Interopera-what?

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:

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.

IP Ownership - is it really all that it's cracked up to be?

When negotiating a collaboration agreement, one of the issues that often causes a headache is who is to own the IP.   In many cases, it is a debate that doesn’t need to happen.  As we saw a couple of weeks ago, this issue can be so divisive that the negotiating parties lose perspective and fall into the joint ownership trap.

Deadwood

Recently, we looked at the IP tracking issues that intellectual asset managers have to deal with in our post on Tracking Innovation.
One of the other problems that these managers face is how to deal with IP assets that their enterprise is unlikely to use. Once obtained, patents can cost a significant amount to maintain. If they are left to fester in an IP asset portfolio, the liability to an enterprise can continue to mount with no return for the investment.

The Joint Ownership Trap

Parties contemplating a collaboration will often enter heated negotiations about who is to own future IP. To resolve the deadlock, they sometimes adopt a halfway position that results in "joint ownership" of newly developed IP. This can result in several problems.

Software Escrow Arrangements

So what would happen if your IT contractor went into liquidation?   It could be your IP horror story.   In a disturbingly high number of cases, IT services contracts specify that where software solutions are custom-made for an enterprise, they are owned by the contractor, not the enterprise.   This means that in a liquidation scenario, ownership of the software will vest with the liquidator.

Your new IT contractor will need to have access to your software, and preferably a license to tinker with the source code.   Without these things, not only does switching contractors become an impossible transition, but any modifications to your software solution may lead to a breach of the liquidator’s IP.