LICENSINGLICENSING“One Way of Putting Your I.P. to

Work for Your Organization”

Inventing and PatentingSeminar

May 16, 2001

Establishing a well-conceived licensing policy that will contribute to your firm’s bottom-line financial performance and support achievement of the firms strategic objectives

Types of Licensing1. In-Licensing

- The practice of obtaining access to the rights for a technology by procuring such rights from the owner through a license agreement

2. Out-Licensing- The practice of granting rights to technology from a firm having such rights to another firm through a license agreement

“Things to Consider”

The intrinsic value of an intellectual property is mainly derived from its being utilized in the marketplace

“Things to Consider”

Tangible property is simpler to market than intangible property

The Tangibility of a Technology

• Paper Patent

• Lab Model

• Prototype

• Test Results of Performance

• Manufacture

• Track Record in the Marketplace

“Things to Consider”

Licensing is a function of market participation rather than patent law

Market Considerations for Licensing

1. Produce and sell directly into the market2. Find a local partner with an avenue to the market3. License to a third party with established participation in the market

“Things to Consider”

How do I find the best candidate to offer a license for my technology?

Steps to Finding a Licensee

1. What market is best suited for your technology?

2. Who are the present players in that market?

3. Which of the candidates have the resources needed to commercialize your technology?

4. Who are the risk-takers?

“Things to Consider”

How do I determine a reasonable royalty for my technology?

Technology Valuation

First and foremost ALWAYS follow the “Golden Rule of Licensing”

All Licensing Deals Must Be

WIN - WIN DEALS

“Things to Consider”

Is there a specific or set percentage charged for licensing an invention?

NO!Treat each opportunity on a

case-by-case basis

However, there are certain standards (i.e. “Rules of

Thumb)

Types of Royalties for Consideration

• Lump Sum

• Per Unit Royalty

• Percentage of Sales Royalty

• Equity Position

Lump Sum

• Large One-Time Payment– Least risk: vs: lowest return

• Periodic Fixed Installments– Easier for licensee to handle– Riskier for licensor

Per Unit Royalty

• Fixed royalty for each unit of product sold, transferred or used– Set royalty per piece– Use escalation clause to share in profit

increase in later years of the license– Use of indices to determine escalation

Percentage of Sales Royalty

• Royalty determined as a percentage of the “selling price” of each product “sold” under the license

• Licensor & Licensee share in the sales derived from the technology

• Riskier approach for Licensor, may be mitigated through down payments and minimum annual royalties

Percentage of Sales Royalty

• Selling price may include deductions from the actual “list price”– Freight, packing and nonlicensed materials– customer discounts

• Make the royalty calculation and recordkeeping simple

• Negotiate royalty rate after all deductions are agreed to

Equity Position

• Ownership in lieu of cash

• Most risky and most difficult to value

• Requires “exit strategy”

• May be needed in “start-up scenario”

• Must determine your degree of control

• May include running royalty as well

Factors in Valuing a License• Protection

– Nature & protection offered to licensees– Infringement enforcement

• Exclusivity: vs : Non-exclusivity– Field-of-use– Field-of-area

• Utility/Advantage– Usefulness technology confers– Amount of advantage

Factors in Valuing a License• Commercial Success

– Technology proven in the marketplace

• Refinement– Immediate application and use– Ready for manufacture

• License Commitment– Licensor technical support– Length of time of license

Rules of Thumb

• Royalties should be considered as “profit sharing” in determining their value - in general 25% to 35% of the expected profit

• Studies have shown many license agreements have royalty rates between 1%-7% of the sales price of the royalty bearing product

Rules of Thumb

• Higher rates are charged for exclusive licenses

• Lower rates for nonexclusive licenses

• “Field-of-use” restrictions

• “Area-of-use” restrictions

• Length of time of agreement

Rules of Thumb

• Be very careful of linking license deals into sales of parts or components to your licensees

• Obtain a sales forecast from the prospective licensee

Technology Transfer &Licensing Organization

1. Intellectual Property

2. Marketing

3. Licensing

4. Administration

Intellectual Property

• Responsible for assessing patentability of the technology

• Conduct prior art review– novelty– obviousness

• Work with outside counsel on patent applications and infringement issues

Marketing

• Determine the market for the technology

• Target entities with possible interest in the technology

• Develop “business plan”

Licensing

• Set licensing end strategy

• Contact prospective licensees

• Valuation of technology/IP

• Write and negotiate agreements

Administration

• Responsible for recordkeeping and all licensing documentation

• Obtaining royalty reports

• Collecting royalties

• Conducting periodic audits of licensee

Technology Advisory Panels (TAP’s)

• Faculty Members– Life Sciences– Physical Sciences

• Review UB inventions– Test Scientific Rigor– State of Development– Next Steps to Commercialization

TTL: Evaluation Process

Disclosure

Patent

Marketing

TAP’s

CommercializationPlan

Inventor Rewards

Satisfaction of seeing yourinvention in practice.

Inventor Rewards

Recognition!!!

Inventor Rewards at UB

40% of the Royalty Incomegoes to the Inventors!!!!

Technology Transfer & Licensing

ADMINISTRATION

LICENSINGMARKETING

INTELLECTUAL INTELLECTUAL PROPERTIESPROPERTIES

UniversityUniversityatat

BuffaloBuffalo

Final Word

:vs:

Using your firm’s IP as a strategicresource may mean the differencebetween