Strategic Factors Affecting Licensing Negotiations

Recently we looked at how a party's market role or position might affect the tone of a negotiation.   In this post we'll take a first look at a number of other strategic factors that can influence the shape of a licensing deal.    This is a very broad topic, so we will list these generally first.   In our next post, we will take a look at some industry examples.

For the sake of clarity, we'll assume below that you are doing the licensing. If you're a licensee, simply reverse the analysis.

Licensing Negotiations - profiling the opposition

Before entering into any technology license negotiation, it's sensible to first develop a profile of the party you're negotiating with.   With IP negotiations, this can be done in a number of ways, but in this post we'll talk about how a party's role in the market can impact on their profile.

Here's a quick breakdown of how a party's market role can affect their negotiation stance:

Reports of the death of custom enterprise software have been somewhat exaggerated...

Many observers believe that with the advent of Software as a Service (SaaS), custom enterprise software may have had its day.   The demand for various models of cloud services has increased.   This model often comes hand in hand with a "best of breed" software selection approach which reduces the need for custom-made software solutions in the IT services industry.  But will the continuing trend towards this model mean the death knell for custom designed software?   It's not likely.   In fact, as we suggest below, there is a significant likelihood that a demand for customized enterprise solutions will continue.    This means that a good understanding of how to negotiate enterprise software contracts will be a necessary skill.

Living in the Cloud

Cloud services have proliferated the IT services industry in the last few years or so, and it's easy to see why.   There are numerous advantages to offering and using cloud services as opposed to out of the box software solutions.   For service vendors the model enables a steady income stream and a quick way to fix bugs and get improvements to customers.   For providers, it's a way of diversifying existing IT services and enabling income that wasn't previously available.   For service users, the model offers better tax deductibility due to the switch from CAPEX to OPEX, usually a better overall reliability, and if properly researched, it can reduce the overall IT maintenance spend.

Collaboration Conundrums

We know.   It's hard enough satisfying your own shareholders, let alone trying to satisfy someone else's. The thought of trying to get another enterprise to work with you on a long term development project involving multiple IP rights can be daunting.

But however difficult collaborations are, sometimes you can't afford to ignore the opportunities they present.  We can't give collaborations and collaboration licensing an exhaustive treatment in this post, but we thought we'd put pen to paper and give you a summary of some selected issues that need to be considered when putting together collaboration deals.

Value through Transactional Constructs

Now, finally we’ve arrived at the third category of ways to overcome the value problem.

Those of us who are waiting until the accounting profession develops an accurate measure for valuing IP could be waiting a while for the reasons we've already discussed.   The main issue is that it’s almost impossible to get value metrics that are truly accurate.
   

It could be that in looking for firm and unshakeable metrics, we’re barking up the wrong tree. 

Value and Intangibles - but what about GAAP?

We interrupt our broadcast on value and intangibles to address a pressing question.

It’s time we came clean with you about something.   In our discussions about intangibles and value to date, we, have, quite frankly, been studiously avoiding a rather large elephant stampeding through the room.   That elephant is, of course, the generally accepted accounting principles or standards.  

Value through use of strategic structures

We’ve been exploring the topic of intangibles and value the last few weeks.   So far, we’ve discovered that:

·                Intellectual assets are difficult to value because they are generally developed in a unique environment and designed to meet unique challenges..

·                One of the ways to value these intangibles is to “buy out” of thinking that relies on double entry book-keeping, and choose alternative valuation methods that focus on aspects of the asset that favour your market position.

However, it’s not necessary to buy out of the concept of double entry book-keeping.   In fact, one school of thought tells us that if transactions drive a market’s understanding of value, then it’s a better approach to swallow transactional thinking hook, line and sinker.

Value and Intangibles 2 – Accounting and Alchemy

This is the second of our January posts exploring the value problem.   It’s a problem that affects me, you and Wall Street too...

Many of our readers and contributors will be familiar with why intangibles are so hard to account for.   It’s an issue that goes to the heart of the accounting methodologies used around the world today.   These are predominantly based on the double entry bookkeeping system.

Utilised perhaps as far back as the 12^th Century BC, double entry bookkeeping was designed to capture financial transaction flows.   However, internally developed intangible assets can rarely be described in a transactional way.   They are usually developed over the course of a long and involved timeline.   There are very few points along that timeline at which you can take an accurate value snapshot.

There are two fundamental ways to respond to this:

Value and Intangibles – the Value Problem

First, Page Seager IP wishes everyone all the best for the new year, no doubt a year of new milestones and challenges in the world of strategic IP.

We have a number of topics planned for the coming months.   Many of these will address IP issues that we are encountering in the world of information technology.   Before we do that, however, we thought we’d spend some time in January looking at some broader questions affecting the world of strategic IP.

This is the first of a number of posts that will explore a difficult question.   How does one allocate value to intellectual assets?   Intellectual asset managers around the world have been seeking a satisfactory answer to this question for some time – it is something of the Holy Grail in the world of managing intangibles.   If a firm, objective indicator of value could be applied to most IP portfolios (many of which consist of intellectual assets that are a work in progress), this would revolutionise the intellectual manager’s role.   At the very least, the task of convincing boards, potential investors and other stakeholders to commit themselves would be far less of a challenge.