Technology Licensing Agreement: Everything You Need to Know
Technology licensing agreement methods can be useful whether you intend to be the holder of the intellectual property or you want to use it for your business.3 min read
2. What is Licensing?
3. Types of Licenses
4. Licensing Leverage and Weaknesses
Understanding technology licensing agreement methods can be useful whether you intend to be the holder of the intellectual property or you want to use it for your own business. Seeking a licensing deal will rely on some give and take between both organizations, so it is important that you understand how to leverage these deals and get the best outcome for your organization.
What is Technology Licensing?
Technology licenses are agreements in which the owner of technological IP lets another party use, change, or even resell the property in exchange for compensation. The compensation can be either a lump sum royalty, royalties based on the value of production, or the right to use the licensee’s technology.
What is Licensing?
Licensing can be defined as a complex way of utilizing intellectual property. The start of any licensing agreement is being able to fully understand the reason why any technology is licensed.
IP can be used aggressively or defensively, typically in response to the pressures of the market to frustrate competitors. It is also used to maintain their share in the market, have control over the access of the IP, and to protect a product from exploitation from competitors.
It is important to understand that technology licensing can only occur when one party has ownership of the exclusive rights to the IP. However, intellectual property is a very broad concept. It can include work from formulas, inventions, technical documentation, or schematics.
With regard to technology licensing, intellectual property refers to both tangible and intangible components of technology.
Types of Licenses
There are different types of licensing agreements that you can work with. There are three categories:
- Licenses for certain activities, such as using a specific copy of a book or a patent,
- Licenses for universal rights to use intellectual property, such as the different parts needed to create technology,
- License to operate in a certain standardized market, such as what you would need to create a USB device,
Successful licensing deals will depend on how both parties to the agreement see the benefits of the collaboration. It is also important to know that technology licensing is not the same concept as technology transfer. Technology transfer only happens when the licensee understands the use and implementation of the technology, along with all the additional components.
To be successful, a licensing deal must actively engage with the licensee to help utilize and adapt the technology.
Licensing Leverage and Weaknesses
When you are negotiating a licensing deal, you need to consider the reason for the agreement and how it impacts both parties.
Think about the different questions that can be answered, such as how the deal will profit both companies and what they will both gain from the agreement. This will help identify the type of deal that both parties should seek out.
These questions can help determine what kind of leverage each party will have against the other. With this type of agreement, the party that has the least amount of benefits will have the leverage to set more favorable terms.
The timing of a licensing agreement will help determine leverage. If one party has a deadline for a specific deal, such as a product launch or the closing of an investment deal, it can be advantageous to leverage a deal on this factor to get more favorable terms.
The bottom line is that the ability to identify and leverage is a way to help hide your weaknesses during negotiations while you are exploiting weaknesses in the other company. It is important, however, to not use leverage to exploit the other party. To be successful, your licensing agreement will rely on all parties benefiting in some way.
Intellectual property is quickly gaining importance with regard to company assets. Many companies are rapidly recognizing that there is a significant value to IP in their businesses. Successful companies will need two things: a solid set of business fundamentals and a strong IP protection strategy.
One of these components may be more important than the other in different companies. For most, however, the value of the company will not be as high if it has no IP protection strategies in place.
If you need help with technology licensing agreements, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.