Licensing Executives Society

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FAQs on Technology Transfer and Licensing

Learn About Licensing | FAQs | Publications About Licensing

The following collection of questions and answers are necessarily very basic and elementary. However, they are designed to help those new to the area of technology transfer and licensing and to get an understanding of the basics. The questions, that arise in the conduct of technology transfer and licensing, can get very complex.

Q.	What is "Intellectual Property"?
A.	Intellectual Property is the term used to describe the products of human ingenuity which can be owned and dealt with as a form of property because of a body of laws relating to patents, trade marks, industrial designs, copyright, plant breeder's rights and chip protection legislation. These laws give to the owner of the intellectual property the right to stop others from using the invention or other subject matter of the intellectual property without his or her permission.
Q.	How can one use Intellectual Property?
A.	There is an analogy between the way that one can use a house (a form of real property) and the way one can use intellectual property. Firstly, one can live in a house and use it to protect one from the physical environment; similarly one can protect oneself from the competitive environment by operating within ones own intellectual property rights. Secondly one can rent out one's house; similarly one can license ones intellectual property and allow others to use the intellectual property right for a fee. Thirdly one can sell one's house; in the same way one can sell an intellectual property right, this is normally called an assignment.
Q.	Can I license someone my idea without getting a patent or other form of intellectual property?
A.	Ideas can be copied unless they are either covered by some form of intellectual property right or if the person who has received the information in confidence. If you want to license an idea it must either be covered by a patent application or some other intellectual property right or alternatively the idea must have been received by the intended purchaser in confidence. It is usually difficult to get a potential purchaser to agree to receive information in confidence from a stranger and therefore in practice it is usual to file for some form of intellectual property protection.
Q.	How do I go about protecting my Intellectual Property so that I can license it to others?
A.	The laws relating to intellectual property vary substantially from country to country. We suggest that you see a patent attorney or intellectual property lawyer in your country for specific advice.
Q.	What should I do to license my idea now that I have filed a patent application or an application for some other form of intellectual property protection?
A.	Firstly, make enquiries in the industry in which the idea may be applicable to see if the idea is really new. This may involve conducting a patent search, which can be done initially on the Internet at www.patents.ibm.com. If you are confident that your idea is new, then your next step is to identify the particular advantages that your idea offers to users, or manufacturers. You also need to identify any disadvantages that it may have. Then try and find out what market sector this idea offers most value to. A new engine, for instance, may have many applications, but it may be most applicable as an outboard motor for boats. In this case it would be desirable to try to license the idea to an outboard motor manufacturer first and to try and sell it to other motor users later.
Q.	How do I find someone to license my intellectual property to?
A.	After you have decided which is the appropriate market sector into which your idea fits, the next task is to find the names of companies that are already active in that market or which have complimentary skills and resources so that they could readily enter that market. This can be done through the use of the internet or through traditional directories such as phone directories and company directories which are held by many public libraries. Sometimes there are industry associations which can provide the names of their members.
Q.	How should I approach a company that might be interested in licensing my idea?
A.	Prepare a brief presentation outlining what your idea relates to and its advantages. This can be sent to the companies that you have identified as being in the right market sector, or are capable of entering it. It is helpful if you have the name of the person in the company responsible for receiving new ideas. If you are a member of LES you could look the company up in the membership directory through the members only part of this web site. If there is a person working for the company who is a member of LES then that person might be an appropriate first contact point in that company. You should call this person to let them know that you intend sending them a disclosure and see if they have any special requirements at to how such proposals are submitted.
Q.	What happens if I get a letter asking me to agree that my disclosure is not secret before the company will look at it?
A.	Many companies have policies relating to how they will deal with new ideas that are submitted to them. It is quite common that companies do not want to receive confidential information from a stranger. This is because they may already be working in an area and do not want their freedom to continue that work compromised in any way. If you get such a response to your first contact with a company then it is appropriate that you limit your disclosure to information that is already public or which relates to the advantages that your idea exhibits rather than to the idea itself. Once the company is confident that your idea is of real interest, and is new, then they may well be prepared to accept further disclosures in confidence.
Q.	Once a company shows some interest in my idea what do I do then?
A.	This is the time to give the company an outline of the license terms and conditions that you are asking for. This outline is often called a ''heads of agreement''.
Q.	What sort of terms and conditions are usually included in a license?
A.	There are whole books written on this subject, but briefly it should indicate what is being licensed (including whether improvement inventions are included), in what territory, for how long, whether the license is exclusive or not, whether there are any field of use restrictions, accounting provisions, termination provisions, the compensation payable for the license and a host of other more routine issues that are often called ''Boilerplate Clauses''.
Q.	What is an exclusive license?
A.	Licenses are either non-exclusive, which means that the owner can license the same intellectual property to others as well as to use the intellectual property rights him or her self. An exclusive license gives to the person receiving the license (called the "licensee") the right to use the intellectual property to the exclusion of all others including the owner (who is called the "licensor"). It is also possible for a license to be a sole license. In this case the owner undertakes not to grant the right to use the intellectual property to any other licensee but reserves to right to use it him or her self.
Q.	Why does the license include a territory?
A.	Intellectual property rights are typically granted on a country by country basis but are occasionally granted on a regional basis. In granting a license it is usual to indicate the country or countries which are included in the licensed rights. Some licenses are granted on a world-wide basis covering all countries in the world and others are granted for only a part of a country.
Q.	How long does a license usually last for?
A.	Patent licenses are often granted for the life of the licensed patent which lasts longest. It is possible, however, for the parties to agree on a shorter term if they so desire. If the term of the license is longer than the life of the patents then in some countries this can cause a problem.
Q.	What am I likely to receive in consideration for the grant of a license?
A.	It is quite common for a license agreement to include one or more of the following components: an up-front payment, a running royalty, and a minimum royalty. The exact details of the consideration are usually the subject of negotiation between the parties. There are no hard and fast rules as to what is reasonable. What is important in a license is that each party receives a fair proportion of the profit derived from the exploitation of the intellectual property right.
Q.	How is a reasonable royalty determined?
A.	A royalty is often calculated as a percentage of the net selling price of the goods or services sold by the licensee. In other cases it is a fixed amount per sale. Surveys have shown that royalties paid in connection with license agreements can range between 0.1% of net selling price and 50%. This is a very wide range and shows that each case needs to be considered on its merits. To start the process of determining a fair royalty it is often appropriate to prepare a business plan to try and calculate the profit that a licensee may make from working the license. It is sometimes said that a fair royalty is one that, over the life of the license gives the licensor about 25% of the profit made by the licensee from the exploitation of the intellectual property. This is only a guide and in some cases is appropriate and in others is not. If you are a member of LES you can find out more about this topic in the library of the members only section of this web site. It is possible there to search through the LES quarterly journal les Nouvelles and a number of other publications by key word.
Q.	How do I develop a business plan?
A.	There are a number of books and computer programs to help in doing this, however you can access a skeleton for a business plan at the internet.
Q.	How can LES help me in licensing my technology?
A.	LES is an international society of individuals interested in licensing. It cannot as such help you in licensing your technology. By becoming a member of LES however you can access the knowledge and resources of LES. As a member you receive the quarterly journal of the society, les Nouvelles, which contains informative articles about licensing and related topics. You will also receive a copy of the membership directory containing details of the membership of LES national groups around the world, accessible alphabetically by name and by name of company, as well as by geographical location. You will receive details of the many meetings that LES has around the world each year. You can meet other members at these meetings and exchange ideas and experiences. You can also access the members only section of this web site which has a considerable amount of material regarding the licensing and commercialization of intellectual property.

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