An often overlooked way to use licensing is for intellectual property development. This is an ideal strategy if you don’t have the money or manpower to fully develop your IP into a commercial ready product or technology.
You also get the benefit of the licensee’s manufacturing and distribution facilities, and/or sales and marketing efforts without having to spend the time and money to develop them on your own.
An IP development agreement can be part of a longer term licensing agreement. Basically, you license the rights to commercialize the IP in return for royalties on sales or some other form of compensation. As part of the agreement, the licensee agrees to complete the development of the IP. For example, you may have a new software technology that is only partially completed. Rather than try to raise money to complete the development, you could find a “development partner” who would finish it for you. In return, they would get the rights to market and sell the software under a licensing agreement.
One of the most important issues to clarify is who owns the rights to the current and future IP development, and what can you do with those rights. The licensee will typically want rights to future IP improvements so they can maximize their profits. However it’s not always the case the licensee will get automatic rights. For example, the development licensee may specialize in the B-to-B market, but the IP also has applications to the consumer market. In this situation, it must be clear that the IP (including future developments) can be licensed by you (the IP owner) to licensees in the consumer market.
The development licensee will also typically want exclusivity. It gives them the best opportunity to recoup their investment and make a profit with the IP. In return for investing in the development of the IP, the licensee may want a long-term, exclusive, unlimited license (including sub licensing) for specific products, applications or markets.
Here are a couple of other key points to keep in mind when negotiating these types of licensing agreements.
- Specify what the licensee will do, the time line to finish and what performance standards must be met.
- Detail what is being developed, and if testing is required, when will it be done.
- If your knowhow or expertise is required, be sure to detail what you will do.
One final note. Beware of joint ownership of rights to current and future IP development. These can create conflicts when licensing the rights for other markets or products.
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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. His first book, Hidden Wealth: The Money Making Power of Licensing was released in 2019 and is available on Amazon.com. He’s also 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.