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Licensing: What You Need to Know

Sometimes it can be faster and cheaper to license technology that already exists than to develop it yourself. Here's how to do it.
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Are patents important to your business? If so, how do you build your patent portfolio? From a business perspective, a license that gives you the rights to use important intellectual property can be just as valuable as your own patent. And it can be a lot faster to license valuable intellectual property than to try to be the inventor on every patent in your portfolio.

One source of new technologies is our national labs and universities that get federal funding. Their mission is to find commercial partners to bring inventions out of the lab and turn them into real products. This is where you come in - entrepreneurs can often be, or provide, a vehicle for commercialization.

Here are some things to consider when building your patent portfolio:

Will Customers Care?

Any business that will rely on your product should care about your rights to sell that product. And if you’re building a product that will go through a long qualification process before being used as a component in a bigger piece of equipment, your potential customer is making a big investment in resources just to test your product and qualify it. They don’t want to have patent problems after they’re spent the money to do this.

Time and Money to Generate Your Own Patents

 

Generating your own patents is great. But even assuming you can get your patent through the patent office, it’s a long haul before you see an issued patent. Be prepared to wait two years before you hear anything about your patent application, which can easily cost $15,000 to file in the first place. Meanwhile, your startup is burning cash and trying to get market traction.

 

Time and Money to License Intellectual Property

 

There are two basic types of licenses: non-exclusive and exclusive. In either case, you will spend time and attorney dollars to negotiate a deal, but the process can be much faster and more economical than filing your own patents. Bonus: In the case of issued patents, you won’t have the risk of rejection by the patent office.

 

Non-Exclusive vs. Exclusive Licenses

 

A non-exclusive license means that multiple companies may get the rights to commercialize a technology. Obviously, this leaves the door open to your competition, but it’s also more affordable than an exclusive license. In some cases, you won’t be able to get an exclusive right away, but it may become available after you prove your track record on the path to commercialization.

An exclusive license means that only one company is getting the rights to commercialize a technology, although the license may be restricted to a particular field of use. This blocks your competition and gives you a definite competitive advantage. These deals will often have milestones built into them, and if you don’t meet them, you’ll lose the exclusivity. This ensures that you actually try to commercialize the technology, and don’t just shelve it to keep it away from others.

Credibility

Licensing from a highly regarded institution can give you instant credibility, especially if you are a small business building your brand from scratch. You can get a nice public relations opportunity out of a license with a national lab or top university. 

There are other, more technical factors to consider. You need to think about how long the patent has left before it expires, and the cost of maintaining it. You will still have legal costs. Licensing deals usually require you to take on product liability insurance. But remember: At the end of the day, universities and government labs want to see their inventions commercialized. You may be surprised at how reasonable they can be.

Last updated: Jul 11, 2012

LAURA SMOLIAR | CEO, Peppertree Engineering

Technology expert. Global entrepreneur. Mentor. Laura Smoliar, with over 15 years professional experience and a Ph.D. in physical chemistry, specializes in the commercialization of technology.




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