Ten Tips to Out-Licensing Using the Carrot
Instead of the Stick

Here are ten tips to closing your out-licensing deals from Theo Grigoriou, Executive Vice President Licensing Operations for Honeywell Intellectual Properties Inc., and advisor to yet2.com. An experienced licensing executive, Mr. Grigoriou oversees the commercialization of Honeywell´s intellectual property and the development of new markets for it. Prior to Honeywell, he was President of AlliedSignal Technologies Inc., where he developed and implemented their global intellectual holding and licensing strategy. Mr. Grigoriou is an attorney and has taught graduate-level business courses in law and licensing.

Theo Grigoriou, Honeywell Intellectual Properties Inc.

Theo Grigoriou

If you´re planning on realizing value from out-licensing a technology, the most important factor is finding and keeping a potential licensee. After all, a deal requires two parties. yet2.com can help introduce a potential licensee to you -- but what happens then?

Most introductions facilitated by yet2.com are expected to proceed from initial contact, through non-disclosure agreement, exchange of technical information, agreement of terms, and then to the final handshake. Some deals don´t arrive at a successful conclusion, and for many reasons. Perhaps the technology is not as good a fit as both parties originally thought, or the economics of licensing may not work for one or the other party.

But -- assuming that a technology is a reasonably good fit -- how does a company that is marketing its technology help ensure that a licensing deal goes as smoothly as possible? It turns out that there are several actions that you, as the provider of the technology, can take.

1. Confirm that you have buy-in for the sale from the appropriate business unit management and from the corporation´s legal staff.
This step begins even before you list a technology on yet2.com. It goes without saying that the organization needs to be behind the licensing of a technology, and there are many ways to decide which are the best technologies to list. Some organizations list everything and see what people want to license; others go through a winnowing-out process called "triage" to decide; still others favor those technologies that they already have licensed successfully.

Internal support and participation are critical to the success of a licensing venture. Technology transfer is more than just licensing a patent; your people may need to produce samples, work with researchers and engineers at the licensing organization, or even "loan out" staff members for some period of time to ensure a successful transfer.

2. Move the introduction up in your priority list, and pursue it relentlessly.
Okay: You have received an introduction through yet2.com. Introductions are perishable commodities. After all, the other party may lose interest if you drag out your response; there are other, competing technologies out there in the market -- or, there soon will be. Introductions have a time-value (just like any sales lead, or like money, itself). An organization requesting an introduction may be willing to wait while a ponderous bureaucracy clomps through the mud. Then again, maybe it won´t wait.

yet2.com has established time goals for both acceptance of an introduction request and for contact between the principals. An organization that responds to an introduction request quickly -- a request for which the organization has paid via its membership fees -- sets the tone for the process to follow, and helps ensure that the rest of the negotiations lead to a satisfactory conclusion for all.

3. Immediately provide the technical information required by the licensee, and don´t get too excited about how much you disclose.
At this stage, you want to show the potential licensee just how thoroughly your technology can solve his problem. yet2.com has found that a big portion of technology transfer involves people and the knowledge they possess, not just paperwork. Some technologies can´t even be transferred without people to support them. yet2.com encourages you to disclose enough to ensure that your licensee comes to the table, and stays there.

We´ve found that maintaining momentum at this critical point is a good indicator of how quickly the remainder of the negotiations and technology transfer will move.

If you can´t sell your licensee on the value of your technology as represented in your terms and conditions, you won´t conclude a deal.

4. Meet with the other party immediately to establish personal contact and to facilitate contact confidence and relationship-building.
Sales 101: Selling anything is a person-to-person process. So, then: How much more than a product acquisition is a technology acquisition on which a company might be basing a good portion of its revenue projections for the next few years? A license is certainly a legal document and needs the good offices of your legal and licensing staffs; but the negotiation for acquisition is ultimately a sales process.

It is vitally important to the success of the licensing effort that you establish personal contact quickly with the licensee -- and then carefully maintain that relationship.

So-called "stick" licensing is a widely followed practice. We have the patent, you appear to be infringing; it´s easier for us both if you license our patent, or we may take you to court. Stick licensing does not depend on building relationships. yet2.com has found that some deals founder because the company providing the technology treats the potential licensee as an adversary, as they would in a stick licensing deal. Commercializing your technology is inherently a sale; you must treat potential licensees as potential clients.

5. Establish and agree on a timetable of tasks and actions.
It is not true that "if you don´t know where you´re going, any road will get you there." If you don´t know where you´re going, you will go nowhere -- and neither will your negotiations. How soon does the other party need the license? Do they require samples? Do you need to set up meetings between the technical staffs at the two organizations? Which side -- and who on each side -- is responsible for performing these actions?

6. Don´t send terms and conditions until you have an honest discussion with the other party.
Terms and conditions are relative to the licensee´s business plan -- not the licensor´s. You need to learn about the opportunity that the licensee sees for your technology. yet2.com has received countless inquiries regarding how to value a technology being placed on the market. Certainly, you can make an educated guess...but, like beauty, the value of any technology is in the eye of the beholder. For example, kitty litter -- cracked clay -- was originally an industrial waste product. It had no value until someone realized that it would be cleaner, lighter, and more absorbent than sand. The industry it spawned now ranks in the billions USD annually.

Your understanding of the value of your technology is probably based on why your organization developed that technology in the first place, the investment you´ve sunk into it, and your proprietary interest in maximizing your return. But the potential licensees don´t care about your sunk cost or why you pursued development (unless, of course, it bears on why they´re interested in obtaining the technology). They care only about the revenues it may bring them. That´s valuation.

7. Don´t just send your terms and conditions. Present them.
You must look your licensee in the eye. You must gauge their reaction as they look over the terms. You must explain your rationale and justification for the terms you ask. You -- and your licensee -- must be convinced that the terms you offer represent a win for both sides.

If you can´t sell your licensee on the value of your technology as represented in your terms and conditions, you won´t conclude a deal.

However, if you´ve followed along with your licensee´s technical analysis and have had a frank discussion, your terms and conditions are likely to be within striking range. Good luck.

8. Don´t sell your terms and conditions internally until you´ve sold them to the other party.
If your organization is like most, your business units or R&D group will tend to value the technology according to sunk cost and internal expectations -- with a dash of legitimate pride thrown in. You´ll have to manage their expectations. Some business units may resist the terms and conditions that your negotiations lead you to believe are right for making the deal. However, the single biggest factor in convincing others in your organization that the price is right is that the licensee has provisionally agreed to your terms. This is the proverbial "bird in the hand."

If instead you have sold hard for your terms internally against resistance at the business unit or division level, and only then find that those terms are not suitable to your licensee, you have a much different problem to solve.

9. Be flexible and try to understand the other party and its risks.
The best sales happen when both parties win. When both sides can claim a victory, you don´t simply license that languishing technology and get some much-needed return for it; you acquire a customer. While you may have only one technology that´s important to your licensee, and thus have nothing more to license to them, they can still act as a reference account. yet2.com encourages a practice of enlightened self-interest in negotiations.

Understand the licensee and their business. Understand their risks and how they want to apply the technology. Know that the price may be set by the seller, but that the deal is consummated by the buyer saying yes.

10. Be prepared to provide technical assistance and testing.
In a deal for technology transfer, the licensee obtains know-how and builds a relationship as much as it obtains access to patents and freedom to operate. (So-called stick licensing -- the opposite of "carrot licensing" -- is much more of a legal transaction than is "relationship-building.") Licensees require technical information, demonstrations, samples, and testing to see whether your technology can do what they need it to do. In many cases, your labs may be much better than those of the licensee. Your staff knows your technology much better than any licensee can. You need to be prepared to provide technical assistance, testing, and other services as prelude to the actual licensing.

Of course, you can charge for such services.

We have heard of instances where the research staff assembles a prototype, assures that the process does indeed work, runs minimal samples, and breaks down the prototype -- long before any potential licensee asks for samples. Un-mothballing the prototype and generating new samples can also be a service; but how much better it would be to have run and stored sufficient samples to begin with, so that licensees can begin their analysis immediately without requiring the reassembly of the prototype.

As your organization moves into a commitment to technology licensing, business units and research divisions alike need to plan for their technologies to leave the company...sooner or later. Licensing is having its effect on all aspects of business. As we´ve seen here, even the patent and licensing division now has a sales role in addition to its traditional enforcement role. We hope that these quick ten tips will help you make more and better deals.