You have what I call a “high quality problem.”
You've created a new technology, idea or invention and you want to bring it to market. Now the fun really begins. Often people with new products look for an outside company to help with manufacturing, marketing, product development, selling and other aspects of bringing their products to market.
When a product developer seeks to have another company bring its product to market, the developer will sometime accomplish this by licensing the technology to a company with the resources to commercialize the product.
Such an agreement grants another party the right to use the product developer's technology or idea in exchange for royalties on sales of the product. While patented technology is the most frequently licensed intellectual property, copyrights, trademarks and trade secrets may also be licensed. It's important to realize that the negotiation process starts with a discussion of the major terms of the license.
It's here that many entrepreneurs limit their own success and prospects for realizing the full value of their innovations. Planning for discussions with a potential licensee is critical to protecting the entrepreneurs' interests as well as determining the seriousness of interest of the potential licensee. There are many considerations, both short-term and long-term, that must be considered in such an agreement.
Entrepreneurs need to consider the value of their innovations to comparables. They also need to include protective provisions to recover rights to their innovations if the licensees fails to perform their parts of the bargain. The innovators also needs to think through their own business plans – and provide flexibility if those plans change in the future.
Licensing Negotiation Tips
Here are some tips for making the process of preparing for a licensing negotiation more successful for you:
Be organized and patient. A licensing agreement is a complex document that takes time to negotiate. The more organized and professional you are, the more likely you'll find a company that wants to work with you.
Research the licensee before you negotiate. It's important that you understand the business focus of the potential licensee you wish to contact and their history of operations in situations similar to yours. What are its products? Does it manufacture its own products? How does your idea fit into its business model? What has been its experience in dealing with similar agreements in the past? What's its history in complying with contracts with third parties? The more you know about the company with which you wish to do business, the better.
Use a non-disclosure agreement before revealing an confidential data. Using a non-disclosure agreement so that both parties pledge not to reveal confidential information of the other an important part of protecting your product.
Perform internal due diligence on your own IP. Your intellectual property may be your most valuable asset. So, it's vital that you ensure you have proper procedures in place to establish it and protect it.
Before signing any letter of intent, term sheet or communication relating to terms, speak with your attorney. Terms given up without careful thought can limit opportunities for future profits – or can even poison the negotiations to prevent any agreement at all. It would be wise to have an expert attorney review the terms you plan to propose before you launch your first written communication.
An experienced licensing attorney can help you through the process.