1. Licensing, Deal Making & the
Art of Negotiation
Presentation by
Ian Murphy
Professional support for commercialisation and internationalisation

2. Speaker credentials
• 28 years international business experience
• Hundreds of licensing deals in many countries in
sectors from aerospace, electronics and renewable
energy to pharmaceuticals and genetics (even music)
• Trained in industry, experienced in technology
transfer in Universities, MBA
• Currently negotiating IP for equity deals for a leading
University, working independently, and co-founding a
technology start-up
• Also international marketing & business
development experience
Professional support for commercialisation and internationalisation

3. Recent Activities
• Head of Licensing – ERI
• Commercialisation
Specialist
• Chair / Director of Start-
up based on in-licensing
Professional support for commercialisation and internationalisation

4. Why Consider Licensing?
• Sharing risk
• Revenue generation
• Market penetration
• Reducing costs
• Reducing time to market
Professional support for commercialisation and internationalisation

5. Challenges in Licensing
• Identifying a compatible / motivated partner
• Valuing your IP
• Negotiating a good deal
• Managing your partner(s)
• All the usual business threats and challenges
Professional support for commercialisation and internationalisation

6. When to License?
• Established companies have well developed channels
to market;
– This will enable rapid and comprehensive
exploitation
• The market is moving rapidly
• The market is highly distributed
• The invention may complement a wider product
range, but not be sufficiently broad or disruptive to
merit investment as a stand-alone proposition.
Professional support for commercialisation and internationalisation

7. What types of IP
• Patents
• Trade secrets / confidential materials
• Trademarks
• Designs
• Copyright
• Database Rights
• Combinations of the above categories
Professional support for commercialisation and internationalisation

8. Patents
Professional support for commercialisation and internationalisation

9. Patents
• Do not actually confer on you the right to practice the
invention; rather
• Gives you the right to exclude others from practising the
invention for the life of the patent, in the territories
covered
• This right has to be actively exercised
– Sadly, there is no “patent fairy”
Professional support for commercialisation and internationalisation

10. Patentability
• Novel
• Non-obvious, Inventive step
• Capable of industrial application
– (may or may not be any use to anyone!)
• Not covered by certain exclusions
– Discoveries
– Business methods
Professional support for commercialisation and internationalisation

11. Novelty
• In 1982 the examination report in response to
Paul Usher's Patent Application for a Dog
Doorbell cited as 'prior art' the publication of
the same invention on the front page of
another journal.
• The Beano - Dennis the Menace’s enemy
Walter the Softy had one already for
his poodle!
Professional support for commercialisation and internationalisation

12. Non-obvious / Inventive step
• The blue squash ball was considered non-
obvious and to involve an inventive step.
• It may seem obvious to a layman, to try
different colours, but previously they were all
green!
Professional support for commercialisation and internationalisation

13. Patenting – the process
UK Priority
Date
• Initial search report
• 12 months before next step
Transform
into PCT
• Recognised by every nation worth worrying about (and then some)
• International Examination
• 18 months before next step
National
Phase
• Declare which countries are of interest (limit based on cost and strategy)
• Gradual process of examination and grant in each jurisdiction. Slow
process. (Translation fees, renewal fees, fees, more fees, ££££££££££)
Professional support for commercialisation and internationalisation

14. Copyright
• Covers;
– Literary works
– Musical works / sound recordings
– Dramatic works
– Drawings / Pictures / photographs
– Choreography
– Architecture
– Software
• Does not cover
– Ideas, facts, short names or slogans
Professional support for commercialisation and internationalisation

15. Rights under copyright
• Protects against unauthorised copying,
reproduction, distribution, public
performance, display (includes derivations)
• Originality is a defence against alleged
copyright infringement
– The Chiffons vs. George Harrison (£1m)
– David Lodge and Pauline Harris (£0)
Professional support for commercialisation and internationalisation

16. Anatomy of a Licence
Professional support for commercialisation and internationalisation

17. What is a Licence?
• A legally binding written agreement
• In which someone having definable rights in
certain property
• Transfers all or some part of those rights to
someone else
• In return for a consideration
Professional support for commercialisation and internationalisation

18. Common Licence Terms
• Parties
• Recitals
• Definitions
• Define IP to be licensed
• Field of use
• Territory
• Exclusivity
• Duration
• Right to sublicence?
• Patent defence
• Performance Obligation
• Fees for the licence
• Verifying Accounts
• Warranties/Indemnities
• Termination
– By time
– On breach
• Governing LawProfessional support for commercialisation and internationalisation

19. Usual Big Issues (for Licensor)
• Performance Obligations
– Milestones
– “Use or lose”
– Expenditure or efforts in marketing
– Minimum Annual Royalties
• Payments
– Levy on net sales, NEVER on profits
– Cover inflation, exchange rate risks, late payments
Professional support for commercialisation and internationalisation

20. Good Practice
• Secure a right of audit
• Use it!
– Underpayment is common. Possibly in 80% of
cases.
– Underpayment may be up to 25%
– Negligence is common, fraud is rare
– Audit is low-cost, often high value investment
Professional support for commercialisation and internationalisation

21. Negotiations
• Both sides must share enough information to enable
each to understand the perspective of the other
• Respect the right of the other side to negotiate
• Know your own fall-back position
• Choose your partners carefully
• Understand cultural differences
• You may need to take time to build the relationship
Professional support for commercialisation and internationalisation

22. Preparing for Negotiations
• Do your homework;
– On the technology
– On the inventor
– On the company
– On the negotiator(s)
– Know your own BATNA
– Best Alternative To No Agreement
Professional support for commercialisation and internationalisation

23. Valuation of IP
Professional support for commercialisation and internationalisation

24. The scientific approach
• (A x B – C) *0.25
• A = Net present value of future profits
• B = Likelihood of them being made
• C = The cost of development of invention to commercial
sales
• You don’t actually know A, B or C, so the margin of error
makes this is pretty worthless
Professional support for commercialisation and internationalisation

25. Valuing IP (1)
• A genuine value only exists in the presence of
a willing buyer and a willing seller
• Otherwise it is an aspiration
• Licensors and Licensees both have a right to
negotiate, cut a deal or walk
• Valuation - “It’s a funny old game”
• Best advice – get out there in the market!
Professional support for commercialisation and internationalisation

26. Valuing IP (2)
• A lot of people ask me about the valuation of
their IP
• Usually their questions focus on the royalty
rate
• Rarely are they thinking enough about the
multiplier!
Professional support for commercialisation and internationalisation

27. Incentivisation – the win/win
“It is also possible for an inventor who accepts an
extremely small royalty percentage to become much
richer than one who negotiates a high royalty
percentage. The difference depends on the number
of units sold. For example, the inventor of the drinks
can ring-pull got only a tiny royalty percentage - but
he is reputed to be the world's wealthiest inventor.”
- From the website of the European Patent Office
Professional support for commercialisation and internationalisation

28. Relationship Advice
• Licences – more like a marriage than like a sale
• After the party is over you have to live together for a
long, long time
• Stuff happens - Unknowns will arise in your joint
future, you will need goodwill to get through
• As in any relationship good communication will
minimise “opportunistic or exploitative behaviour”
• Breaking up is hard to do…
Professional support for commercialisation and internationalisation

29. In conclusion
• Licensing can be a great way to extend your outreach
• It can help you to minimise time to market
• It can allow you to generate cash from one part of
your business to invest in others
• It is easy to say you are selling direct, but if you do
you must be clear – how will you get your products
or technology to the customer in Uruguay, Kenya or
China?
Professional support for commercialisation and internationalisation

30. Thank you for listening!
Ian Murphy
Ian.Murphy@innovibusinessgrowth.co.uk
Twitter: @Commercialiser
Professional support for commercialisation and internationalisation