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:

Licensor - Seeker

This type of technology owner is actively looking for licensing opportunities for strategic intellectual property.   They are usually willing to invest in a licensing opportunity and to develop its product to make the deal work.   However, they will press for early opportunities to extract license fees and cashflow.

Licensor - Opportunist
These technology or rights owners are interested in receiving income for intellectual property that is not central to their own market strategy.   They don't generally want to invest more money in developing the product, but will nevertheless seek market rates for their technology.

Licensor - Enforcer 

These technology owners will be seeking to forcibly get a license in place by threatening legal action for infringement.   The technology can either be core or non-core to their strategy, but this type of licensor will be looking to get a license fee that compensates for both ongoing use and previous infringing uses by the licensee.  They will approach negotiations in an adversarial way.

Licensee - Seeker
This type of licensee wants to fill a technology gap in their portfolio, and will be interested in paying a fair price for technology that is well developed.   They've done their research, and they'll have a good idea of what's available and at what price.  They will generally want the negotiations to be quick so that they can secure the technology as soon as possible, and will want to keep royalty rates low to minimize the impact on their profit margins.

Licensee - Opportunist
These licensees are usually interested in supplementing their market position by improving non-core strategies with technology.   They generally won't be prepared to pay market price and will look for a bargain, even when they know very little about the market for that technology.   They will also tend to play the field a little and canvass all of the options - sometimes there are many options available to them.   Delays in negotiations won't generally bother them as much as they will bother the licensor, and they will tend to use delay as a tool to pressure the licensor into sweetening the deal.

Licensee - Infringer
Sorry, what infringements are you talking about?   Even if it's plain as pikestaff that this licensee has trespassed all over your patent claims, don't expect them to admit it.   They'll be very reluctant to talk with you, and even more reluctant to pay for technology that they allege is free for all of the world to use.  Be prepared to speak to them using lots of hypotheticals - "let's say you were infringing...".   Or perhaps you should just adopt Basil Fawlty's tactic for dealing with German tourists - don't mention the war!

Of course, parties can play a combination of these roles, and there are a significant range of factors that influence negotiations.   We may take the opportunity to explore these in later posts.   


When these parties negotiate, the two market roles can set the tone for a negotiation.  Of course, the negotiations with an optimal tone will involve a seeking licensor and a seeking licensee, both of whom are actively seeking to commit to reasonable license terms. This creates a higher probability for success in negotiations because both parties are intent on securing a deal and are realistic about the outcome.

The combination with perhaps the lowest probability for success is the enforcing licensor and the infringing licensee.   While there will be pressure on both parties for an outcome, the background can cast a pall over the negotiations.   The Potential Licensee will want to pay as little as possible for the license (given that they've used the technology for free up until that point), and the Technology Owner will want to throw the book at an infringer rather that loosen up on terms.   While it's not an optimal situation, licenses are nevertheless secured in these circumstances with great regularity.   

New Licensors
Technology owners who are new to licensing deals will often ask how to go about negotiations because they're not sure what to expect.   It's a good question for them to be asking, because a lack of awareness in this area could lose them a deal.

Here's a very important tip for the uninitiated technology owner:  Realise from the outset that owning an IP or technology right won't guarantee that you get to dictate license terms.   We've found this fact can often surprise technology owners when they try to run negotiations themselves. The truth is that owning needed technology will often mean that you are the party who has less clout at the negotiation table.  This is because a potential licensee who is a technology seeker is often a large enterprise that has access to more negotiation currencies - better resources, networks, distribution channels and potential applications for the technology.   Technology seekers and opportunists can be very aware of what they can get elsewhere - consequently, they will want to drive every aspect of the deal - the processes, timeframes and terms.

We've barely been able to scratch the surface with this topic.  The main point is that it always pays to get a good view of the licensing landscape before trying to secure a deal.
  

Image: Michael Elliott / FreeDigitalPhotos.net