When it comes to start-ups, having a licensing agreement with a larger company is often a significant step forward for any business. A collaborative agreement can provide access to resources and talent that start-ups may not have access to.
One such agreement is an option to license, which allows one company the exclusive right to develop and/or commercialize a product or service from another company. Let’s look at how an option to license works and how you can make the most of this agreement.
What is an Option To License?
An option to license gives the licensee the exclusive right to negotiate and enter into a long-term licensing agreement for products or services owned by the licensor. The licensee has the option but is not required to exercise it at their discretion. If you choose to exercise the option, then formal negotiations begin with respect to the terms of the actual licensing agreement.
When Should You Use an Option License?
Option licensing is typically used when two companies collaborate on research and development projects, such as in the biomedical field, where new drugs need testing before being approved for public consumption. It can also be used by startups who want access to certain products or services from established players in their industry but do not have enough financial resources yet to make significant investments upfront.
One example is Astellas Pharma Inc. which received an exclusive option from Twist Bioscience Corporation. As part of their R&D collaboration with Twist, Astellas gets access to Twist’s synthetic DNA research platform and the option to exercise their exclusive rights to any antibody development candidates for next-generation therapies. In return, Twist receives an upfront payment from Astellas and an additional payment when they exercise the licensing option.
Benefits of Using an Option License
Option licenses are advantageous because they provide flexibility in minimizing risk when considering new product development. The option allows you to determine if the products or services are viable for the commercial market before committing to a long-term agreement. Additionally, it allows you to secure access to products and services that may not be available on the open market yet or may be too risky to invest in without the security provided by an option license agreement. Finally, using an option license can help minimize costs and legal fees since only one contract needs to be negotiated instead of multiple ones over a period of time.
Making The Most Of An Option To License
When entering into licensing option agreements, you must ensure you and your licensing partner are clear on expectations and deliverables – nothing should be taken for granted or left up in the air during negotiations. You and your licensing partner must understand what is expected from each throughout every stage so there are no surprises down the road regarding product delivery or payment.
Be sure to work with qualified legal counsel to ensure the terms in both the option and licensing agreement are clear, and you understand what responsibilities each has regarding the collaboration and expected outcome.
And most importantly, make sure to maintain clear communication between you and your licensing partner throughout every stage of development – this will help keep everyone on track toward reaching a successful outcome under the option agreement.
Options to license can be incredibly beneficial agreements. The option agreement enables you and your licensing partner to protect yourself while taking full advantage of potential growth opportunities through collaboration. It is particularly useful in research collaborations and for startup businesses looking for access to expensive products or services without the heavy upfront development costs.
Whether you decide an option to license is suitable for your startup depends on your individual goals; however, if executed properly, these agreements can be highly advantageous for startups looking to grow quickly.
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.