MONETIZE YOUR INTELLECTUAL PROPERTY: Technology Licensing
You can monetize your intellectual property via certain channels worth considering, but if that IP is a technology, then Licensing is ideal. Tech Licensing entails...
Intellectual property is an original creation of your mind/intellect protected by law. They are classified as intangible property and create a unique and competitive advantage for their owner in any sphere. It is a broad concept that includes many intangibles, for example;
Patents: inventions - for utility or design purposes
Copyrights: original works of authorship fixed in a tangible form of expression including technical manuals, software, specifications, formulae, schematics, and documentation, among other things.
Trade secrets or know-how: a protected formula or method, expertise, skilled craftsmanship, training capability, understanding of how something works, undisclosed customer or technical information, algorithms, etc.
Trademarks: logos, distinctive names for products and services, etc.
These intangible assets account for ninety percent value of any S&P 500 company, and it is possible because of IP identification, utilization, and intellectual asset monetization.
Intellectual asset monetization is the conversion of intangible assets to tangible assets like cash and unlike tangible assets, intellectual property can be used by multiple parties simultaneously. These intangible assets can be monetized through an outright sale (of the IP itself or products/services that use the intellectual property), use of the IP as collateral, enforcement of the IP rights against infringers, and licensing to others.
The outright sale of intellectual property as a product that uses the IP involves transforming that intangible asset into a tangible asset that can be sold to as many consumers as possible. Still, it also requires additional research, development, advertisement, and managerial insight.
An outright sale of the intellectual property itself requires less effort because the IP is sold to only one buyer who takes responsibility for its future, utilization, and longevity.
A business’s brand (a combination of its IP and public perception) accounts for the majority of its value and this value can be placed as collateral (security interest) to a creditor in exchange for a loan or other debt investment.
Owners of intellectual property are granted a monopoly over that IP, this allows them to enforce their rights against usurpers or infringers, and receive damages therefrom
In instances of limited resources and a desire to retain ownership of your IP, licensing is optimal. This monetization option allows others to create and sell products or services that use the intellectual property in exchange for royalty payments. A license can have different terms – exclusive or non-exclusive; territorially limited; royalty based on a percentage of sales or per unit; minimum guarantee royalty; sliding scale royalty; royalty due upon payment or invoicing; monthly or quarterly or yearly payment, etc.  Some of these terms will vary according to niche and/or industry standards.
Licensing is often considered under three broad categories namely, technology licenses, publishing and entertainment licenses, and trademark and merchandising licenses. It is the most used intellectual asset monetization method because;
It grants you, the owner/licensor, access to a broader market, especially when the licensee is better positioned to commercialize the IP or any products made therefrom.
It’s an additional and recurring source of revenue, depending on the terms of your licensing agreement.
You retain intellectual property ownership because it only grants the licensee exclusive or non-exclusive usage rights.
Generally speaking, IP assets are used as leverage in business negotiations, that’s why licensing occurs either offensively (aggressively asserting IP rights to frustrate competitors, obtain market share, control geographic markets, or generate revenue) or defensively (used to prevent copying or to respond to an IP challenge). More so, these assets can either be licensed out (you are the licensor to a third party, the licensee), licensed in (you are the licensee), or cross-licensed (where each party cooperatively develops, manufactures, and markets products for their mutual benefit).
The traditional drivers of economic growth; land, capital, and labor, are no longer sufficient to create and maintain a competitive advantage in the economic market. The defining factor in this fourth industrial revolution is technology, the practical use of scientific information, and when companies fear competitive pressures that have the capacity to disrupt their business model and threaten revenue, they respond by acquiring, licensing, or otherwise gaining possession of a technology that can boost their market value. This is achieved by;
relying solely on internal knowledge and R&D
Utilizing external knowledge by entering into strategic alliances and collaboration with other partners
Technology Licensing
Technology, whether it manifests as software, hardware, or artificial intelligence is a form of intellectual property, and there are different categories of technology licenses;
Licenses for certain IP rights only.
Licenses for all the IP rights of any kind necessary to reproduce, make, use, market, and sell products based on a type of technology
Licenses for all the IP rights necessary to create and market a product that complies with a technical standard or specification only.
As advantageous as tech licensing sounds, it requires a comprehensive strategy that includes a robust IP team and portfolio, long-term planning, strategic incorporation of M&A initiatives, and R&D investments. As the licensor, negotiating favorable terms requires a deep understanding of their technology’s value, complex IP laws, mutually beneficial terms of a licensing agreement, the long-term nature of relationships with a licensee, and possible conflicts (including applicable resolution methods). This might overwhelm a new startup or entrepreneur, and that’s why the decision to license (as a licensor or licensee) must align with your overall business strategy and vision.
The governance of tech licensing deals revolves around monitoring, partner selection, incentives, and socialization. These factors determine the profitability of any such deal, monitoring more so than the others. Monitoring plays a dual role as a control mechanism (allowing parties to observe and address transgressions) and as a coordination device (requiring information that triggers further collaborative activities and reciprocal information exchange).
Choosing an experienced licensing partner is ideal, but parties still contend with partner uncertainty, because both or any partner can shirk their duties. To address this, licensing contracts contain upstream monitoring (licensee as the monitoring party) and downstream monitoring (licensee as the party being monitored). The licensee can monitor the licensor’s progress in technology development as technologies are often licensed before they are fully developed while at the same time, the licensee may be monitored by the licensor to ensure that it respects commercialization schedules.
It is important to know that; Technology licensing is not the same as technology transfer, although tech licensing falls under the broad umbrella of tech transfer. The fact that two parties reach a deal on licensing does not mean that the deal's subject matter is transferred. Tech licensing is the exchange of technology from a licensor to a licensee for commercialization. It concerns both knowledge expressed in writing and knowledge in the form of practical know-how or trade secrets.
It becomes an actual transfer when the licensor delivers the technology and knowledge to the licensee and the licensee learns how to effectively use, adapt, and where possible improve the technology and knowledge. Tech transfers can be done through activities such as teaching, hiring skilled staff, or formalizing contracts such as tech licensing contracts.
Tech Licensing as an asset monetization option can be utilized by any party provided there’s a unique value proposition, due process is followed, and legal expertise is employed for complex negotiations and IP laws. But more than that, there are certain advantages and disadvantages that accrue to the licensors and licensees who license technology. They include;
ADVANTAGES
For the LICENSOR;
Retention of intellectual property rights, revenue generation, the opportunity to commercialize its technology, and expand into new markets with greater ease than on its own.
Ability to rely on the manufacturing capacity, distribution outlets, local knowledge, management, and other expertise of its licensees where it doesn’t want to be involved in the manufacture of products.
A means of avoiding or settling intellectual property litigation by turning an infringer/competitor into an ally or partner.
Partial control over the direction and evolution of the technology especially where interoperability is important.
For the LICENSEE;
Access to already established or readily available technology makes it possible for licensees to enter a market faster with innovative tech
In the absence of excess resources, licensing grants access to technical advances that are necessary to provide new or superior products
Access to technology that when paired with a licensee’s current tech portfolio can create new products, services (or enhance existing ones), and market opportunities.
DISADVANTAGES
For the LICENSOR;
The licensors’ intellectual property can generate better profits than operating through a license agreement.
A licensee can become the licensor’s competitor whether or not the relationship goes awry.
Where the terms of the license are not clear and precise, such an agreement may be disadvantageous.
There is the chance of over-dependence on the skills, abilities, and resources of the licensee for generating profits.
For the LICENSEE;
There is a possibility of being financially committed to a not-ready-to-be-commercially-exploited technology, or one that must be modified to meet the licensee’s needs
It may become an additional expense especially where the market can neither support nor absorb the product.
There is the possibility of being too technologically dependent, which can become a barrier to their expansion, ability to adapt, modify, or improve their products for different markets.
This conversation on Tech Licensing is extensive and cannot be exhausted in one post. We continue on the topic in other publications, delving into tech contracts, negotiations, open-source software, IP protection in tech agreements, and many more, so subscribe to read it all.
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