Thursday, November 17, 2011

An Overview of Licensing -- Part 7 in our IP and Patents Series

This is the seventh in a planned 20-part series of articles on intellectual property.  In future posts, we will explore additional aspects of licensing and commercialization of products.

In this posting, we will provide a brief summary of licensing – what it is, who grants the lcienses and what licensees can expect, generally.

What is licensing?

Licensing allows someone else to use a protected idea; that is, a license is an agreement that allows the licensee to use the technology for some purpose - usually to create products based on the technology - in exchange for a license fee and/or a commission on revenues.

In other words, the licensee will take the idea and turn it into a viable product or otherwise create some kind of revenue stream off the technology.  The inventor will then see a portion of those revenues under the terms of the license.

The license will typically have some level of restrictions on it; for example, it may allow the licensee to use the licensed technology in certain applications, or geographic areas.  In addition, it might be exclusive to one licensee or there may be multiple licensees for a given technology.

Who grants licenses?

The person or organization who grants the license is the one who has the rights to the protected technology, usually through a patent or an active patent application. 

Licensing can be a major source of revenues for inventors, research and development facilities, etc.  In fact, most major universities, and many smaller ones, have departments solely committed to licensing and related activities.  They can go by several monikers, including “Technology Transfer” or “Commercialization” or something else, but what they do is generally the same thing: take technologies created at their institution and provide the rights to those technologies to companies or other licensees so some money can be made off the idea.

One of the largest, and most successful, licensing organizations is the Wisconsin Alumni Research Foundation (WARF), based in Madison, WI.  This is the licensing arm of the University of Wisconsin.  WARF was established over 80 years ago as a patent management agency.  Their first license agreement was with Quaker Oats for a process involving vitamin D in cereals.  The license arrangement allowed WARF to control which companies received licenses to the new process.  This ensured that the process was not abused and that profits on the process would be shared with the University.

What about the licensee?

As alluded to earlier, the licensee will typically be required to pay license fees, usually determined by royalties on sales or some other commission-type structure, and could also have milestones that it will be required meet in order to maintain the license.

Details on a typical license and its structure and terms will be addressed in upcoming installments.

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