Patent and technology know-how licenses are often confused. While they often go hand-in-hand, there are actually two different strategies for licensing them.
Your patents are legal rights that only prohibit others from using the parts of your technology covered by the patent claims. Your technology know-how are your methods, materials, skills, designs, formulations, specifications, algorithms — something that enables your patent (or other products) to be made faster, cheaper or better.
There are two different strategies for licensing patents and technology know-how – enabling and permitting.
At one end of the spectrum the licensee only gets a license to use the patent (permitting), without any know-how (sometimes called a “naked patent license.”). At the other end of the spectrum, the license gets rights to a complete turnkey operation (enabling), including the patent and the technology know-how (i.e. production, training and consulting). There are also hybrids of these strategies varying from close to pure patent to almost turnkey operation.
When and how to use these strategies depends upon the market for your patent. If your patent is in a highly competitive market (such as computers and electronics), your potential licensee may face a big uncertainty risk that other undiscovered patents somewhere in the world might invalidate your patent. One strategy to overcome this risk is licensing your technology know-how instead of your patent. For example, your production know-how is low-cost and is adaptable for other products. Your licensee agrees to keep the technology secret (to thwart competitors) and to pay royalties on any products made by using the know-how technology, regardless of whether the products are actually covered by your patent.
If your patent and know-how can be used in different markets or industries, there is no limit to the ways you can use these strategies. You can license more than one partner by limiting rights to a specific geographic territory. For example, you could do a “turnkey” license in North America, a “patent only” license to a competitor for exploitation in Europe, and a “hybrid license” to someone else for exploitation in Asia.
Another strategy is limit rights by use or a specific type of product category. For example, your patent relates to beverages, and your technology know-how can be used in both alcoholic and non-alcoholic beverages. One licensee is restricted to soft drinks; a second one for use in beer; a third one for wine; and a fourth one for hard liquor.
On the other hand, one good exclusive licensing partner can be the best strategy for maximizing your IP income.
Evaluate your patent and technology know-how strengths before deciding how to structure a license agreement. They are two different types of licensing strategies . Often times, it’s your technology know-how that is more valuable than your patent. Especially if it enables a new business opportunity or makes something better, faster, and cheaper. Make sure you understand the difference so you don’t wind up giving your know-how away as part of a patent licensing deal.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. He’s a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.