Negotiating License Agreements
I am slowly coming to understand the power of LinkedIn, recommended to me by my favorite marketing guru (not just my web log guru) Kevin O'Keefe at LexBlog.
LinkedIn not only connects you with your market's markets, it also provides some pretty high level advice. Here, I reprint an answer to the question: What's the Best Way to Handle Licensing. The question was asked by a "third degree" contact of mine -- systems architect Paul Robichaux.
The question was answered by several LinkedIn experts. This answer in the international marketplace was provided by Legal & IPR Counsel at TNO ICT Folkert J.M. Teernstra:
The aim of any licensing model is to extract the added value created during research and development. In an ideal world, you would aim for the maximum value. However, this is not always possible. In case of ongoing development you might have a need for instant cash. This can be accomplished by either licensing against a lumpsum or by an arrangement that allows for advance payments of future revenues. This is often called "frontloading". It goes without saying that this is usually not the best way to maximize returns.
If you have no "frontloading" requirements, a better way to maximise returns would be to charge for a combination of a one-off fee for access to background knowledge and turnover-dependent per item payments (royalties). In this arrangement, the licensee is usually free (within certain limits !) to set their own selling price. This is a preferred model where the licensee has better insight in a specific market than the licensor. However, make sure you ask for minimum annual license fees !
As to technology valuation, there are three classic approaches: cost based, market based and income based. The overall license fee paid by the licensee should be a reasonable percentage of the true market value. If you overcharge, the market will probably not buy your licensees product..There is a rule of thumb called the "25% rule".
As an alternative you could also consider a distribution or OEM or white label agreement with a reseller. In this case an IPR license would not be required.
Once you have determined the value of your technology and the appropriate licensing model, have a license contract drafted by an experienced licensing professional or a lawyer with experience in this field. Especially in case of cross border licenses there are numerous possible complications, eg in some jurisdictions you are not allowed to charge for expired patents, in others your licensee might be required to pay a witholding tax (to be deducted from YOUR license fee..) or you license arrangement might be held to be anti-competitive.
Be also VERY aware of the risks involved in granting a patent indemnification to your licensee. This is best avoided altogether.
There are many pitfalls in technology licensing. If substantial amounts of money are involved in your technology product, hire a professional !
Mr. Ternstra cautions, of course, that
THIS IS NOT A PROFESSIONAL LEGAL ADVISE AND MAY NOT BE CONSTRUED AS SUCH. I TAKE NO LIABILITY FOR ANY ACTS OR OMISSIONS THAT MIGHT RESULT FROM THE TEXT ABOVE.
