In-Licensing

So you have solidified your business plan. It will take you from where you are today to the land of milk and profits. Only one problem … to get there requires acquisition of a technology you do not now have.

Your options are few --

In-licensing can be one of the greatest bargains around. Panasonic, Toshiba, Hitachi, and other Japanese electronics manufacturers got their start in television by in-licensing technology from RCA.

I know, I spent 15 years as Chief IP Counsel for Zenith Electronics, RCA’s arch rival at the time. For a few dimes per receiver, the Japanese received all the technology needed to build television receivers, VCRs and audio equipment. From that humble and dirt-cheap beginning, they quickly rose to dominate the consumer electronics industry.

In-licensing has a number of tremendous benefits:

1. It is inexpensive – typically not more than 5%, and in some cases (as with the RCA television licenses) much less than that.
2. It provides sure-fire technology – no blind alleys and lost time-to-market.
3. Your product carries the credibility of the licensor, which in the case of the Japanese electronics manufacturers was of paramount importance in the 1960’s and 1970’s.
4. Results can be very quick. The licensor often gives technical support and sometimes even factory specifications.
5. The licensed technology typically is market ready – no standards battles to fight or market acceptance to win.
6. If it is gap-filling technology, in-licensing can break a logjam on the critical path of product development.
7. In-licensing is often a great way to build a relationship that can lead to much bigger things in the future – more technology, a market for your products, etc.

The key is to identify exactly what you want, and then to quickly find a source of that needed technology. The search process can be the proverbial “needle in the haystack” if you aren’t familiar with the tools and resources available. And IP experience is required to nail down the most favorable in-license agreement terms.

Out-Licensing

Out-licensing is exploding in the global economy as companies struggle to meet the conflicting demands of more exotic technology and ever-shrinking time-to-market. Yet total out-licensing revenues as a percentage of the realistic opportunities for licensing remain small.

The breakthrough will come when companies realize that the horn of plenty lies not in those R&D projects they put on the shelf or technologies that didn’t quite make it. The great opportunity for lucrative out-licensing lies with certain lusterless commercial technologies a company employs. These include:

1. The M&A Misfits and Misfires
   Each year more than a trillion dollars worth of corporate assets change hands (market value). But during postmerger integration, many of the acquired companies’ businesses don’t fit the new organization.

2. The E-Commerce Core-Shift Homeless
   The ruthlessly efficient free market created by the Internet exposes every company’s businesses to intense global competition. As companies scramble to center on their perceived core competencies, many of yesterday’s businesses are neglected and therefore doomed.

3. The Unprofitables
   Maturation of technology, intense global competition, and rising costs are among the reasons that many businesses have become profitless drains on management energy and resources.

4. The Cash Poors
   These are businesses that are operationally sound, but cash challenged due to high leverage in a rising interest environment, softening sales in a weakening economy, collection difficulties, or expansion financing pressures.

Failure of companies to utilize or monetize these potentially immensely valuable assets is costing shareholders hundreds of billions of dollars annually.

No company can exploit even its core products and/or services in every territory, market channel, and application. Typically just the choice market opportunities are developed; the others are abandoned, neglected or overlooked due to competition, resource or organizational limitations, management oversight, etc.

However, the right to conduct commerce in these unavailed markets provided by the company’s IP assets are of tremendous value and must be availed to maximize ROI and shareholder value.

Under the pressure of the Internet Economy, product life cycles are rapidly shrinking. The value of unutilized intellectual properties is also wasting rapidly. All IP assets, even core IP assets, must be put to full productive use while they have value.

Great Value in Unreachable Core Markets

Tremendous latent value waits to be tapped:

1. In foreign territories which the company is unable, unwilling or undesirous of exploiting.
2. Applications of the company’s core products and /or services in unexploited non-core applications .
3. Marketing channels which the company is unable or unwilling to pursue.

Why License Your Core Technology?

Many reasons:

• No technology stays cutting edge, or even current, for long.
• Technology rapidly loses its value.
• Your competitors will enter your profitable markets, like it or not. Not licensing them forces them to design around, and possibly leapfrog, your technology.
• Licensing disarms a licensee’s R&D and lines it up behind your yesterday’s technology.
• You will not create a competitor if you are advancing… which you must do to grow and prosper.

Bottom Line Licensing Profits Could Exceed Core Profits from Operations

Licensed global market share can far exceed commercial market penetration. Your capital investment in licensing is minimal compared to that of normal business operations. ROI can therefore be extremely high.

Asset and Market Division Leveraging

Core IP rights can be partitioned and licensed for use in markets which otherwise wouldn’t have been tapped. Using options, limited durations, tightly defined fields and other techniques, licenses can be configured to protect the owner’s interests while maximizing licensing revenues.

Urgent Action Is Imperative

If licensing is warranted, the sooner it is undertaken the better. Delaying or applying restrained resources will likely lose significant revenues for the IP owner.

Nine Ways to Increase Licensing Revenues If You Are Currently Out-Licensing

For companies with existing licensing programs, here are a number of tips on how revenues can be increased.

1. Audit existing licenses. Experts estimate that royalty underpayments typically fall in the range of 12% - 25%.
2. Review the terms of your license agreements. With the passage of time, inequities may have crept in which can be renegotiated to your advantage.
3. Review your payment collection procedures. I have seen a number of cases where “no one was watching the store”, and royalty receivables were being overlooked or even totally ignored. Without careful monitoring of payments owed, they will assuredly slow and eventually stop.

It is axiomatic in product/service sales that your most likely next sale will come from existing an existing customer because of the favorable relationship that has been established. Apply that axiom to your licensing efforts to increase licensing revenues:

4. Extend the terms of existing licenses to cover additional products, new territories, expanded distribution channels, etc.
5. Offer new licenses covering different patents or other IP.
6. Expand existing licenses to cover subsidiaries or affiliated companies.
7. Get the names of unlicensed competitors of your licensees which are believed to also need a license, and go after them. Your licensees will know who these infringers are and be happy to tell you, as their royalty payments to your represent a competitive edge for their unlicensed competitors.
8. Offer your licensees collateral services such as technical support, automatic license extensions to cover new IP, etc.
9. Offer to license the production, testing or other software and/or hardware that you use in your operations.

Perplexed As to Which Patents or Other IP to License?

Don’t be. Techniques are available to systematically identify the IP assets most likely to merit licensing efforts, assess their value, and find licensees. Time from launch to significant cash can be as little as 120 days.

Cross-Licensing

Cross-licensing transactions represent simply an exchange of an in-license for an out-license, often in the same document. Cross-licensing is typically bounded by field or application or geographical territory, but may be across the board without limit.

The cross-license may specify a limited number of patents, for example, as is often done to settle litigation. Or, it may involve hundreds, or even thousands (of patents, for example), for the purpose of “design freedom” or to avoid future disputes.

No dollar figures on the level of cross-licensing activity are available for reasons of confidentiality, and because there is seldom any reason to quantify the value of cross licenses. However, because of the volume and monetary value of the IP assets involved, cross-licensing probably represents the most significant licensing activity in total dollar value.

Cross licensing can make sense where the parties have a very good idea of the value represented by the licenses given and received (as in dispute settlements). However, too often parties swap licenses with too-little due diligence being paid to value of the IP assets licensed. The inevitable result is that one party exchanges its “horse for a rabbit”.

Great care should be exercised in assessing the scope of the license given in terms of application, distribution channel, territory, and so forth. If the licenses are exclusive, never give more than the other party can use. Keep in mind that if this is a first-ever license of the IP assets you are licensing, you have forsaken for the life of the license an ability to exclusively license those same IP assets in the licensed application, distribution channel, territory, etc.

Tremendous untaxed value can be received through a cross license. Especially in years past, Western Electric, IBM, General Electric and many other companies freely cross-licensed technology and patents to avoid litigation and to gain design freedom. Seldom, however, did the receiving company make any effort to catalog the patents and technology it in-licensed to make the technology and free licenses available to its technical community.

The wise in-licensee establishes databases and processes directed to make full use of the licensed technology and to avoid “reinventing the wheel”.