Driving innovation is an essential part of many companies – whether the business is new or has been around for many decades. Ideally, an organization will have its own resources to generate new products and services to which it can use to fuel its growth. In a vast majority of cases, however, companies will need outside resources to help fulfill a technology gap, launch new services or products, and even open new markets. In these situations, it makes sense for companies to consider licensing intellectual property from an outside source. This could be from any organization such as a university, a private inventor, another company, or even a government think tank.

When outsourcing for intellectual property (IP), obtaining a licensing agreement is a necessity. A technology licensing agreement will allow the tech-based intellectual property to be used by a company in exchange for compensation. Before entering into an agreement, however, it is important to negotiate an agreement that will ensure each company’s needs are met. The following is a short list of factors that should always be considered when entering into a technology licensing agreement.

1. Will the Technology be Protected?

Before entering into a tech licensing agreement, it is absolutely necessary to perform due diligence to understand if the technology is truly protected. By researching the IP, it will be possible to determine whether there are any trademarks or patents associated with it. Even if there is no ® registered trade mark associated with the product their it could be an unregistered trademark associated with the product, usually designated by TM. The thing you need to understand that any new works of art, are upon creation, automatically covered by copyright, even if they don’t include the © Copyright designation; that designation just impact the remedies available to the copyright owner in the event of a breach.

2. Can the IP Provide Significant Competitive Advantages?

When it has been determined that the technology is protected and it may be able to provide a significant competitive edge in the market, it then makes sense to enter into a licensing agreement with the owner of the IP. When assessing if the IP will be substantial enough to give a competitive edge, it is important to consider the IP’s features and speed to the target market over the competition. In general, many, if not business operation requirements are driven by the industry needs that are common across the industry; so your competitors have similar information requirement to yours, because those requirements are driven but the same business factors as your business. Licensing application software is like staring off on 2^nd or 3^rd base, you leverage those prior learnings, you benefit from a proven application that has been de-bugged, and you have access to qualified support that may not be available if you developed your own application. As a metric understand that many applications software companies charge 20% of the initial license fee for their annual maintenance and support. That maintenance and support, typically provides you with support and bug fixes, it may also include new revisions to the Software. All things considered, given the significant time-to-market advantage of pre-existing software applications that IP will need to promote higher revenues, better prices, and even long-term customers. When this is attainable, this will be able to help cover the costs for the IP. (It should be noted that with applications provided as a Software as a Service, leveraging the vendors host could-based platform and admin support service

3. Negotiating a Tech License Agreement

Negotiating a technology licensing agreement sets forth rights, duties and obligation  between the technology licensor and the licensee. The agreement will allow the licensee the right to use and even distribute the licensor’s technology but under specific terms and conditions. The licensor will have a duty to repair defects and provide the customer with support. The licensor will require assurance that the license provides them with a lawful right to use the software. Conversely, the licensor will want assurance that licensee has the right to allow them to use, process and store all customer provided data. Both sides have valid concerns and the specifics on those concern may vary from one customer and/or industry to the next. The main goal of the agreement is to establish the basis for what will be considered a satisfactory and even rewarding relationship between the two parties. In order to achieve this win-win outcome, licensees and licensors alike have to take into account that both parties have value and it is what they will ultimately be bringing into the relationship. In offer to have a successful negotiation, both parties will need to understand what their individual needs and expectations are.

4. Licensing Period

Another very important factor to examine when entering into a technology licensing agreement is the length of time the contract will be effective. When licensing a patent, for instance, the agreement might need to be structured in a manner that considers the life of the patent. What duties do each party have upon expiration of the license, do they have an obligation to assist in transferring processing to another party? On the contrary, when dealing with trade secrets, it may be necessary to leave a loophole in the agreement so that an exit may be available in the event an alternative trade secret comes into the market.

5. License Exclusivity

A very important question to ask with all licensing agreements is whether other parties are getting the same access to the Intellectual Property. In some cases, if you pay for extensive customization to a software package the licensor will provide a period of exclusivity, so that you enjoy a competitive advantage in return for that investment in the enhances software.

6. Termination Rights

Licensees rarely ever like the idea of termination rights, that is, the licensor’s ability to terminate or cancel the contract. Still, licensees will sometimes have to agree to these rights as part of a negotiation. A major point in many of these deals is when licensors set minimum payments from licensees, which makes sense when the licensor has a patent, for instance. Here, the licensor will likely want to maximize returns obtained from the limited time allowed by the patent. If a licensee fails to meet minimum payments, this will then create grounds for ending the contract or moving into a non-exclusive contract.

Speak to a Reputable Technology Licensing Attorney

Negotiating a technology licensing agreement that is mutually satisfactory and rewarding to both parties is no easy feat. Whether solving an issue in the terms of an agreement or reaching a mutually acceptable agreement, it is important to understand that there are usually a plethora of solutions available. Whether you are seeking to license your IP or would like to access another company’s IP and you want to learn more about how you can reach a “win-win” outcome in an agreement, consider speaking to a well-established technology licensing attorney. An attorney with the right skills and experience will ensure all your bases are covered in the agreement and a rewarding relationship is secured with the other party.

Technology Licensing Attorney John P. O’Brien is exceptionally versed in a variety of licensing agreements. When it comes to a technology licensing agreement, all key terms of the contract should be seen as variables and when these are creatively managed, it is possible to reach an outcome that would make all parties involved feel like their needs are met and their business objectives are respected. With many years of dedicated experience in the field, Attorney O’Brien can help your company meet these goals. Consider obtaining a free, no-obligation consultation with Technology Licensing Attorney John P. O’Brien today by calling (732) 219-6641 or completing the online contact form here.