SUCCESSFUL LICENSING NEGOTIATIONS

There are many motivations for licensing Intellectual Property (IP). These are mainly business motivations, and are often closely linked to a corporate IP strategy. For example, a company may own a successful technology that they have commercialized in a specific market and geographical area. If the technology is applicable outside of the areas the company is able or willing to operate, they may opt to license their technology to another company that will enter those markets. By licensing their IP, they are able to expand beyond their core business and into new markets and generate new revenues that they would not have had otherwise. On the other hand, the company that takes the license gets a technology that can be successfully commercialized and which they would not have been able to legally practice without taking a license.

The “open innovation” paradigm (see this for an introduction to open innovation) encourages IP licensing between companies rather than relying solely on internally developed technology. As open innovation gains wider acceptance among executives of various industries, licensing activity will continue to grow, and an understanding of IP licensing will become critical for business success. This article focuses specifically on successful licensing negotiations, which is one of the most important steps in the IP licensing process.

There are two sides to a licensing agreement. The licensor is the IP owner seeking to generate revenue from a license. The licensee is a company that wishes to “in-license” a new technology to complement its own. Many licensors are pro-active in advertising their IP to potential licensees, and in particular universities and government labs, and increasingly corporations as well. In fact, there are now companies that specialize in building large patent portfolios, whether through acquisition or internal R&D, solely for the purpose of licensing them to other companies to commercialize. Another scenario is the case where an IP owner detects or suspects infringement of their IP by another company, and approaches the infringer seeking a license agreement, often backed by a threat of litigation.

In any case, once the two parties agree to discuss a licensing agreement, the process of licensing negotiation begins. This can be a very complex and difficult experience for the negotiators. The stakes are often high, and there is pressure from management on the negotiating teams to achieve the best possible outcome. While each situation is different and hence there can be no recipe for succeeding in a licensing negotiation, the following points illustrate some issues to consider when developing a strategy for successful licensing negotiation:

1) Aim for a Win-Win situation: It’s critical to understand what the other side wants and needs to get from an agreement, and what your side needs as well. This will help guide the negotiation towards a successful conclusion. If you offer the other side what they need to be able to sell the agreement as a “win” for their side, you are more likely to be able to get more out of the negotiation for your side as well.

2) Being Prepared: Perhaps the most important factor for success in licensing negotiation is to be very well prepared in advance. In addition to understanding the needs and wants of both sides as mentioned in point #1, it is also important to understand strengths, weaknesses and priorities of the opposing side. What is the purpose of the agreement for both sides, and what are they looking to get out of it? If possible, obtain license agreements that the other side has entered into previously and review them for possible clues into what they may be willing to accept.

3) Develop a Strategy: Once you have gathered all the information needed, you must develop a strategy for the negotiation. Understand who you are negotiating with, and who the real decision makers are. Do a background check on the other side to understand their financial situation and their place in the market. Determine your time-frame for concluding an agreement. Determine what the decision makers from your side want and have it written down and agreed upon. Understand the technology, the market and the competitive landscape. Given all of these factors, you will start to be able to put together a negotiating strategy.

4) Your Negotiating Team: Having too many people on a negotiating team does not usually work very well. Two people is probably ideal, but it is very important to negotiate with one voice, so you must designate one person to lead the discussions. Decide the role of each person on the team. For example, decide who will discuss technical aspects, and who will address legal issues, and who will take notes, etc.

5) Negotiate with the Decision Makers: Avoid negotiating with a team that has no authority to make a deal. The worst situation to be in is to have the other side come back to you after reaching an agreement to say that their boss did not agree to certain terms. It will be very difficult to rewind the negotiation and get back some of what you had already previously conceded to make the deal. You need to understand very early on whether or not the team you are negotiating with has a strong mandate and authority to negotiate on behalf of their side.

6) Negotiation Tips: Be well prepared, listen to the other side very carefully, and really understand where they are coming from. If there are multiple sessions, summarize the previous session and set a goal for where you want to be at the end of the current session. Negotiations often take longer than expected, so be prepared but don’t leave it open ended. Prepare some items that you can “grudgingly” concede when nearing agreement to close the deal. Separate emotions and your feelings about the people involved from the work that you are doing, as it can cloud your judgement and impede an agreement. Finally, and going back to point #1, you will reach your goal much more efficiently if you keep the interests of the other side in mind. Give them a “win”. The deal has to be “good” for them, otherwise it won’t happen. But try to make it a “great” deal for your side!