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Technology transfer from national labs, part 3: Licensing

Article by G. Ravishankar February 23, 2016, 07:24 am MST

As the research comes to a close and it becomes clear that the objectives of the agreement have been achieved, it is time to negotiate the license agreement. The option agreement signed initially might have to be renewed along the way since the duration might be shorter than the research agreement.

Licensing agreements can be as broadly or narrowly defined as can be agreed upon by the parties involved. Field of use is often one way of negotiating an agreement that prevents a competitor from licensing the same technology. They can be exclusive or non-exclusive, and the option agreement signed initially does not limit what can be negotiated at the end. The labs invariably have a standard agreement template, the terms and content of which can be negotiated. Having a contract attorney review the terms carefully, especially clauses that preclude secondary transfer of the technology to overseas manufacturing locations, or foreign entities or in case of acquisition, need to be considered carefully.

The agreement will contain the financial terms which can have multiple parts, up-front fees, patent use fees and yearly fees/royalties, all of which can be negotiated. Having a sound ROI model for the product/technology as well as cost of product development, marketing, distribution, adoption, etc., and the time it takes to achieve that, allows for a rational discussion with the licensing executive. 

This is typically where a small company has an advantage over a larger entity. Labs are more inclined to agree to more favorable terms with small businesses -- especially those that have invested time and money in research with a lab.

The agreement will also have company performance milestones that have to be achieved towards commercialization. This is designed to prevent companies from licensing technologies from the lab and then burying them because they potentially threaten an existing product or technology. Dividing and conquering is the best approach to arriving at a negotiated agreement. Tackle the financial terms and the company milestones where there is more wiggle room, before tackling content of the agreement which is often mandated under the prime contractor agreement and federal constraints.

Ultimately, it is like any other licensing agreement, but the terms are likely to be far more favorable from a financial perspective than anything from a corporate entity.

Why? The national labs aren't really trying to make a living from licensing technologies and royalty streams. They are more interested in seeing their technologies commercialized, especially by small businesses.

[This column is the last of a three-part series. Read part one, Navigating the maze; and part two, Working with a research lab.]

Mr. Ravishankar is an experienced business leader of technology based companies and the principal of Operational Solutions, a consulting firm specializing in product innovation and operations. He holds engineering and business degrees from MIT. Reach him at g.ravishankar@alum.mit.edu.

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