Licensing game

Question 1

If the licensee develops sideground IP, how might that effect you as a licensor? And what can you do about it?

Answer 1

might affect your profitability
e.g. decide on number that the licensee must sell, or minimum royalty

Question 2

A simple rule of thumb on how to know ceiling and floor prices

Answer 2

The seller wants to be better off if selling the license than if not selling it
-> Floor price
* The buyer wants to be better off if buying the license than if not
buying it
-> Ceiling price

• Economic calculations necessary

Question 3

Common clauses in licensing

Answer 3

Running royalty / minimum royalty / down payment or up-front payment

Question 4

Running royalty =

Answer 4

Running royalty = royalty base x royalty rate

Royalty base = the measure or quantity on which the royalty is calculated. It can be:
- Revenue-based: e.g., total sales of the licensed product
- Unit-based: e.g., number of units sold
- Production-based: e.g., number of items manufactured using the IP

Royalty rate = the percentage or fixed rate applied to the royalty base. It reflects the cost of using the licensed asset.

Royalty rates can be:
* Linear (flat rate)
* Progressive (increasing rate with increasing sales/profits)
* Regressive (decreasing rate with increasing sales/profits)

Question 5

exclusivity

Answer 5

• The exclusivity stipulates if the licensor can license the technology to multiple licensees

Question 6

sublicensability

Answer 6

• The sublicensability stipulates if the technology can be licensed to others by the licensee

Question 7

market limitation clause

Answer 7

A market limitation clause stipulates on what markets (e.g., national) the licensed technology can (or cannot) be used

Question 8

field-of-use clause

Answer 8

A field-of-use clause stipulates for what (e.g., industry or product type) the licensed technology can (or cannot) be used

Question 9

change-of-control clause

Answer 9

A change-of-control clause stipulates that the licensor has the right to terminate the license agreement in case of a change of ownership of the licensee

Question 10

no-challenge clause

Answer 10

• A no-challenge clause stipulates that the licensee is not allowed to challenge the validity of the licensed patents.

Question 11

termination clause

Answer 11

A termination clause stipulates that the licensor and/or licensee has the right to terminate the license agreement under certain conditions, for instance if the licensee challenges the validity of the licensed patents.

Question 12

assign-back clause

Answer 12

• An assign-back clause stipulates that the licensee must transfer ownership of any improvements it makes to the licensed technology back to the licensor

Question 13

grant-back clause

Answer 13

A grant-back clause stipulates that the licensee must license any improvements it makes to the licensed technology back to the licensor

Question 14

grant-forward clause

Answer 14

A grant-forward clause stipulates that the licensor must offer the licensee a license on any improvements of the licensed technology made by the licensor

Question 15

Takeaways

Answer 15

• Understanding different license clauses
• A license is not one thing -> entirely dependent on how it is designed
• License pricing cannot be done without understanding the license design
• The design of the license is closely related to the technology strategy