Technology licensing is a contractual arrangement in which the licensor’s patents, trademarks, copyrights, trade secrets, or other intellectual property may be sold or made available to a licensee for compensation. This compensation may be a lump sum, based on volume of production, or a combination of both.
Why Would I Use a Technology License?
A technology licensing agreement can be a profitable transaction as it:
- Allows quick entry into foreign markets, and creates fewer financial and legal risks than conducting overseas operations or participating in a joint venture;
- Licensing overcomes many of the barriers that can impede the export of U.S. manufactured products; and
- Technology licensing can also be used to obtain foreign technology.
What Are the Potential Drawbacks of Using Technology Licenses?
Technology licensing also has certain potential drawbacks. The following is a short list of negative aspects of licensing:
- Technological control is diminished as it has been transferred to an unaffiliated company;
- Technology licensing usually produces fewer profits than exporting actual goods; and
- There may be problems in adequately protecting the licensed technology from unauthorized use by third parties.
It is important to investigate the licensee’s country as host country’s government often must approve the licensing agreement before it takes effect.
Prospective licensors must take into account the host country’s:
- Patent, trademark, and copyright laws,
- Exchange controls,
- Product liability laws,
- Antitrust and tax laws, and
- Government regulations of royalties and dividends.
U.S. antitrust laws prohibit international technology licensing agreements that unreasonably restrict imports of competing technology into the United States or unreasonably restrain U.S. domestic competition or exports by U.S. persons.
This determination is made by consideration of:
- Competing goods or technology
- Market shares
- Barriers to entry
- The business justifications for and the duration of contractual restraints
- Valid patents, trademarks and copyrights
Prospective U.S. licensors, should also determine whether they need to obtain an export license from the U.S. Department of Commerce or other regulating agencies.
Should I Consult a Lawyer about Technology Licensing?
Because of the potential complexity of technology licensing agreements, you should seek the qualified legal advice of an experienced intellectual property lawyer before entering into such an agreement. Licensors may also wish to seek qualified legal counsel in the host country in order to obtain advice on applicable laws. Sound legal advice will increase the likelihood that your technology licensing agreement interests are protected.