Technology transfer, or the process of converting scientific and technological advances into marketable goods and services, can be daunting. So why bother? Whether you’re a prospective licensor or licensee, this article will help you to understand the motivations for engaging in this important business process and to identify some risks which should be considered.
At the heart of any decision to participate in technology transfer must be the business strategy of your company, what your company is seeking to achieve. Obtaining a licence (licensing-in) or granting a licence (licensing-out) must support the business strategy if it is to stand any chance of being successful, both in the short and longer term. Get it wrong, or do it for the wrong reasons, and you could end up spending valuable capital with minimal return, or inadvertently set up a competitor to your core business.
Here are some good reasons for being party to a technology transfer arrangement:
As a successful licensor you could generate much needed revenue through royalty payments, which could be upfront lump sum payments, staged lump sum payments, or ongoing royalties based on products manufactured or sold, or any combination of the foregoing. For example, an R&D company which does not have a manufacturing capability and is not interested in developing one could generate income to invest in more R&D by licensing out its innovations to manufacturers.
Building Company Capabilities
By licensing-in or acquiring technology that is not currently core to your company you could broaden the skills of your staff and thus the capabilities of your company. In doing so, you would need to ensure the licence agreement includes adequate provision of training, technical support and possibly the secondment of key licensor staff to your company.
Increasing Market Penetration
An owner of valuable intellectual property, no matter how large their organisation, is unlikely to be able to access effectively and successfully all possible markets – geographic and technical. By carefully selecting its licensees, an IP owner will be able to get its technology into new markets and to generate additional revenue without having to set up local manufacturing facilities or establishing a local sales force and technical support team.
Reduced Time to Market
Don’t reinvent the wheel! By licensing-in proven technology a company can avoid the inherent risks and associated costs of R&D and can significantly shorten the time to market for a new product.
By licensing-out its technology the licensor receives revenue in the form of royalties (see earlier) without the costs and risks associated with manufacturing, marketing and sales. Conversely, as stated earlier, the licensee gains the right to use the licensed IP without the risk and costs of conducting the R&D itself.
Technology transfer can bring great rewards to all parties, but there are some risks which need to be considered and, where possible, addressed through expert negotiation and drafting of the licence agreement and any other transaction agreements:
- As a licensor you are likely to lose some or all control of your intellectual property and its use, although you may be able to secure a period of consultancy or sponsored R&D with the licensee.
- Identifying prospective partners (be they licensors or licensees) and selecting a partner can be difficult and time-consuming. Selecting the wrong one can lead to all manner of problems further down the line.
- Be street-wise in your negotiations, your counterparty certainly will be. Negotiation of a fair and balanced licence agreement is no matter for an amateur. Seek professional support for this difficult but crucial part of the process.
Rob Carter 8 January 2015
This is part of a series of articles on technology transfer by Rob Carter, latterly Associate General Counsel, Intellectual Property at Royal Dutch Shell plc and now a consultant at K2 IP, the network of patent and trade mark attorneys and IP consultants developed by Keltie LLP.