Technology Licensing

Support Your Business with Successful Technology Licensing

Many companies develop new technology for their own benefit, as part of their R&D (research and development) budgets, and carefully protect their ownership of all intellectual property rights (such as patent rights, copyrights and/or trade secrets) in the technology. For example, Apple and Microsoft develop and retain all rights to their technology, to offer an obvious example. Other companies develop software and other technology expressly for ownership by their customers; they are developing custom software and are sometimes called development houses. In the latter case, the development house will transfer all or most intellectual property rights to the customer. Sometimes these custom software development arrangements are called professional services engagements.

When a company holds rights to its technology, it will then license that technology to customers (whether companies or consumers) to facilitate the customers’ own interests, and it needs special license agreements to ensure that it retains all rights to its technology (except the limited license rights granted to the customer). A technology licensing agreement grants a licensee the right to utilize specific technologies, patents, software, know-how, or product designs. A technology licensing lawyer can help draft and negotiate an agreement which advances his or her client’s business goals while protecting its interests, especially its invaluable intellectual property rights.

Technology licensing cannot take place where there is no intellectual property; however, intellectual property (IP) is a broad concept which includes many different intangibles. A company’s IP may include patents, copyright, trademarks, trade secrets, industrial designs, mask rights or know-how. A technology license agreement may dictate the manner in which the technology, software or IP is used, the duration of the use, and in which region or area. Unlike the sale of ownership rights, a licensor retains ownership of the technology and attempts to maintain control over the technology, and in most cases intends to license the technology to multiple companies.

Some of the benefits of technology licensing include shortened product development cycles, increased productivity, more efficient internal workflow and systems, entry into otherwise protected industries, enhancement of product and process quality, building competitive advantage, and expansion of existing business capabilities. By licensing proprietary technology (or open source technology) smaller firms can enter markets they would not be capable of accessing, or can commercialize inventions they may not have the capital to market on their own. It also is generally cheaper to license existing technology than to develop technology internally, unless one employs teams of technicians and developers.

Technology licensing models have evolved dramatically over time. The standard technology license agreement offers a perpetual license to the technology, often with paid annual support and maintenance. Many technology companies have moved to a subscription model, where for an annual fee, a customer has ongoing access to the latest technology and receives maintenance as part of the annual fee. However, the license term is not perpetual; it must be paid for and renewed each year. In addition, much technology is delivered from remote servers, often located in the Cloud, so less software is necessary on a desktop. This is often referred to as Software-as-a-Service or SaaS model, and when the computers are located at a data center where capacity can continually expand, it is known as Cloud computing.

It is important to note that entering into a licensing agreement is akin to entering to a partnership where the licensor and licensee both have ongoing obligations (the licensee primarily has to pay, use the software on permitted equipment or platforms, subject to agreed restrictions). In order to achieve a win-win deal, the agreement must work for the benefit of both licensor and licensee. A technology license is the consent of the owner of a technology to the use of its intellectual property in exchange for money or other item of value. Compensation to the licensor may take the form of (1) lump sum royalty, (2) royalty based on volume of use or number of users, or (3) right to use licensee’s technology (referred to as “cross licensing”). Hashing out these details to the satisfaction of both parties while protecting their interests and staying within the bounds of the law requires a qualified technology licensing lawyer who has the skills to successfully draft excellent templates and negotiate appropriate agreements. Due to the complex nature of negotiating technology licensing agreements, it is important to involve a qualified technology licensing lawyer at the beginning of the process.