The keys to implementinga successful licensing strategyThis text first appeared in the IAM magazine supplement‘Licensing in the Boardroom’ October 2004For further information please visit www.iam-magazine.com

“If Aristotle ran General Motors, everyoneemployed there would think of it as a hugepartnership, encompassing myriads of smallerpartnerships, for the purpose of living well. Ifhe ran the corner grocery store, he wouldinstil in everyone the same mindset. And if heoffered you advice, I think this would be at itscore: Always think of yourself as entering withother people into partnerships for living well.This highly general truth about the deepbeauty of business can provide us with animportant perspective on many specificdecisions we face.” If Aristotle Ran GeneralMotors, by Tom Morris (Henry Holt andCompany, Inc. 1997).

Licensing is business, and surely Aristotle isright: you will be successful in licensing so longas you remember you are entering with otherpeople into partnerships for living well. Perhapsthese words sound out of place; after all, whatdoes a philosopher know about business? Well,this philosopher knows plenty, and applyingAristotle’s “highly general truth about the deepbeauty of business” can go a long way towardsimplementing a successful licensing strategy.

Where it all starts: the intellectualproperty portfolioSubstantial groundwork must be done beforeit is possible even to begin the process ofestablishing a partnership with a licensee. Youwill need to identify the intellectual propertythat you will make available for licensing – willit include only non-core technology, or perhapsalso core technology but only in non-coremarkets? Or you may elect to license thetechnology in your portfolio without limitationas has been done by some of the mostsuccessful companies.

As a part of the decision-making process,you will need to assess the value of yourintellectual property and the goals you wish toachieve through licensing. For instance, therole of licensing in your company may be for itto serve as a profit centre where intellectualproperty generates additional revenue. Otherpossible roles include promoting yourtechnology as an industry standard orproviding competitors with a technology theyneed at an affordable cost.

Why, you may ask, would we ever make ourtechnology available to our competitors? Theanswer is not simple nor is it necessarilyintuitive, but it is entirely logical andpersuasive. By providing your competitors withaffordable technology, you achieve each of thefollowing:• Positioning your own company at a

competitive advantage in the marketplacesince competitors are paying you a royalty.

• Creating a greater awareness and demandin the marketplace for products that embodythe technology you are licensing.

• Discouraging competitors from developingnext generation technology due to theavailability of affordable technology.

• Motivating your employees to develop nextgeneration technology to maintain yourposition as a recognised industry leader.

Making it happen: the corporatelicensing teamIn addition to identifying the intellectualproperty that will be made available forlicensing, the corporate licensing team mustbe established. But, first, those at the highestlevels in your company must understand thevalue and importance of your intellectualproperty and the licensing strategy you are

The keys to implementinga successful licensingstrategy

Although the specifics of every licensing deal will be different, there are somegeneral principles that all those involved in putting a deal together should bearin mind. And, explains Patrick D Ertel, of Marshall, Gerstein & Borun inChicago, they have their roots in the thinking of one of ancient Greece’sgreatest philosophers

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implementing. The CEO should communicateto everyone from top to bottom the company’scommitment to, and the strategic significanceof, the licensing initiative.

Observers of successful licensingoperations will be aware that boldpronouncements from the CEO will not beenough to get the job done. It has most oftenbeen the case that success comes whenthere is centralised management having realcontrol over licensing the company’sintellectual property. This means that thecorporate licensing team responsible for thisfunction must have well-defined objectives andthe skill sets to achieve them.

For this to happen, the corporate licensingteam should operate as a dedicated businessunit rather than as a group which functionsunder another well-established corporatedepartment such as law or new businessdevelopment. The primary functions of suchexisting departments are very differentlyfocused. Operating under a larger umbrellasuch as law or new business development willusually mean being saddled with a lack ofautonomy in a universe where there is littleunderstanding of the esoteric world oflicensing intangible property. This will surelyhinder the licensing initiative, if not ensure itsdoom. However, even for a dedicated businessunit to succeed, it must be given a realisticlevel of financial and human resources, but italso should be held accountable, eg, byhaving its own profit/loss responsibility.

If a company has a relatively low level ofpotential licensing opportunities, it will stillneed a strong commitment from the executivesuite. This type of business can utilise adifferent organisational model by forming aspecial licensing taskforce which comprisescarefully selected employees with business,technology and legal backgrounds, althoughthe financial resources still must be present.Regardless of the organisational structure, thekey to success lies in selecting wisely theindividuals who will comprise the corporatelicensing team.

How Aristotle can help: the philosophyof businessIf your company is ever going to implement asuccessful licensing strategy, the corporatelicensing team had better take to heart thewisdom of Aristotle. In a very real sense, alicensor and licensee are entering into “apartnership for living well”, ie, the licence willbe about something beneficial to both parties.It has been said that a successful licence inan ideal world would be one where both thelicensor and the licensee have obtainedeverything they wanted.

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Now, we all know this is not an ideal world,and it will never come to pass that bothparties will get everything they wanted from alicence. Nevertheless, both parties need tofeel their goals and concerns have beenconsidered and addressed and, on balance,the deal is a fair one that makes sense fortheir business. However, in many instances,one or both parties look at the negotiationonly from the perspective of what they hadhoped to achieve from the licence.

Nothing stands more in the way of asuccessful licensing transaction than theinability of either party to see things from thepoint of view of the other party. RememberAristotle’s wisdom applied to business: thislicence needs to be a partnership for livingwell between your company and your licensee.Thus, the key to a successful licensingstrategy is in your hands regardless of howmyopic your potential licensor may be duringthe course of negotiations.

All you need to do is be able to have anunderstanding of the key issues from theperspective of the other side. This will alwaysput you in a position to seek creative ways toget the deal done, even when your potentiallicensee is blinded by an inability to seebeyond a particular way to satisfy itsimportant need or key interest. Many timesthe real need or interest is not verbalised soyou must exercise patience and draw that outin the course of negotiations.

Whenever possible it is advisable to get toknow your potential licensee over a period oftime before getting into the heart ofnegotiations. The more you can learn aboutthe personality and character of the person(s)negotiating on the other side, the more likelyyou can be the one to find solutions ifproblems are encountered. Also, it is ofimportance to understand as much aspossible about your potential licensee todetermine the likelihood of a good businessrelationship.

As Aristotle would advise, you are enteringinto a partnership for living well so satisfyyourself that your partner in this licensingtransaction is one who will see it the sameway. Many are the instances where a licensorand licensee have battled across the table innegotiations only to later battle in thecourtroom as one or both of the parties feelwronged or deceived.

If your corporate licensing team is to avoidthis trap, it must be composed of people whohave very good interpersonal skills. It goeswithout saying that they must have thenecessary knowledge and skills to undertakethe task of drafting and negotiating licences,but the ability to have a sensitivity to, and

understanding of, others is critical. In otherwords, whether they have a background inbusiness, technology or law, it is importantthat they have the outlook of Aristotle.

Ideal candidates for the corporate licensingteam will share the vision of the author TomMorris in If Aristotle Ran General Motors: “Theessence of business must never be viewed asthe attempt to move money from otherpeople’s pockets into our own. It should beviewed as a performance art, the creation andcare of structures within which people can jointogether in partnerships for living well.”

The bottom line: the value of a fair dealMuch has been written about placing a valueon intellectual property and there are expertswho can assist in developing such numbers.These experts are well versed in assessingthe value of your intellectual property beforeyou initiate negotiations where you will betrying to extract full value from a potentiallicensee. The bottom line demands that thecorporate licensing team properly evaluate theintellectual property and license it as close aspossible to full value.

As you learn about the universe of potentiallicensees and identify the companies you willtarget, you should undertake an importantcommercial reality check. There may be agreat number of potential licensees, orperhaps just a small group, but there could beonly a single licensing target. Whatever thecase may be, your corporate licensing teammust always keep in mind your alternatives ifthey are unable to negotiate a deal with aparticular party.

By properly assessing alternatives you willbe able to ascertain the level the deal you arenegotiating must surpass to be acceptable.The expert used to evaluate your intellectualproperty may have been overaggressive andfailed to understand you have a weakbargaining position due to a limited universeof potential licensees. Or it may turn out yourcompany is in the driver’s seat because thetechnology you are licensing is essential forothers to remain competitive.

Regardless of what is learned it will go along way towards helping the individuals whowill be negotiating the licence to understandthe value of a fair deal. This should always bethe goal so it is important that your corporatelicensing team and the other side both putaside all unrealistic expectations not basedon commercial realities. Once again, Aristotlehas it right; this must be considered apartnership between your company and yourlicensee for living well, ie, it must bebeneficial to both parties.

If this is to be a fair deal over the long

term, it is worth thinking of something alien tomost cultures but commonplace in Japan. Yourcorporate licensing team may wish to considerthe practice of inserting a clause as to theobligation of the party who achieves an unfairadvantage and, thus, greater power as theresult of a substantial change of conditions torenegotiate and make things fair to bothparties. Rather than simply acquiescing to thefact one party can take advantage of asubstantial change of conditions to thedetriment of the other party, and especiallywhere the change of conditions wasunforeseen and very likely unforeseeable,inserting such a clause would be Aristotelianin nature. While a radical departure from thetraditional approach to licensing, it wouldsurely lead to solid, strong licencerelationships.

Remember the keys to successIf you wish to implement a successfullicensing strategy, the first key is to do thegroundwork: identify the intellectual propertythat will be made available for licensing, placea value on it, and establish the goals you wishto achieve. The second key is to communicatean unwavering commitment to licensing fromthe highest levels of the company so itsimportance to the company is fully understoodand appreciated. The third key is to set up theright type of organisational structure takinginto account the nature of your company andthe extent of its intellectual property portfolioavailable for licensing. The fourth key is toselect individuals for your corporate licensingteam who embrace an Aristotelian businessphilosophy and provide them with the authorityand resources to succeed. Finally, the fifth keyis to insist that your corporate licensing teamunderstand that enhancing the bottom line isachieved by searching for a fair deal - fair foryour company, but also fair for your licensee.

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