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Licensing or assign a patent: factors influencing the choice

  • 01 October 2013
  • Articles

Increasingly, companies are looking overseas for answers and solutions to their technical problems. The so called proudly found elsewhere changes the paradigm of not invented here, that represented an organizational culture of internal innovation, where all that was produced outside the company was not considered a source of progress.
The evolution of the innovation system led to different settings and, in fact, a requirement of the “Open Innovation” is the existence of an intellectual property system, able to unambiguously define and clarify the boundaries of the intellectual assets available to commercialize.

The process of transferring a patented technology to the market can be carried out by direct exploitation of the patent by its owner. If the exploitation will be performed by third parties, that implies the Sale or Licensing the exploitation rights of the patent.

These options cannot be ranked since the choice between these two different options depends of the assessment of a several number of market factors and strategic marketing options, which are defined by its owner.

Licensing is the way most used when the knowledge transfer is based on a patented technology. The owner authorizes the use of technology through a license that can be exclusive, non-exclusive, territorial or non-territorial, upon an initial payment “single lump sum, or paid-up license”, or subsequent payments, called royalties.

The licensing agreement depends on the assessment of the commercial value of the intangible assets, which is usually characterized by a high degree of uncertainty.

Noteworthy, that many patents are licensed, not only for innovative technical features, but because they represent a product and/or process whose features, benefits and attributes have been tested in the field.

Licensing provides benefits to both parties, enabling a rapid expansion of the technology developed and a greater possibility of generating results in shorter periods.

On the other hand, a sale means that the holder of the technology give all rights either owned or explored by paying a fixed amount. All risks are transferred to the buyer, particularly market conditions, regulatory challenges or consequences related to competition.

The uncertainty of the sale value assigned is related to the calculation made at the time of the transaction and future income, resulting from its use.

However, in many technological areas, such as biotechnology, the sale may be the most wise and prudent choice to made. You need to consider several factors in decision making process such as: intellectual property costs, costs related to the introduction of future products and/or processes, regulatory barriers and the very definition of distribution channels, among others.

Thus, there are several factors to consider when defining a business strategy based on Intellectual Property, including which option is right for their economic exploitation, taking into account its future profitability – first business objective: value creation.

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Licensing or assign a patent: factors influencing the choiceLicensing or assign a patent: factors influencing the choice