Consider these 7 factors before licensing IP

On Behalf of | Sep 29, 2021 | Licensing Agreements |

Someone else has something you want and now you have to figure out how to get it. We’ve all faced this dilemma since childhood when a sibling or playmate held a desirable toy.

We’ve (hopefully) learned a lot since those days. When your company would like to make use of someone else’s IP – whether it belongs to another company, an inventor or university – you can’t just snatch it from their hands as if it were a brightly colored toy. It’s time to instead consider a licensing agreement so that you can use their IP to enhance your service or product.

According to an Inc. article by Jim Schleckser, CEO of the Inc. CEO Project (got all that?), there are seven critical factors to consider when you’re deciding whether a licensing agreement will work for you. We’ll cover three of those factors here.

Is the technology protected?

Before deciding to license a technology, research it first to determine if it’s protected. You might find that there are no patents or trademarks to keep you from simply copying it and using it without paying licensing fees.

If the tech is a trade secret never publicly disclosed, Schleckser says “you’ll have to reverse engineer” it.

He also notes “that even patented technology can be worked around if you can figure out a way to deliver the same result without violating the intellectual property.” He cautions the reader to be ready to protect the new idea in court, “even if it doesn’t violate the patent.”

Will the licensed tech give you a significant advantage?

Before hammering out a licensing agreement, it’s key to carefully assess whether the advantage you gain in features or speed to market over your competition will pay off. Will it significantly increase revenue, enable you to sell your product or service at a better price or retain customers longer?

Do the math

Schleckser writes that most licensing deals revolve around a percentage of sales or revenue that makes sense for you. If you license IP from a university, he notes that you can expect to pay between 2 percent and 5 percent of annual revenue.

If the licensed technology is “more elaborate” and significantly boosts your margins, you can expect to pay up to 14 percent of revenue as part of the licensing deal.

While that’s expensive, the question of whether it’s worth it or not comes down to your calculations of the degree to which their IP will boost your business.

We’ll look at Schleckser’s other four factors to consider before licensing IP in a future post to our International Intellectual Property Legal Blog.