Negotiating technology licensing agreements.

• Author: Nanayakkara, Tamara

For small and medium-sized enterprises with limited resources or for individual inventors reluctant to go it alone, licensing technology can mean a "win-win" situation when the terms are negotiated with the interests of all parties in mind.

Using or adapting existing technologies, new ideas or solutions that have already been generated elsewhere can help companies produce better-quality products or services at a lower cost. It makes good business sense, particularly for small and medium-sized enterprises whose resources are limited, to either buy such technology or negotiate a licence for its use rather than invest in developing a tailor-made solution. Likewise, for a company that has developed a better product or manufacturing process, selling or licensing that knowledge could translate into additional income. Individual inventors, too, lacking the necessary capital and/or commercial know-how, can benefit from entering into agreements with companies to help them commercialize their idea.

Sell or license?

When technology is sold or "assigned", the ownership rights for the technology pass from seller to buyer for an agreed price. For a technology owner who has no experience in bringing a product to market, finding a buyer and completing the transaction in one go might be ideal. If, however, he or she prefers to license the technology, then the right to use the technology is passed from the technology owner--known as the licensor--to the licensee. The manner in which the technology will be used, for how long and in what region or area will be determined by the terms negotiated in the licensing agreement. Unlike a sale, the licensor continues to own the technology and could maintain control over manufacture and sales and may license the technology to as many companies as desired.

A long-term partnership

Entering into a licensing agreement is to enter into a partnership, a continuing relationship where licensor and licensee work together to maximize their mutual profit. Assuming that the partnership is successful, both parties will profit from the...