Licensing out technologies from an SME’s perspective

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While companies have traditionally seen Intellectual Property rights protection as a defensive means to secure competitive advantages on the technology front, large corporations, but also more and more small and medium-sized enterprises (SMEs), have realized that IP management goes far beyond the pure protection of IPRs and aim to utilize their rights proactively. 

Certainly, the question how to generate the highest benefits from a company’s IP portfolio arises mostly after building up a solid protection base, but IP exploitation can also be an integral part of the business plan from the outset. IP is a broad concept and includes many different intangibles (e.g. patents, copyrights, trademarks, trade secrets, know-how). However, this article about technology licensing sets the focus on patents and utility models.

There are several ways of extracting value from a patent, such as using it as a bargaining chip in negotiations with cooperation partners or banks, selling it and granting licenses. Particularly licensing out technologies is a preferred way to commercialize and exploit IP, because it allows the owner to generate income, but still keep the greatest possible control over the IP and related technologies. The classical explanation for licensing out builds on the idea that companies either recognize that a licensee has better capabilities to exploit a certain innovation than the IP owner, or they aim at establishing their technology as a de facto standard, for instance when network externalities are important to penetrate the market with the product. Other motives to license out beyond direct revenue generation are to collaborate with others and develop new products and services jointly or to expand the business into new sectors and geographical zones while saving costs and minimizing risks but maintaining control over the quality of the products that utilize the licensed IP. Granting an equitable and affordable license may also be reason enough to keep off new entrants from inventing competing products if the license is less costly, time-consuming and risky than investing in research and development (R&D) themselves.

Besides, the importance of licensing out technologies increases, because nowadays we operate in a digitized and highly integrated, fast-moving environment. Offering up-to-date solutions and products often includes a combination of diverse disciplines and technological fields, especially those which enable communication and data-driven business models. For example, brick and mortar producers of steel or concrete are in the process of transforming into technology-driven companies that incorporate connected services, machine to machine communication or artificial intelligence into their product developments and service offerings. Individualized, customer and situation oriented services ask for a combination and exchange of diverse technologies across industries. Therefore, the implications for the management of IP rights in the context of technology licensing are significant. It is expected that licensing
activities will increase in both directions (licensing in and licensing out) to meet this upmarket demand.

In practice, companies and particularly SMEs struggle to license out their technologies. A recent study by the EUIPO shows that only 19% of SMEs signed a license agreement for IP rights, while only one-fourth of those agreements contain technologies which are licensed out. Only a minority of SMEs sign license agreements as licensors. The challenge for SMEs is to identify potential technology fields, applications and markets, potential cooperation partners and licensees. To tackle this problem, a practical concept for successful technology out-licensing for SMEs may be summarized in two important steps: first, defining the right licensing strategy by conducting analytics and, second, drafting and negotiating an appropriate license agreement that supports the strategy.

The importance of a licensing strategy which fits

First of all, it is essential to define an adequate licensing strategy. The licensing policy depends on the overall goal and motivation of the licensor. It may be different for a company with the approach of maximizing profits in a short time, than for a company that plans to expand into new markets or seeks technology partners. The licensing strategy needs to be aligned with the overall business and R&D strategy. If the company aims to create a de facto standard that the market shall follow, the licensing strategy might focus on maximizing profits, whereas a strategy to differentiate from other available products and to offer top-notch technologies might rather focus on the selection of potential partners as licensees or cross-licensees. It is important that the licensing strategy does not conflict with the overall business and R&D strategy.

Once the licensing strategy is defined, attention needs to be shifted to the following questions: How promising is the technology? Where can it be applied? And how strong is the patent? Click below to download and read the full article. 

This article was first published in the European IP Helpdesk Bulletin No.1 - IP Licensing.