Pitfalls for Licensees?
I am an inventor looking to license my technology from the organisation where I developed it (with potential for assignment). Please advise on the potential pitfalls of an exclusive license deal that you would advise me to be aware of in this circumstance.
3 Answers
I deal with license agreements all the time. Here are a few things to be concerned about:
(1) What sort of royalties/payments do you have to make? How does that match up with your expected cash flow from the technology?
(2) Are there any milestones that you have to meet? Often, if you don't meet them, then the license either terminates or becomes non-exclusive.
(3) Do you have any way out if it turns out that you don't really need the technology?
(4) What rights does the licensor retain? Do they have the ability to compete with you? What if they make improvements to the underlying technology -- do you have rights to those as well?
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Hi Chris, this is very informative. – Jjj 12 years ago
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(1) The deal in this respect is fair and the economics make sense (2) It is a termination deal (based on your comments I may opt to request a non-exclusive in the event that the milestones are not met still giving opportunity for exploitation) (3) Good question... haven't thought about the other side of the coin (4) I will look at the ability to compete! Rights to improvements to be owned by the party who developed them (assignment of original IP will require them to sub-license for exploitation of potential improvements) Is this sufficient cover? – Jjj 12 years ago
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Well, those are common sticking points that come up in licensing arrangements. There's just not enough information in your post to be able to tell if it covers everything -- that's why people hire lawyers. The other big thing that sometimes comes up is the scope of exclusivity -- usually, this arises in the drug industry, where the exclusivity is to treat a specific indication -- "You get exclusive use of the product to treat cancer, but we can license it to somebody else to treat heart disease," for example. – Chris Fulmer 12 years ago
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Thanks Chris, you have identified several items that I had not considered and will get back with specific contentious issues. Your review and recommendations in future would be highly appreciated. – Jjj 12 years ago
At the simplest, if you sign an exclusive license deal, you're stuck with that deal, even if something better comes up, subject, of course, to the terms of whatever contract you signed.
From the way you phrased the question, it appears that you are looking to sell your technology, not license it, and someone has offered to buy an exclusive license. Be sure you put in a limitation on the term of the license (e.g. 1 year exclusive), and various escape clauses for the exits you perceive possible.
Most important of all, make sure you get a lawyer to review the contract before you sign it!
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Thanks for your response. The lawyer goes without saying! Perhaps a point of clarity, I am looking to license my own technology from the organisation where I developed it... The exit is through M&A, so yes I am eventually looking to sell the enterprise. – Jjj 12 years ago
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Thanks Elie, have provided some clarity on my query. – Jjj 12 years ago
You obviously need an IP lawyer to help you write this up, but from my experience....
- An exclusive license without required goals is useless. If you are locked into them, they better be making an effort to use your technology so you make money. The license should specifiy minimum payments and minimum sales.
- Often overlooked- if your technology is making another party a lot of money, it would be in their best interest to build their own technology to replicate what yours does, so they can avoid paying you anything. Your license should prohibit that.
- Is the license transferable? If this company goes bankrupt, is sold, or acquired- do you want your technology going to a third party without your consent?
- Indemnity- if someone sues this company because of your technology, can they also sue you?
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I think you read his question backwards – Mark0978 12 years ago
