Innovation Strategies:

Technology Commercialization

Strategic Licensing Out

Benefits and Alternatives


Excerpts from the "Strategic Licensing in the New Economy", Dennis Fernandez with Sarah Stahnke, Rebecca Sheehan and Mary Chow, Fernandez & Associates LLP


Questions to Consider When Licensing

  • Does the Strategy Fit? – When considering a licensing strategy, a company should look closely at how the licensing program will fit into the overall business plan of the company.  The most ideal strategy should not only compliment but enhance a company’s product line while providing an even more attractive position for the company vis a vis the market in which it participates. One way of ensuring that interference in this market is minimized is to only license to other markets or for use in foreign economies. Another good piece of advice is to use particularly stringent terms of licensing agreements when dealing with competitors. Additionally, if a company is attempting to license a technology that has been standardized, then it may be wise for it to decide not to compete with its licensees by avoiding the manufacture and sale of products in the markets where it knows it has licensed technology. Making a market or territory restriction in the licensing terms may prove beneficial to both parties as well.

  • Can Cross-licensing be Used? – When the prospective licensee owns intellectual property of interest to the licensor, cross-licensing is a relatively low-risk way of enabling both parties to exchange intellectual property. When such extensive intellectual property portfolios are involved in an agreement as with large corporations, cross-licensing becomes particularly attractive as rights to intellectual property may be exchanged while, often, no royalty payments are involved. However, in this scenario, terms regarding ownership of improvements on the cross-licensed technology needs to be clearly stated in the agreement.

  • Does the Licensee have the Appropriate Resources? – Ensuring that the licensee has the revenue to carry the product program through is essential for the licensor. After investing the time and money that it takes to sell a license, a licensor must expect the investment in the licensee to be a sound and profitable one that will matriculate as many royalties as possible from the intellectual property.

  • What should the Financial Terms Be? – Both parties should feel that the financial terms of the agreement suit them. The licensor should not expect to earn royalties in excess of the value it can expect a given technology to add to the product of the licensee. Another aspect of a license agreement that can prove prohibitive is the requirement of large initial payments especially of potential licensees who are particularly small and do not have sufficient cash flow to make such a great investment right off the bat.

  • Are Additional Licenses Required? – The licensor should attempt to foresee any additional licenses that the product of a licensee may require for manufacture. At this point, detecting the benefit of the licensor’s particular technology to the product of the licensee is particularly essential in determining the royalty shares of the multiple licensors. Furthermore, both parties should make a careful analysis of all the licensing costs involved, as the total cost of the licenses may drive the retail price of the product up out of the market.

Technology Commercialization: Venture Pathways

Licensing of IPR

The Role of Intellectual Property Rights (IPR)

Model Agreements

Sample Exclusive License Agreement

Sample Option to License Agreement

Terms of the License Agreement

Sample Material Transfer Agreement

Sample Material Transfer Agreement Questionnaire

How Licensing Can Add Value to Your Business

Licensing technology provides a low-risk way to capitalize on your intellectual property assets. Due to the high cost of manufacture and the comparatively small investment of a licensing program, many of the risks that a company would otherwise face in exploiting its intellectual property are transferred to the licensee. Depending upon the exclusivity of the license, there are varying degrees of risk involved for the licensee and licensor; however, an effective license strategy will minimize risk for both parties.

Before a company considers licensing out its technology, however, it should consider whether other ways of taking advantage of its property, such as joint ventures and strategic alliances with other companies, would better compliment its economic position. Once licensing is decided upon, the nature of the company as well as the particular property it wishes to utilize should be carefully considered before deciding the architecture of the license.

The Benefits of Licensing Out

By licensing out its technology, a company may generate income from unused portions of its intellectual property. In addition to making this potential energy kinetic, licenses enable a company to exploit other markets by allowing the licensee to apply the existing technology to a different market. When an invention is useful to several industries, licensing can prove profitable to both the licensor and the potential licensee as experts in separate fields.



Licensing out is not only a good way for a company to enable its invention to reap the benefits of other industries but also a way to capitalize on the potential of foreign markets. Licensing to firms for production and distribution to different populations can enable a company to further profit from its technology while protecting itself from the overhead required to participate in foreign markets.

Licensing out offers the additional benefit of allowing the licensee to advertise itself better as well as to make improvements (which can give the licensee varying degrees of liberty, thereby making the license more desirable) upon the invention. When a company detects property infringement, its most economical plan of action is also to license the property rather than litigate against the infringer.

Before licensing in technology, a company should ask itself whether the invention is something it can develop in-house and, if so, whether the time and cost involved are worth the expected return. When looking at potential technology to license in, the company should carefully consider whether the property in question fulfills its production and marketing needs.

The terms of the license are the most important aspect for the future licensee, and he must look carefully at these terms, negotiating with the licensor until issues such as long-term profitability/room for growth as well as royalties are resolved to suit both parties. The final consideration for a company to make in acquiring intellectual property through licensing in is whether the licensor is capable of fulfilling its obligations to the licensee financially and otherwise and whether, if additional support may be required later on, the licensor will have sufficient resources to further enable the licensee’s production.

License Agreement: Main Terms

Long-term vs. Short-term Agreements: In a long-term license, the up-front payment is usually relatively small, and the subsequent royalty payments form the bulk of the financial compensation. Such an agreement is usually mutually beneficial if the licensee is a small, cash-poor company.

In a short-term license, the bulk of the payment is made in a larger up-front payment. In the most extreme case, this license may consist of one lump payment to cover past infringement. Such a license is suitable with an uncooperative or infringing licensee. This type of agreement is also useful when the licensing company wishes to liquidize its assets.

Exclusive vs. Non-Exclusive Agreements: Whenever possible, the parties should attempt to engage in a non-exclusive license. This provides benefits for both the licensor and the licensee. Firstly, there is less risk involved for both parties; the licensor is not dependent on the success of one product, and the lower licensing fee minimizes the risk of the venture for the licensee. In addition, the licensor retains more control over the product. Furthermore, the reduced royalty fees reduce the cost of the product, which can increase the market share. Lastly, licensing to several companies increases the likelihood that improvements on the technology will be made; these improvements can benefit the licensor and all the licensees.

If the licensee desires an exclusive license, the licensor should ensure that several criteria are met. Firstly, the licensor must consider whether an exclusive license is the best way to exploit the potential of the technology. In addition, substantial research should be conducted into both the technology and the licensee to ensure that the resulting product will be clearly superior to its competitors and will be able to garner a large market share. Finally, the licensor must be persuaded that the licensor has the marketing and production resources to make the product successful, and that the licensor is willing to commit these resources. The licensor may also wish to consider limited period exclusivity.

Improvements on the Technology: Both parties should carefully consider the proprietary rights of improvements made to the technology during the license term. It is beneficial to the licensor gain rights to any improvements made by the licensee. Likewise, it is beneficial to the licensee to gain rights to any improvements made by the licensor. Furthermore, if the license is non-exclusive, the licensee may also be able to incorporate improvements made by other licensees. The rights to improvements may be included free of charge with the license, or the license agreement may stipulate a payment to be made by either party in return for intellectual property rights for the improvements.

Sublicensing: Unless the agreement specifically states otherwise, the licensee is allowed to sublet to other parties. The licensing party should be aware that it may lose direct control over the technology if the licensee sublicenses the intellectual property. If sublicensing is allowed, the terms and conditions should be explicitly stated in the agreement.