on Type and Timing of Payments
AMR
AMR
AMR=Annual Minimum Royalty Up-front lump sum
Milestone payments
Industry standards
26. UNLOCKING THE VALUE OF YOUR IP
Be Aware of Infringement
• The patenting of your invention is only the first step
• Licensors must know who may actually be using their
invention
• Parties who infringe patents don't have to do it on
purpose to be infringing. There's no intent requirement
for patent infringement
• No one will just come to you and say, ‘Look we're using
your patent and we want to get a license.'
• Look for the presence of your invention in other
people's products or services
• Be aware of inventions perhaps in many different fields
and stay abreast of where they're being used
Adapted from Inc. Manny Schecter, chief patent counsel for IBM
27. UNLOCKING THE VALUE OF YOUR IP
Understanding Both Perspectives
• Licensor proposes payments that contemplate an
expansive market and optimistic profit potential
• Licensee views pricing through a lens of costs and
risks including substantial costs to develop and
commercialize a product, risks of lawsuit, and the
uncertainty of changing markets
• Understanding the personal negotiation styles
and how they are deployed to achieve the goals
of the licensee
28. UNLOCKING THE VALUE OF YOUR IP
Understanding Competing Agendas
• Larger tech transfer offices are being
perceived and being tasked with being
revenue-generating
• Some institutions want lots of money up front:
lots of licensing, fees, costs covered
• The tech transfer offices are perceived as
greedy and obstructionist; companies or the
industry is perceived as being stingy and
obstructionist
Adapted from Inc. -Anthony P. Green, vice president of Technology Commercialization: Life Sciences for Ben Franklin Technology Partners of Southeastern Pennsylvania
29. UNLOCKING THE VALUE OF YOUR IP
Gotchas – Assignment or Bankruptcy
• Assignment provision if licensee is acquired, or termination
conditions in the case of insolvency/bankruptcy
• If you enter into a paid-up license (when the licensee paid a
one-time lump sum payment in lieu of future royalties)
beware of assignment right: in the event a smaller licensee
is acquired in the future by a larger company, if the license
is assignable, the larger company may get a license without
having to pay anything to the patent owner
• Ensure that In the event of licensee's insolvency or filing for
bankruptcy, the license terminates automatically. If it
doesn't, the license may be sold with other assets to a new
buyer who will get the license without having to pay the IP
owner
30. UNLOCKING THE VALUE OF YOUR IP
Gotchas – Being Exclusive too soon
• Exclusivity comes up as a regular bone of contention
• Its hard to ignore unless you are a Microsoft or Apple with enough
power in the marketplace to get everybody to license and sell this
technology
• When does a licensee typically ask for exclusivity…?
– when the technology or product is new and some extensive resource
investment is needed to launch it (that’s not common is it?)
• If you are a start-up you may not know the full potential of your
technology. Your excitement to get the deal done might result in
you giving away the farm.
• If an exclusive license is a deal breaker, consider building milestones
or performance-based metrics to see whether or not the licensee
actually achieves the goals