Why Licensing is One of the Best Ways to Enter the US Med Device Market

Entering the US market with new technology is a risky proposition. It’s even more challenging if you’re a startup from a smaller country with limited resources. The US is a very large market, and trying to figure out the best way to navigate the business environment is tricky, especially if it’s a highly competitive and fast-changing market like medical devices.

That’s where licensing is one of the best strategies for a business looking to enter the US market. And that’s just what one Swedish medical device company is doing. It developed a formulation coating that helps prevent bacteria from collecting on different types of medical devices, such as catheters, tubes, etc. The big benefit of this technology is it prevents Infections and decreases antibiotic use. The Swedish company recently announced an exclusive licensing deal with one of the largest US-based med device companies, Zimmer Biomet. ZB licensed the rights to use the coating technology on its orthopedic trauma implants. ZB is paying $3 million upon signing the agreement, and ZB is also handling the FDA clearances for the formulation. In addition to the US, the company also signed licenses with companies throughout Southeast Asia and China. The licensing agreements give the Swedish company significant revenue, and they confirm the value of their technology on different device applications.

That is one example of how licensing lets you partner with one or more local company’s who have the management, resources, and know-how to capitalize on opportunities in a foreign market — especially large markets such as the US and China. Not only does your company generate more revenue, but it also validates your intellectual property, and increases your business value. Plus, it provides cash flow to support ongoing development and marketing efforts in your home market.

The latest study by the European Patent Office (EPO) found small and mid-size businesses in Europe actively use partnerships with domestic or foreign partners to get their patented technology into the marketplace. Licensing was the top external partnership strategy (62% of the respondents), followed by co-operation agreements (49%) and spin-offs (32%). The top reasons for using external partnerships were increasing revenue (85%) and market access (73%), joint innovation development (56%), outsourcing manufacturing (42%), and settling infringements (32%).

Using licensing to expand internationally isn’t limited to just startups and small businesses. Many of the world’s largest corporations in a variety of industries, including computers, pharmaceuticals, entertainment, consumer products, and more, use licensing to build and expand their international marketplace. Some of the companies generating one billion dollars or more in global licensing revenues include IBM, Texas Instruments, Qualcomm, Microsoft, and Ericsson.

Your partner is the most critical part of an international licensing agreement. If your partner doesn’t have the right capabilities, it can damage your IP value or worse; you wind up losing control of your IP rights, especially if it’s an emerging market where IP laws are not as mature. That’s why it ‘s critical to research your potential partner thoroughly. Time spent doing a good job of due diligence will save you lots of time and money trying to get out of a bad partnership, as well as minimize the risk of damaging your IP. Keep in mind finding the right licensing partner takes time. If you don’t have someone internally, consider retaining the services of a licensing professional. Their expertise in managing the licensing process is well worth the investment, especially if you’re licensing more than one international partner.

Here are some pointers to consider when searching for international licensing partners:

• Before entering an international market, do your homework and find out who the key players are in each market.
• Visit an international trade show to learn about the markets and meet potential licensing candidates. Trade associations are a great resource to get information about both the local markets and companies.
• Try to meet your prospective licensee in person. Although most licensing can be done by phone, video call, and email, establishing a personal relationship is important since you’re licensing agreement will run for a couple of years or longer.
• Be flexible on your royalty rate. What works in one country may not work in another due to production costs or lower profit margins.
• If a potential partner is new to the industry but is a company you’d like to work with, consider doing an agreement with a short term sales milestone. You can learn about their capabilities, such as the strength of their distribution into different countries or whether they can successfully produce your product at a competitive price, before committing to a long term licensing agreement.

I used this last strategy with a client who had invented a new tie-down flexible cord (i.e., a better bungee cord). They introduced it to the market and got immediate interest from an international distributor. We structured a two-part deal – first as an exclusive distributor to test the market. Based on their sales success, we expanded it to an international licensing deal with the rights to make and sell the product in Europe.

As far as the legal pitfalls go, some of the biggest ones to watch out for are not understanding the local market laws, not protecting your IP internationally, and signing a poorly structured licensing agreement. Before signing any licensing agreement, be sure to review it with a qualified attorney who knows the local market laws. Make sure your licensing agreement is very clear about royalty payments, development milestones, performance benchmarks and, most important, IP control, so you don’t wind up trying to settle a dispute in a foreign court.

Today, every type of business, from startup to operating company, needs to think globally. Expanding internationally through licensing is a great way to capture new growth opportunities with less risk. Licensing lets you quickly tap into your partner’s resources and market expertise. Before licensing out internationally, you’ll need to decide if you want to operate internationally or just inside your home country. It requires protecting and managing your IP on a global basis. You can start small, for example licensing your IP to one licensing partner in one market. As your business grows, international licensing gives you the flexibility to add more licensing partners or expand directly.