How Licensing Helps Small Companies Make Big Profits

This license will probably not help bring your patented technology to market...

Like many emerging technology fields, the commercial spaceflight industry has a long close relationship with their patent attorneys. Patents are an excellent way for companies to maintain the hard-won competitive edge the skull sweat of their R&D group has created. Even before man made it to space, patents and patent applications have been filed on a variety of space-related technologies including: rocket steering systems (filed 1952!), escape tower rockets (filed 1959 on behalf of NASA), and sea-based recovery of space launch vehicles (filed 2009 by Blue Origin). Intellectual property rights protect new technologies and provide a potential avenue for royalty profits through licensing. What is a license, you ask, and how can it boost the company bottom line?  

In general, an intellectual property right like a patent gives the holder the ability to prevent others from doing something for a limited time. For example, a patent gives the patent holder the ability to prevent others from making, using, selling, or importing the technology covered by the patent. This right is really awesome if you have the ability to actually bring your technology to market and satisfy nationwide, worldwide, or solar system-wide demand for your technology. In many cases, however, a single company cannot slake the public’s thirst for a hot technology they have developed. In other cases a company might invent a new device but decide not to bring it to market because it is too risky. The marketing of the new invention might be outside of the company’s core business area, resulting in them choosing to shelve the project. In all of these scenarios, licensing the patent to a third party (e.g. another company or an individual with means) would enable the patent owner to increase the revenues from the technology in a controlled fashion.

A license gives the person or company receiving the license (the licensee) the right to use the intellectual property right in a defined manner. The license has terms which define how the licensee may use the rights granted by the holder of the intellectual property right (the licensor). In defining the rights of the licensee and the licensor, a license generally addresses the following areas: compensation, term, territory, and field.

Typically, the licensee must compensate the intellectual property owner in order to use their IP under a license. The licensee generally pays the intellectual property owner a licensing fee and/or royalties in exchange for the rights granted in the license. Licensing fees can be one-time, or paid on a set schedule. Royalty payments are usually tied to the revenue the licensee generates by utilizing the licensed intellectual property. The licensee and the intellectual property owner can agree that the licensee will pay a set amount per item sold, agree to pay a certain percentage of gross revenue or profit, or some other arrangement. Because a license is essentially a contract between the parties, the licensee and the intellectual property owner are free to structure the deal however they wish and in the most creative or mundane manner desired.

A license can last as long as the licensee and the intellectual property owner agree for it to last. Some licenses are irrevocable, lasting until the expiration of the IP right itself. Other licenses only last for a set period of years. Where a license lasts for a limited period, the license may include a clause that automatically extends the life of the license if certain conditions are met, like the payment of a renewal fee.

Licenses are often discussed in terms of their exclusivity. This does not indicate that one must wear a tuxedo at the license signing; rather, an exclusive license is like monogamy, the parties agree that only the licensee can exercise the specified rights, to the exclusion of all third parties. A non-exclusive license gives the licensee the ability to use the IP, but the intellectual property owner is free to play the field and grant licenses to other parties, if they can.

Licenses may be exclusive in terms of a territory, a technology field, or both. For example, a local company may be given a license to use a patented technology in only the state they operate in. Other licenses grant worldwide licenses, allowing the licensee to use the IP everywhere. An intellectual property owner may also limit the field where the licensee may use the IP. For example, a display technology patent holder might grant Samsung a license to use their technology, but only in LCD displays smaller than 4”. In this example, Samsung could not use the patented display technology on 5” LCD displays or on OLED displays of any size without infringing the display technology patent because a licensee who uses the IP in a manner not allowed by the licensee infringes that IP, just like anyone else without the intellectual property owner’s permission to utilize the IP.

Happy creating!

2 thoughts on “How Licensing Helps Small Companies Make Big Profits

  1. Pingback: Licensing NASA Developed Technologies « IPinSpace

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