A Canadian biofuel company announced a deal worth $125 million that expanded its business into China. It includes rights to their conversion process technology which converts city garbage into biofuels, and the proprietary equipment that’s manufactured specifically for the conversion process. In return, the company got a #licensing agreement for its technololgy and equity in a joint venture with a Chinese company.
This is an example of how flexible licensing is as a strategy and why it’s part of and not separate from your core business strategy. In this case, licensing is an important piece of the Canadian company’s business strategy. It not only opened up the huge Chinese market for their biofuel technology, it also gave them equity in and licensing revenue from a joint venture.
Joint venture licensing is used by both large and small companies. In the case of large companies, the partnering strategy focuses on co-marketing or cross-promoting each other’s brands or products. The goal of the JV partnering strategy is to acquire more customers, enter new markets or gain certain efficiencies, such as promotional costs. Examples include Nike / iPod products to track running workouts (patent and trademark sharing), and General Motors Co. / Volkswagen entering China in partnership with China’s largest automaker.
For startups and early-stage companies, joint venture licensing is a good strategy to reduce operational costs and accelerate their growth. JV partnering with a larger company helps confirm their IP technology and business model, get access to capital and other resources. One of the most common reasons is sharing costs and completing development work on an IP through a co-development agreement, such as for new drugs, prototypes or test marketing. In this case, the partners share in the revenues once the IP launches in the commercial marketplace. An example is a licensing and co- development partnership between GlaxoSmithKline (GSK) and the bio-pharma startup OncoMed to develop and market new therapies that targeted cancer stem cells. For GSK, the partnership helped feed their product pipeline by including an option to license four of OncoMed’s products. OncoMed got access to GSK’s clinical development, production and sales capabilities, a hefty initial payment, plus milestone payments, and future royalties.
Joint venture licensing isn’t only for non-competing companies. While doing R&D for it’s diaper brands, P&G discovered technologies for better trash bags and food wrap. Because P&G didn’t sell these products (and didn’t have the production capabilities), they did a JV deal with one of their biggest competitors, Clorox. The deal turned Glad Bags into Clorox’s second billion-dollar brand.
The most common joint venture licensing deal is partnering to co-create a product or technology. Other variations include giving one of your products to your JV partner to add to their package in exchange for some of the profits, or with a business which has access to a marketplace into which your product could easily and profitably go. Still another variation is a JV with a company who sells complementary products that you offer as an upsell. If you’re selling software that helps customers with a certain task, you offer another bundle of software products from a partner that helps with an associated task or a program that helps with a different part of a complex project. This works great for startups with only one main product to offer.
JV licensing deals are more complex than straight licensing deals. One of the most important points of the JV agreement is agreeing on the value of the contributed IP assets. Make sure the products or services offered by the JV are of good quality. You don’t want to risk your IP and reputation in a JV partnership, no matter how profitable you think it might be. Work with a qualified attorney to structure the deal so you have ownership or other profitable rights to the JV technology.
And finally, like other types of licensing deals, you must also work with your partner during the life of the JV, and if necessary make adjustments to the partnership in response to changes in the marketplace to keep it profitable.
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.