Five things rights holders should think about when negotiating a successful IP licence27 Mar 2015
Licences can provide IP rights holders with a fantastic way to exploit their valuable (but usually wasting) IP assets, with minimal personal effort. However, to be successful, the trick is to get the terms of the relationship right with your licensee from the off. Here, Kuits’ Commercial IP & IT team give you some of their best tips for success.
1. Licensee incentives – scrub your carrots: incentivising licensees to really “work” the IP concession to the max remains the holy grail of licensing. Agreeing a royalty deal that gives each party a fair share is the usual aim. However, also consider whether it might be a good idea to offer lower rates, or royalty holidays, during an initial ramp-up period. This may help free up some cash for your licensee, allowing them to invest in the concession for both parties’ longer-term benefit.
2. Licensee incentives – polish your sticks: if licensees aren’t delivering, then the rights holder needs to have clear rights to terminate in order to avoid being trapped with an underperforming partner. Consider linking termination rights to pre-agreed financial targets, in order to limit the uncertainty risk of terminating.
3. Exclusivity – link it to performance: licensees would generally prefer exclusivity, but this is a valuable asset and needs to come at an agreed and measurable price. If minimum royalty performance targets aren’t being met, then the rights holder needs to have the ability to break the exclusivity without risk of being sued for breach.
4. Know your licensee: carrying out proper due diligence on your proposed licensee is always a good idea. Like many financial products, whilst past performance may not necessarily indicate future performance, it is usually a good indicator. Credit checks make sense. Similarly, ensure that you can terminate for licensee change of control, otherwise you may end up dancing with a stranger!
5. Only licence what you need to: most licensees have a very clear idea of the areas they want to exploit. All too often, rights holders grant out rights packages which include applications of no interest to the licensee. Under-exploitation usually follows as a consequence. Here, there is no substitute for having an open and honest conversation at the beginning about which rights the licensee really wants to exploit, and which they don’t. There may even be a deal to be done in splitting extra revenues generated by another, keener licensee, in agreed carve-out areas…
To speak to one of our experts about IP licenses, contact us or call 0161 832 3434.