How do you decide if the return is worth the investment when you’re prioritizing your technology licensing opportunities? There are lots of methods for calculating ROI in technology commercialization, but consider some of the oft-forgotten aspects of the ROI equation.
Focusing first on the R, it’s important to remember that the return on a license isn’t always financial. Sometimes it’s strategic:
- Maybe the inventors and management in one R&D department are not supportive of technology transfer. Getting a licensing “win” for someone in that group may make them more inclined to step up to the plate later.
- Maybe you have a prolific inventor whose innovations so far haven’t been spectacular but where a technology jackpot may be on the horizon. A successful small license keeps such innovators engaged and willing to dedicate the effort when the stakes are higher. (This also fits nicely with any innovator training you may be doing.)
- Maybe you have a patented technology that could positively contribute to a humanitarian or environmental cause. It might not generate a lot of royalty revenue, but it can help maintain a positive public image. (Take note, BP!) Consider NASA’s recent license for a solar refrigerator technology that is going to be used to safely store vaccines in off-grid locations around the world.
- Following the concepts of Symbiotic Innovation, maybe you have a patent that could address the technical challenge for a potential collaborative R&D partner who has a patent that’ll help you solve your technical problem. (I scratch your back, you scratch mine.)
Besides the strategic return, some of the financial return might be indirect. If you out-license internally developed software to a company and they shrink-wrap it and license it back to you, you may have some significant financial savings. Maybe now you don’t have to provide technical support internally, procurement is easier, you don’t have to pay internally for improvements… the list goes on.
So consider all of the qualitative and quantitative returns when you’re determining whether your investment in marketing a specific piece of intellectual property (IP) is worth it.
That brings us to the I: investment. In planning your marketing strategy, calculate what you have to do to achieve a deal without overspending relative to the return. If you need to invest in a proof of concept in order to reduce risk and get a license, can you expect to get at least that much out of the license? Can you get a license without that investment? In theory, each investment you make should reduce risk and increase the value of the licensing deal. But in practice many technologies (especially from universities and government labs) are so early stage that no license deal will occur without being at least somewhat reduced to practice. Yet the cost to get there may not equal the value to the market. This is the balancing act tech transfer managers go through all the time.
By the way, don’t forget to calculate the ROI for the licensee. That information also will aid your negotiations. And rather than calculate the value of your technology to the market as a whole, think about what percentage of the value of the product your technology brings to the licensee. If you can determine by how much having your widget will allow the licensee to increase market share (or enter a new market), then you can calculate the licensee’s financial ROI. (If they were selling $100K worth of product, and with your tech they’ll sell $200K, then your tech contributed $100K of value.) Remember the 25% rule—the licensor generally should get 25% of the profitability gained by the licensee from the invention.
Next post: Information Management. Until then, can you share some of the indirect or strategic returns you’ve experienced in technology licensing?
–By Laura A. Schoppe