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Critical failures in licences are (almost always) controllable

  • 01 December 2011
  • Articles

Technology licensing is a resource used increasingly by companies and research centres. It gives access to technologies developed by third parties and introduces innovations that would otherwise never reach the market. However, licensing agreements are almost worthless if they are not suitably managed. Proof of a successful license lies not in signing the agreement, but in effective implantation of the terms of the agreement over time.

In spite of the growing number of licensing agreements, success rates are not keeping pace: the milestones agreed are not complied with on time, budgets are exceeded, business expectations do not materialise, relationships dissolve before targets are reached, legal actions are brought. Numerous licensing agreements do not live up to expectations and end up failing.

Some agreements fall by the wayside due to the so-called “technological failure”. The technology developed is defective, which make it impossible to market. This is a risk inherent to the innovation process, and it can even be inevitable.

However, in most cases, licence agreements do not break down because of the technology, but due to other, controllable reasons.

It is important to be aware of the most common, to try and avoid them in our present and future licensing agreements:

Deficiencies in the “due diligence” process. It is essential that sufficient research be carried out before entering into an agreement. This will determine if the technology will be successful and show the resources required to exploit it, but many companies do not invest the necessary time and resources into making an in-depth analysis, particularly in the patent area.
The structure of the agreement is inappropriate. Licence agreements create a long-term relationship between the parties, clearly defining the relationship from the start. Both the economic aspects and both the parties duties and responsibilities should be established.
Cultural differences between the partners. All licence agreements require a certain degree of collaboration between the parties. However, while the granters of licenses are generally established, diversified companies which tend to introduce a high degree of structure and formality in the processes and which need a great deal of documentation, those granted the license can be start-up or private companies, which are more focused on the project and less structured. In case of very different cultures, it is essential to have sufficient communication and transparency mechanisms to solve any problems encountered by the parties.
Project organisation and differing expectations: The way the licence is organised must be clearly set out from the start, so it is able to meet the realistic expectations of all parties involved in the project. Clear, well-defined roles and responsibilities and work processes and unambiguous, known decision-taking are essential in a licence.
Changes of management by either of the parties: Management changes by either party can affect the management and objectives of the alliance between the organisations. This makes it necessary to design the relationship with measures that minimise the impact of these changes.
Other causes: There are other, less common situations which can cause a licence to fail, such as a key person in the project leaving or the licence holder deciding to take R&D activities in a different direction towards other projects, meaning that scant attention is paid to the licensed technology. It is difficult to make provision for such circumstances in a licence agreement, but they can be suitably resolved by a competent project management team.

Generally speaking, a licence should be viewed as a strategic, long-term relationship between two or more organizations, and care must be taken to devote the necessary resources to make them a success.

With a clear, detailed agreement and active, fluid communication management between the parties, most of the usual problems can be avoided and the changes of the licence succeeding are improved considerably.

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Critical failures in licences are (almost always) controllableCritical failures in licences are (almost always) controllable