Constructing the “Price” of the

Technology in IP Licensing
Negotiations

Sub Regional Training Program on

IP Valuation
Maribor
November 5 to 7, 2012
Topics

That is a Licensing Agreement?

Business Objectives and Key Terms
Key Terms of a Licensing Agreement
Constructing a “Price”
 License Agreements (1)

Definition:
Definition:AAlicense
licenseisisaaconsent
consentby
bythe
theowner
ownerof
ofIP
IP(Licensor)
(Licensor)totothe
theuse
use
ofofIP by other party (Licensee) in exchange for money or other value
IP by other party (Licensee) in exchange for money or other value
((cross
cross––license).
license).
Permits
Permitsanother
anotherparty
partyto:
to:
--make,
make,have
havemade,
made,use,use,sell,
sell,import
import(patents);
(patents);
--copy,
copy,display,
display,distribute,
distribute,modify,
modify,make
makederivative
derivative
works (copyright).
works (copyright).
Patent
Patentlicense
license––waiver
waiverofofright
righttotoexclude.
exclude.
Copyright
Copyrightlicense
license––waiver
waiverofofright
righttotocontrol.
control.
“Technology
“Technologylicense”
license”–– may
mayinclude
includedifferent
differenttypes
typesof
ofIP.
IP.

3
License Agreements (2) – When R&D
Institution is Granting IP License?
Commercialization
Commercializationof ofthe
theresearch
researchresults
results––bringing
bringinginvention
inventiontotothethe
market
market
Licensing
Licensingtotothe
theindustry
industrypartner;
partner;
Creation
Creationofofthe
thespin
spinoffoffcompany
companybasedbasedon onthe
thelicensed
licensedtechnology
technology
developed in the university.
developed in the university.
InInthe
thecontext
contextofofthe
thecollaboration
collaborationwith withR&D
R&Dor orindustry
industrypartner
partnerfor:for:
Use
Useofof“Background
“BackgroundIP” IP”; ;
Use
Useor oraccess
accesstotothetheresearch
researchresults
resultsand
andIP IP developed
developedby byone
oneparty
party
during the collaboration - “Foreground
during the collaboration - “Foreground IP”; IP”;
Commercialization
Commercializationofofthe thejointly
jointlydeveloped
developedtechnology
technologythrough
through Grant
Grantaa
license
license totothe
thethird
thirdparty
party––company.
company.
InInthe
theframework
frameworkofofthetheSponsored
SponsoredResearchResearchAgreement
Agreement-- IP IPlicense
licenseofof
the
theresearch
researchresults
resultsmay
maybe begranted
grantedby bythe
theuniversity
universitytotoaafonder
fonderofofthe
the
research.
research.
Material
MaterialTransfer
TransferAgreement
Agreement––license licensetotoanother
anotherR&DR&Dinstitution
institutionor or
company
companytotouse usepatented
patentedresearch
researchmaterial
materialfor
forscientific
scientificor
orcommercial
commercial
purposes.
purposes.

4
License Agreements (3) – Why is it Important
for R&D Institutions?

Most
Mostfrequently
frequentlyused
usedmean
meanof oftechnology
technologytransfer
transferfrom
fromuniversities
universitiestoto
industry,
industry,ininparticular
particularininUS
USwhere
whereuniversities
universitiesare
areobliged
obligedto
toretain
retain
ownership on the IP developed through publically funded
ownership on the IP developed through publically funded research. research.
Permits:
Permits:
IP
IPownership
ownershipto tobe
beretained;
retained;
Development
Developmentof ofstrategic
strategicIPIPportfolio;
portfolio;
Multiple
Multipleoptions
optionsand
andpartnerships
partnershipsfor forIP
IPcommercialization;
commercialization;
Flexible
Flexiblenegotiation
negotiationcontext
contextfor
forreaching
reaching“Win“Win––Win”
Win”deals;
deals;
Development
Developmentof ofbuilding
buildingblocks
blocksforfor“Open
“OpenInnovation”
Innovation”collaboration;
collaboration;
Return
Returnon onresearch
researchfunding
fundingand
andinvestment.
investment.

5
Key Terms of a Licensing Agreement

The key terms of a licensing agreement

are the vital elements in the structure of the
licensing agreement.
Key Terms and Business Objectives of
Licensing Parties

Key Terms are Inter - Related;

Determined by Business Objectives of Negotiating
Parties;
What do you want to achieve with the licensing
agreement will influence your options related to key
terms!
Key Terms and Business Objectives of
Licensing Parties

Define Your Business Objective !

Starting Point in Development of Your Negotiation
Strategy.
Achieving Business Objective – Guiding Principle During
the Negotiation.
“Win – Win” Solution – Corresponds to the Business
Objectives of Both Parties.
One of the main elements in constructing the price
of a license is to which extend it corresponds to
your / your partner’s business objective and plan!!!
Key Terms

I. Subject Matter: What is licensed?

II. Scope: What can you do with it?
III. Financial: What value is it?
IV. Upgrades and maintenance: What will
happen with it in the future?
Key Terms – I. Subject Matter – What is
Licensed ?

Subject matter of a licensing agreement is always

intellectual property.
Pure IP License;
Technology License – combination of different IP;
Know-how License - in combination but also without
an accompanying technology component.
Example – “Smart Turbine”

Smart Turbine (SM ) is a wind and solar energy collector;

Highly efficient due to specific turbine design, and also
use of a new durable photovoltaic (PV) thin film;
Both elements of the system are integrated by using
software to measure the energy flow and to increase
synergy between the wind and solar elements;
Whenever the wind ceased, the solar collection intensify;

Whenever the sky is cloudy, the wind system become

dominant.
 Subject Matter of the Imaginative “Smart Turbine”
Licensing Agreement
Patent 2
Patent 1 (Turbine) Patent 3 (Thin Film)
(Integration System)
1. Claim 1. Claim 1. Claim

2. Claim 2. Claim 2. Claim

3. Claim 3. Claim 3. Claim

4. Claim 4. Claim 4. Claim

Ind.
5. Claim 5. Claim 5. Claim
design
6. Claim 6. Claim 6. Claim

7. Claim 7. Claim 7. Claim

Copyright
(Software, Schematics, Documentation)

Trade Secrets
Know-how

Trademark
 II. What the Licensor Want to License OUT

Patent 2
Patent 1 (Turbine) Patent 3 (Thin Film)
(Integration System)

Ind.
5. Claim 5. Claim 5. Claim
design
6. Claim 6. Claim 6. Claim

7. Claim 7. Claim 7. Claim

Copyright
(Technical Documentation)

Know-how

Trademark
I. What the Licensee Wants to License IN

Patent 2
Patent 3 (Thin Film)
(Integration System)
1. Claim 1. Claim

2. Claim 2. Claim

3. Claim 3. Claim

4. Claim 4. Claim

5. Claim 5. Claim

6. Claim 6. Claim

7. Claim 7. Claim

Copyright
(Software, Schematics, Documentation)

Trade Secrets
Know-how
Value of IP in the Context of a Licensing
Agreement
Does this IP correspond to my business objectives and business
plan?
1. Reduce the investment needed to access the marketplace,
2.  Accelerate market introduction,
3.  Minimize inventor's potential liability,
4.  Acquire specific capabilities such as manufacturing, sales and
distribution or business management,
5.  Limit time commitment,
6.  Access markets otherwise inaccessible due to shipping
restrictions or lack of a distribution system.
.Technical
IP
scope of protection provided by licensor
can patents and trade secrets be easily circumvented and
the projected cost to enforce patents and trade secrets

Market
Value of IP in the Context of a Licensing
Agreement

Potential problems
Who owns the IP?
Unfinished development
Patents not issued
Multiple parties
Pending claims
Key Terms - Scope: What can you do
with it?
Variety of options:
Exclusive – Non Exclusive (the price will not be the
same, even for the same subject matter!!)
Time
Territory
Field of Use
Right to Sublicense
The scope of the rights will influence significantly
the price!
Key Terms – III. Financial Terms

Value of IP – which will not forcibly be the “price” of a

license !!!
Forms of Payment
Lump Sum
Upfront payment
Installment payment
Royalty Rates
Combination
Key Terms – IV. Upgrades and Maintenance:
What will happen with it in the future?

“Grant back” – very important and valuable non –

monetary compensation ;
Additional services – training and other support;
Responsibilities and Guaranties of Parties – licensor
that takes responsibility to enforce the IP, licensee that
will monitor potential infringement of IP,
IP Valuation Methods to be Applied

Adjusted to specific situation

COST method – good to determine a bottom line of
licensor;
MARKET COMPARABLES – starting point, when
reliable data is available, useful in valuation of early
stage technologies;
INCOME METHOD – most frequently used in IP
commercialization phase.
Communicate with your partner!!!
Constructing a “Price” – Key Elements

Business objectives and plans of both parties;

Value of IP;
Other key terms of a licensing agreement;
“Need” or “hunger” of your partner for this particular
technology;
Good communication among parties to find “win” – “win”
solution”.
What are Your Proposals?

Olga Spasic
Head
Innovation Structures Section
Innovation Division
WIPO