ALANO, JULIUS N.

TM 298 – Knowledge Management

2018 – 20700 Prof. Serafin Talisayon

TERM PAPER

Title: Licensing of Technology for Competitive and Strategic Business Development

I. Introduction

Research, business, and product development are the major unit of a business
organization that specializes in innovating, creating, and developing new ideas,
products, services, or processes. Creating or developing a new product, service, or
process improvement for an organization is a critical process as it needs to be thorough
with its actions and decisions before the actual implementation and deployment.
Through this, business units lean to purchasing and/or licensing of an intellectual
property (IP) that is necessary for the development. Intellectual Property (IP) according
to the World Intellectual Property Organization, refers to creation of mind, such as
inventions; literary and artistic works; designs; and symbols, names and images used in
commerce. IP is protected in law by, for example such as patents, trademarks, and
copyright, which enable people to earn recognition or financial benefit from what they
invent or create. By system, the intellectual property rights convert creation and
innovation into a property consequently into valuable tradeable asset. This process may
come in many forms such as (licensing) strategic alliances, joint ventures, and the so-
called turnkey contracts, and (purchasing) assignment of IP.
There are two types of licensing. The first type is the “licensing-in” of which is the
acquisition of rights to a specific IP developed by another for a certain use. The other
type is the “licensing-out” of which to permit to another the right to use the specific IP to
which one has commercial rights, through an agreement. The intellectual property right
owner has options to selling or licensing his intellectual property. The option to sell his
intellectual property in technology also called an assignment, the ownership rights to the
technology will be transferred to the buyer in a one-time activity. The IP rights are sold
for an agreed price. The option to license is broad which usually in a form of a licensing
agreement which transfers from the licensor to the licensee the right to use the
intellectual property, in a specified territory, period, and manner. In this way, the
intellectual property owner still has the commercial rights over the IP and has only
permitted a definite right to the use of that IP. Licensing requires a different legal
approach as opposed to sale or assignment with strong difference in terms of business
purposes. One must be reviewing the strategy to decide on which approach to adopt.
The study will focus on the process of technology licensing which may support
organization in managing the desired IP that is necessary for business development.
 II. Review of Related Literature

Licensing of technology is now prominent to businesses as it provides opportunities

in upscaling business capabilities and market. Businesses must be easily adoptable to
new technologies to continue its competitiveness, profitability, and innovativeness in the
industry. A lot of companies tend to work in partnership with other companies through
licensing options, outsourcing, joint ventures, acquisitions or other strategic partnerships
which eventually requires on licensing in or licensing out of the intellectual property (IP).
According to Kane (2013), as you develop your business, you may discover that you
either need to license technology into your company to augment your product
development efforts, or create a new revenue stream by licensing technology that
you’ve developed to other people. The intellectual property rights can be transferred
with the rights to use, but not the ownership, through a license in the form of a licensing
agreement. According to Kane (2013), there are ten items to consider when licensing a
technology such as what is being licensed, rights being granted, exclusivity, geographic
limitation, field-of-use restrictions, rights to sublicense, assignment clause, diligence
clause, mode of payment, and other esoteric items. Firms must be completely aware
and define of the IP they were licensing. For the licensing agreement, one must be
certain on the rights needed to be conveyed with the licensee. Territory or region where
the license will be used must also be specified in the licensing agreement. Industry or
field-of-use of the license must be specified as to limit the use of the IP. The right to
sublicense must also be clear for licensor and licensee to avoid unwanted dispute.
Assignment clause is essential for both licensee and licensor for protection. Licensing is
a critical process that must be carried out carefully with the help of legal counsel.
Businesses deems licensing technology as an opportunity to be in the market
quickly as possible while reducing the development stage timeline, expenditures, and
risks. Licensing-in is considered as the most effective way as it allows firms to access
rights to intellectual property from knowledge creators, such as research institutes,
universities, and other companies who owns the IP which takes the roles as the
enablers to different businesses. According to Perera (2015), there are several reasons
why a company may find it advantageous or necessary to in-license a product or
technology. Firstly, it allows a business to quickly expand its portfolio of potential
candidates without the risks and costs involved with substantial R&D. Secondly, it helps
to expand a business by acquiring technologies that are complementary to those
developed in-house. And thirdly, in-licensing enables a company to obtain rights in
platform technologies to assist in internal R&D activities. It may be necessary to obtain
a license to avoid an infringement action by a third party.

III. Technology Licensing Process

 The study has focused on the framework of technology licensing and how it will
support businesses to improve their product developments efforts or creating a new
revenue stream. This process may be integrated to an existing business process of an
organization to address IP licensing endeavor.

Identify
Due Negotiate Execute
Technology Evaluate
Diligence Terms License
of Interest
 Figure 1. Technology Licensing Process

Identify Technology of Interest

First stage of technology licensing is for the organization to identify the technology of
interest that they wanted to acquire license. Businesses must be clear on their objective
in licensing the technology. The acquisition team must be concerned that licensing
involves two parties which is the licensor (the one who owns the IP or the technology
and gives the license) and the licensee (the one who wants to use the IP or the
technology and wishes to receive the license). Each party must consider the license
from the standpoint of one receiving rights (license in), or the one giving rights (license
out), or both receiving and giving rights (cross license). Identifying the appropriate IP or
technology that is necessary for the organization can also help identify for both party on
which strategy to adopt. It also necessary to identify the available technology in the
market or being developed.

Evaluate
In this stage, the organization may now evaluate which available technologies is
best suited for its interest and capabilities once the technology has been identified. The
licensee’s assigned team for the licensing may enter a non-disclosure agreement with
the potential licensors as needed if it requires in-depth discussions. The licensee must
know that IP or technology for licensing which according to World Intellectual Property
Organization (WIPO) has broad concept and include different intangibles such as
patents (inventions), copyright (works of authorship including technical manuals,
software, specifications, formulae, schematics, and documentation, among other
things), know-how (e.g. expertise, skilled craftsmanship, training capability,
understanding of how something works), trade secrets (a protected formula or method,
undisclosed customer or technical information, algorithms, etc.), trademarks (logos,
distinctive names for products and services), industrial design (the unique way of
product looks such as computer’s molding).

Due Diligence
Due Diligence is an essential stage in IP or technology licensing to consider before
undertaking on any kind of business transaction and particularly vital for a long-term
business relationship. According to WIPO (2010), it is imperative to engage in an
exercise of due diligence as the organization identified its short- and long-term strategic
objectives and entering into a licensing agreement, whether it is to licensing-in
technology or licensing-out technology that fits into its objectives. Such an exercise is
the process of gathering as much information as possible on the potential licensor or
licensee, the technology and other similar technologies available in the market and or
being developed, the market, the legal and business environment (local and
international, depending on the case) and any other information that would enable the
potential licensor and licensee to be better informed. The exercise must be conducted in
a legitimate manner, keeping in mind one’s financial and time constraints, and
undertaken within the bounds of the law.
It is important to remember that conducting due diligence exercise aims to acquire
information with respect to the following: the ownership of the technology, whether it is
proprietary and have all proper procedures been followed to ensure its protection in the
relevant markets, are there any third party claiming the rights over the IP asset, can it
deliver as it will serve and reduce the costs, improve performance or deliver other
identifiable benefit, is there any other IP rights to consider for the technology to be fully
implemented, its economic and strategic value, and other potential business
opportunities within the alliance. Organization such as business units depending on the
conditions and objectives, may consult one or more sources of information.

Negotiate Terms
In this stage, term sheet is usually drawn up addressing different business aspects
for negotiation. Each party must prepare for the technology licensing negotiation.
Licensee and the licensor must be able to identify the business reason for the license
and the best result that can be obtained for both parties. Each party must know their
leverage as for the negotiation that will make both parties can be mutually agreed. Time
frame of the licensing agreement must also be agreed on to its extent granted knowing
the schedules for the negotiation meetings, drafting, and execution of the agreement. It
must also be defined on the terms the data and documents needed for both parties in
the agreement.
Both parties must also know who will be the negotiating team as to who will be the
principal spokesperson, authority to decide when issues arises, legal counsel, and who
will draft the agreement and/or responding to drafts and changes from the other party.
With the term sheet established, experienced legal counsel can prepare the technology
licensing agreement from the term sheet.

Execute License
In the final stage, the final executable licensing agreement must be reviewed by both
parties. According to WIPO (2010), every license agreement is unique, reflecting needs
and expectations of the licensor and licensee. An infinite variety of agreements are
possible, limited only by the needs of the parties and by the parameters of the relevant
laws and regulations. However, certain issues are fundamental to the success of an
agreement and remain common to most licensing agreements. Such issues are,
therefore, useful starting points in preparing for a future negotiation.
 The technology licensing agreement must contain the following: the subject matter,
extent of rights (such as exclusivity, territory where the license be used, sublicensing,
technical assistance, and term), commercial and financial considerations (such as lump
sums, royalties, inflation, financial administration, infringement, and product liability),
general considerations (such as warranties, obligations, waiver, force majeure,
government regulations, disputes, implementation of agreement, expiration and
termination), and the concluding comments. The above mentioned is the essential
content of an agreement which will clearly define both parties’ technology licensing
objectives.
After reviewing the licensing agreement, obtain signatures from all parties and
necessary payment applicable for execution fees. Remember that an agreement that is
not signed by both parties is not an agreement.

IV. Conclusion and Recommendation

Technology licensing can be an effective way in making new products or services,

improve processes, and other business development activities while reducing
associated risks and cost in an organization. Business units involved in technology
licensing processes must be conscientious in gathering as much information and
knowledge on the desired technology to adopt. The technology licensing process is
delicate procedure as it involves different aspects of the business such as finance,
strategy, legal, and the core business itself.
It is necessary for the licensee or the technology recipient and the licensor or the
technology provider to have a better understanding in the agreement on how the license
or technology will be used, the associated risks on the development and commercial
aspects. Negotiations between licensees and licensors must have complete
understandings of the dealings to craft an agreement that is both beneficial to them
which will involve the technology, legalities, business or commercial arrangements.