FREAKY FRIDAY: Understanding Strategic Licensing

Strategic licensing is the method by which the developer of intellectual property, technology or a product embeds it in the licensee’s product for distribution. Strategic licensing deals are critically important to both parties as they require counsel to expend a lot of effort in negotiating and drafting them.

Areas of concern:

The main areas of special concern are:

  • Price
  • The scope of the license
  • Foreclosing competition

Price:

While some strategic licenses are flat-fee deals, most involve a royalty based on sales of the licensee’s products. We must define the net sales on which the royalty percentage will be based.

The scope of the license:

The main objective is to get sufficient rights for the company. In addition to the grant of the general license, the ability of the licensee to sublicense may be expected. If the licensee wants to sublicense under its own trademark, it will want to restrict the licensor’s ability to use that trademark.

Foreclosing Competition:

In-licensors frequently would like to foreclose competitors from doing a similar deal with the out-licensor. Clauses may be negotiated to bound the out-licensors agreements with named competitors of the in-licensor, or to restrict competition by duration, geography, or market segment.

(Inputs from practice.findlaw.com)

Although the specifics of every licensing deal will be different, there are some general principles that all those involved in putting a deal together should bear in mind. A

Patrick D Ertel, of Marshall, Gerstein & Borun in Chicago, explain how the ancient Greece Philosopher Aristotle could help to license the business.

Aristotle and the philosophy of licensing business:

If your company is ever going to implement a successful licensing strategy, the corporate licensing team should take inputs from the wisdom of Aristotle.

It has been said that a successful license in an ideal world would be one where both the licensor and the licensee have obtained everything they wanted.

Nevertheless, both parties need to feel their goals and concerns have been considered and addressed and, on balance, the deal is a fair one that makes sense for their business.

Nothing stands more in the way of a successful licensing transaction than the inability of either party to see things from the point of view of the other party.

If Aristotle had to say to this – This license needs to be a partnership for living well between your company and your licensee.

So, it’s the license who acts as the most important person, regardless of how influential and potential the licensor may be.

You should understand the key issues from the perspective of the other side to seek creative ways to get the deal done

However, it is mandatory that the corporate licensing team should have very good interpersonal skills to undertake the task of understanding.

If you wish to implement a successful licensing strategy, these things you should mind:

The first key is to do the groundwork by identifying the intellectual property that will be made available for licensing.

The second key is to communicate an unwavering commitment to licensing from the highest levels of the company so its importance to the company is fully understood and appreciated.

The third key is to set up the right type of organizational structure taking into account the nature of your company and the extent of its intellectual property portfolio available for licensing.

The fourth key is to select individuals for your corporate licensing team who embrace an Aristotelian business philosophy and to provide them with the authority and resources to succeed.

The fifth key is to insist that your corporate licensing team understand that enhancing the bottom line is achieved by searching for a fair deal.

(Inputs from ‘Licensing in the Boardroom, Edition: October 2004)

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