6 IP Licensing Fundamentals
A quick 30,000-foot view of Intellectual Property (IP) agreements - for manufacturing executives who want to leverage 3rd party contracts.
Intellectual Property (IP) licensing can be an integral source of value, and many organizations are now pushing for richer, more structured and consistent interactions with suppliers and customers. Purchase and supply agreements, manufacturing agreements, virtual and real joint ventures, and more ways of working collaboratively are being explored as means to accelerate growth and optimize costs. What is more, these new alliances are proving their worth [LINK to previous].
But before diving more deeply into the types of alliances that buyers are making with sellers, it is necessary to understand a few fundamentals of IP. Contract managers will probably want to skip directly to 5 types of tactical and strategic contracts – LINK; however, sales leaders and the executive team could benefit from exploring the fundamentals of intellectual property to begin evaluating the potential for maximizing return on IP and improved dealmaking for their organization.
1. Three different types of IP
A licensing agreement is a partnership between an owner, or licensor, and a licensee, who is authorized to use the rights of the licensor under certain conditions. Agreements center on different types of IP, such as technology, trademark, and copyright. Copyright refers to literary works and is automatically put into place as soon as a work is authored; trademarks, such as brand logos must be registered as trademarks in order to be protected.
Technology can be licensed both as a patent or a trade secret. Whereas both of these involve a formula, pattern, compilation, program, device, method, technique or process, patents are registered and therefore publicly viewable. The benefit of patenting is that no other entity can employ the same advancement legally without a license, issued by the patent owner. However, the patent owner must also detect any infringements and pursue legal action. When patents expire (usually 14-20 years), the IP becomes public property.
Trade secrets are unregistered and therefore private. They are defined by the entity and protected via IP licenses, which communicate how they can and cannot be used or communicated by third parties. Without documentation restricting action, third parties are not bound from copying or making trade secrets public, at which point they cannot be considered trade secrets. It is therefore important for a business to identify and protect the trade secrets that deliver competitive advantage, or risk losing the advantage without recourse to the court system.
2. Ownership is essential to licensing intellectual property
Intellectual property (IP) applies to a range of works created, including intangible items such as patents, trade secrets, trademarks, and copyrights. Any of these types of IP can be bought outright or licensed, the difference being that a license loans the asset under certain conditions. Many of the different types of IP agreements are designed to protect the use of IP despite granting knowledge of IP for specific purposes. In these cases where knowledge is “leaked,” defining the type of information and what is allowable versus disallowed use becomes the key to protection. Without an agreement, suppliers, employees, or any third party could act much more liberally without anticipating repercussions.
3. Knowledge transfer is crucial component of technology licensing
Two parties can agree to a technology licensing agreement without transferring the intellectual property. Technology licensing agreements pertain to knowledge that has been written down as well as practical application of such knowledge. This means that a transfer of knowledge occurs when the licensor provides the licensee with the technology as well as the knowledge to use and modify the technology. Securing knowledge transfer is a primary concern when negotiating technology licensing agreements.
4. Negotiating IP agreements
There are cases in which one party delivers an agreement, which the counterparty signs without question; however, B2B is a different, richer story. From highly customized products to joint ventures, IP exchange and use must be considered.
For example, when creating a new product, a company may utilize a research and development agreement that includes IP rights and licenses for any IP created through the research and development phase. They can also employ manufacturing agreements to determine who has the right to manufacture the product, as well as sales agreements to determine who has the right to sell the product and under what conditions and trademarks it will be sold.
5. Successful negotiations are based upon identifying interests
Interests need to converge for technology licensing agreements to be successful. Negotiations involve different parties with different capabilities and goals; negotiators need to understand and maximize common interests and specified benefits.
Intellectual property licenses do not involve physical property and therefore require a balance of value. Coming to an agreement on value allows for both parties to feel as though they won in the licensing process.
6. Preparation is key
The complicated terms of technology licensing require advanced preparation. There are many possible arrangements, many different solutions to the same “problem.” Thus, a company can spend months preparing for a negotiation before approaching another party. These preparations to protect IP typically consist of researching the other company, determining leverage, defining positions on possible terms of an agreement and documenting the approach. Either procurement or sales can prepare rigorously before engaging a prospect or supplier.
B2B manufacturers with a strong IP practice are able to pursue more complex agreements, not only joint ventures but also richer connections with customers and suppliers. The more IP is secured during interaction, the more entities can accelerate growth and optimize costs. Knowing that these elements of a business’ differentiating value can be secured sets the platform for exploring tactical alliances between buyers and sellers.