To License or Not?

Posted on Posted in Technology/IP Licensing

Technology Licensing Benefits

Technology Licensing

Licensing gives the owner of the technology and IP several benefits. For one, the owner retains ownership and can ‘sell’ the assets multiple times in a manner of speaking. In addition, the income becomes a recurring stream rather than a lump sum, giving various financial and operational benefits. For example, recurring revenue means you can spend more of your resources growing the business rather than on trying to acquire new or repeat business to try and hit the same revenue you achieved last year.

Example of licensing payment streams

By retaining ownership, the licensor may also choose to revoke the rights given to a licensee if they fail to pay or otherwise breach their agreement. The licensor can also choose to still sell the assets at a future date. The value of the assets may increase over time, giving the owner the benefit of appreciation.

The licensee also receives several benefits. For instance the benefit of not having to shell out a huge upfront amount which may be hard to find for a startup or may be hard to justify for a nascent but high potential market. The licensee also can ‘adjust the price’ based on potential success of the technology and products using it so pays more when they earn more. The payment could be structured in a myriad of ways including a partial upfront payment plus royalties that may be stepped based on milestones or thresholds.

All in all, licensing has a number of benefits over just a straight sale. There is a substantial cost in developing the plan, analysis of target markets, outreach and negotiation with multiple parties and drafting legal agreements with all of them. However, there is a recurring revenue advantage conflated with a repeatable process that scales, especially for licensing programs where the owner’s technology and IP is a much needed lynch pin and there are multiple high paying target licensees in large and growing markets.

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