When large corporations take a look at their intellectual property assets many find that those assets are underutilized. This is particularly true in organizations that derive their profits and revenues from sales of tangible products and services to customers. In these organizations intellectual property is predominately used to give those offered products and services a sustained advantaged competitive position. Out-licensing for such organizations is typically viewed as an opportunity to leverage those assets for slightly improved corporate profitability by letting someone else use the intellectual property, and making money on them using it. This is pertinent because in most for-profit corporations selling tangible goods and services, less than 10% of commercialized products and services are covered by the patent portfolio the Corporation holds.
The benefit of global out-licensing to corporations selling tangible products and services is typically twofold.
First there is a tactical benefit to extract value from licensing the intellectual property. The goal is to increase the return on existing IP via licensing technology, know-how, trademarks, patents or copyrights. This tactical value comes in multiple forms. It is not just up-front money to the bottom line. Other value sources are royalties, merchandising, brand impressions, new distribution channels, improved retailer relationships, capital avoidance, full capacity utilization, penalty avoidance, litigation minimization, and lower pricing for raw materials.
There’s also a second value to out-licensing technology. That is to strategically build value for the Corporation. This is done primarily by accessing technology and know-how from external sources to fuel internal innovation, speedup commercialization, and to reduce costs. Example of such sources of value are the ability to source, clear market and technology focus, better decisions on where to play, and better decisions on mergers and acquisitions. The goal here is to find the intersection between the needs that the company’s marketing department has uncovered, and various solutions available internally and externally to the Corporation to create value by delivering products and services that meet these needs. Predominate activities include securing the rights to technology for the company’s innovation efforts. These include acquisitions, joint ventures, cross-licensing of technology, know-how, and business methods.
The key challenges in licensing-out technology are obtaining corporate permission to do so. For corporations that have had successful licensing programs the following principles tend to apply: (1) all technologies and know-how are candidates for external commercialization, (2) all technologies are available for out licensing three years after market introduction, or five years after the patent is been granted. (3) all packaging concepts are immediately available for licensing, (4) licensing is available to competitors, and (5) the company retains a right to practice all art that it licenses out.
Companies that engage in these out licensing efforts often find that most value is generated via nonfinancial measures. When out licensing organizations are set up within a large company they typically have a good first year or two, but then once the low hanging fruit is licensed, the real benefit of such organizations is acting as liaison groups for accessing new technology and providing nonfinancial assets in support of venture and merger activities.
Typically out licensing groups are resourced with a few senior technical and marketing executives supported by intellectual property and contract specialists.