Streamlined/Low-Cost Licensing: Making Sure Faster and Cheaper Are Better

I read with interest two recent news stories about technology transfer offices (TTOs) looking to increase licensing deals by addressing two oft-cited barriers: high costs and long negotiation times. The logic: Offering intellectual property (IP) at a super low cost (or even for free) and/or through non-negotiation, ready-to-sign license agreements will result in more technologies getting to market faster.

These types of programs have been around for a bit (see my prior posts about free IP and ready-to-sign licenses), and the trend seems to be growing. So let’s look at the two recent examples and consider how to make these types of programs successful.

Sandia National Laboratory is now offering a $500 option-to-license arrangement. This seems to be in the same vein as the Dept. of Energy $1K program launched last year. In short, the arrangement is an option for 1 year, which effectively takes the technology “off the market” (like putting a house under contract). Then if the company wants to keep using the technology, it negotiates a license.

This type of program has several advantages:

• It’s a good way to get companies that are hesitant to take the plunge and actually engage with the IP as well as the institution and its TTO. This is good for long-term relationship-building.
• This type of try-before-you-buy arrangement can help take the lab’s early-stage technologies to the prototype level, helping to bridge the valley of death.
• The company likely will have a higher perceived value of the technology after working with it, which can positively contribute to later negotiations (assuming the company does decide to license it).

If you’re thinking of implementing this type of program, I recommend that you make it available to any type of company — large, medium, or small; startup or established. (I’m already on the record about the drawbacks of startup-specific programs.) This increases the number of eligible participants without increasing risk. (In fact, it actually decreases the risk.)

In addition, choose carefully which technologies to include in the try-before-you-buy program. If the technology is already well developed and characterized, the option is not usually necessary and, in fact, delays getting it to market and, therefore, revenue generation. Rather than serving as a mechanism to allow the company to test-market the product, the option should be for further developing the innovation and reducing technical risk.

Stellenbosch University in South Africa is offering IP licenses for “free.” Although seemingly similar to , which offers certain innovations for free (to quote the “completely free?” FAQ: “There is no upfront fee and we don’t ask for royalties, even if the technology makes money in the future.”), Stellenbosch’s IP isn’t actually free. It’s free until revenue is generated, at which point a 1% royalty kicks in. So the arrangement is similar to a ready-to-sign or “express” license: Companies sign a license that commits them to predefined financial terms, even if they have no financial risk for the first few years during development.

The take-it-or-leave-it strategy can significantly truncate the negotiation time and resource cost. It also may bring more players to the table. However, there are three things to keep in mind with ready-to-sign agreements.

1. Choose the technologies carefully. I’ve said this before, but it’s worth repeating. This arrangement is appropriate for some — not all — IP. I’ve heard from several universities that they are setting up this system for their marginal technologies — that is, the lower value technologies where it doesn’t make sense to commit resources to market and negotiate them. I wholeheartedly agree that you must first analyze the technologies (or, if you have a backlog, the whole portfolio) to decide what goes into the passive, take-it-or-leave-it bucket and which “gems” should be proactively marketed and individually negotiated. (Learn more about the Fuentek Filtering Process.)

2. Set the fixed terms carefully. Because using a percentage requires negotiations to define the product to which the percentage is attached, consider setting up the revenue stream as a fixed price instead. This will alleviate the need to negotiate what is and isn’t “game” for royalties and reduces monitoring and reporting requirements.

3. Stick to your no-negotiations policy. It may be tempting to make an exception and entertain term changes, but do not cave in. Doing so gets you into the same back and forth that takes too long and frustrates companies. Worse still, you have compromised your position having already set the ceiling for the deal (and a very low ceiling, at that), so you have nowhere to go but down.

Anyone else have lessons learned to share with these types of programs? Feel free to make a comment — or ask a question — below or via private message.