Navigating Technology Licensing for International Manufacturing Businesses
This article has been published in IP Briefs® in February 2024. Read as a Pdf.
In the rapidly evolving landscape of contemporary manufacturing, keeping pace with competitors demands commitment to innovation. As companies strive to incorporate cutting-edge technologies into their manufacturing operations, accessing the new innovation may become complicated. While traditional procurement methods involve obtaining parts from the supply chain, technology licensing emerges as alternative way of acquiring innovative solutions. In this article, we dive into the unique advantages of technology licensing and why it plays a growing role in the manufacturing industry.
Going beyond Traditional Procurement with Technology Licensing
In the conventional manufacturing industry, companies primarily rely on their supply chain for materials and components. Traditional way of purchasing is well known operation and agreement concepts are familiar to lawyers and business leaders. It is relatively easy to understand the warranties and liabilities given by a part supplier. However, this conventional and transactional approach does not work when manufacturers are willing to integrate transformative technologies into their business. Unlike the straightforward acquisition of physical goods, adopting technology requires a deeper level of collaboration and comprehension of the underlying intellectual property and the technology assets in question.
Unlocking Business Potential through Technology Licensing
Technology licensing enables businesses to get access to various strategic benefits. Here are a few key elements to consider.
Access to Specialized Expertise and Know-How. Technology licensing is more than that purchasing of products. Licensed technology assets often include specialized expertise and knowledge (know-how) developed by technology vendors over a long time. Through licensing agreements, licensee companies gain ongoing support, training, and updates to technology which ensure comprehensive understanding and optimal utilization of the technology they adopt. This collaborative relationship goes beyond traditional purchasing, and often requires mutual investment in the successful implementation of the technology.
Flexibility and Customization. In contrast to traditional procurement's standardized components, technology licensing offers potentially a higher degree of customization of products. Often technology assets can be applied to improve current manufacturing technologies and enable making of completely new applications, creating new business opportunities and revenue streams.
Risk Mitigation. Innovation is inherently risky, involving uncertainties like technology maturity and market shifts. Innovators face the dual challenge of potential market loss to alternative technologies and the risk of developing technology suitable for business applications. Licensing technology from innovators mitigates both technology and market risk that manufacturer would have if they developed technologies themselves. Further, by leveraging the innovator’s technology and their expertise during implementation, licensees can significantly reduce disruptions and setbacks. This kind of strategic collaboration effectively mitigates risk, providing benefit for technology licensees.
Cost-Effective Innovation. No-one can innovate on behalf of the whole world, often not for even a specific industry. Developing new technology in-house demands substantial investments. Therefore the innovator would have paid for costly development, which would be compensated by licensee only after the technology was mature enough to be licensed. This decreases also manufacturer’s investment risk. Thus, technology licensing offers a cost-effective alternative, allowing companies to leverage existing innovations, without investing time and resources for long-term development.
Accelerated Time-to-Market. In the fast-paced business landscape, time is a critical factor. Technology licensing enables manufacturing companies to bypass lengthy development cycles they would need in-house and swiftly integrate technologies already tested and proven. This approach provides a competitive edge, allowing for the rapid delivery of new products.
Focus on Core Competencies. Manufacturers excel in producing goods, not necessarily in developing every component or process. Technology licensing allows companies to focus on their core competencies while outsourcing the development of specialized technologies to those with expertise in those areas. This strategic division of labor enhances overall efficiency, with each party contributing its expertise to the partnership.
Market Differentiation. In an era where OEMs wish to provide for consumers’ demand of constant innovation, companies embracing new technologies will stand out in the market. Technology licensing enables manufacturers to differentiate themselves by incorporating cutting-edge solutions that align with evolving consumer preferences. This differentiation not only attracts customers but also positions the company as an industry leader.
Scalability and Global Reach. Technology licensing facilitates scalability of innovation without the need to scale up internal research and development capabilities. Manufacturers can tap into a global pool of technological advancements without geographical constraints. This access to a broader range of innovations enables companies to expand their operations and remain competitive in their respective industries.
How to Navigate the Technology Licensing Landscape
While the benefits of technology licensing in manufacturing are self-evident, legal and business professionals must navigate the landscape with diligence and foresight. Thorough due diligence is crucial before entering any technology licensing agreement. Licensee’s business teams should assess the innovator’s technology solutions and their own business case for the technology. Licensee needs to understand which technology assets are needed and what kind of business benefit they provide for. Analysis should be done on the portfolio of intellectual property rights holistically, not only understanding the patents but also the know-how, software and other technology elements. Developing general understanding of the technology landscape would be useful homework for both parties. Finally, licensed technology should be enabler for company's strategic objectives. Understanding the potential risks and rewards is essential for making informed decisions.
It's essential for legal and business professionals to recognize that, as explained above, licensor has made significant investments into technology development. Technology mature enough to be licensable has over time incurred substantial investments in development, productization, testing, expert personnel, and intellectual property creation. Consequently, licensed technology always comes with a price tag. Licensee should understand that accessing technology which enables significant advancements or new business does not come for free. Payment for access to technology should be viewed as investment, not as cost.
Licensing arrangements often include various intellectual property rights, including patents, copyrights, trademarks, databased and trade secrets. Both legal and business professionals need to be aware of the specific rights granted under the agreement and any restrictions imposed. As technology assets may vary, it is important to understand that intellectual property protection and license grants works in different ways for different assets. Understanding these distinctions is crucial for legal compliance and successful integration of technology into business operation.
The success of a technology licensing agreement depends on whether a win-win agreement with clarity of terms have been achieved. Legal and IP professionals should negotiate a comprehensive agreement that should address concerns of both parties. Licensor typically needs to maintain control and transparency of the usage of its valuable technology assets and ensure compliance in licensee fee and royalty payments. Licensee typically wants to ensure business continuity and manage the relevant business risks. It goes without saying that well-defined agreement minimizes the risk of misunderstandings and disputes going forward.
Effective communication between the technology licensor and the adopting company as licensee is vital for the success of a technology licensing arrangement. Regular updates, collaborative problem-solving, and a shared vision for the technology's evolution contribute to a positive and productive relationship.
Given the complexity of licensing arrangements and expertise required to handle intellectual property questions, both licensors and licensees are strongly advised to engage with expert intellectual property professionals. Whether in-house or external consultants, they bring a depth of knowledge and experience to the negotiation table and help each party to do their homework before negotiations and finally successfully close the licensing deal. They can guide the parties through the complexities of intellectual property law and strategy, ensuring that the final agreement is not only legally sound but also aligns with the strategic goals of both parties.
In conclusion, technology licensing stands as a dynamic and strategic alternative to traditional procurement methods, offering manufacturers access to innovation that goes beyond merely acquiring physical components. By embracing technology licensing, companies can tap into specialized expertise, achieve flexibility and customization, and mitigate technology and market risks associated with innovation. Further strategic advantages include accelerated time-to-market, enabling focus on core competencies, market differentiation, and the scalability required to address global markets. Successful technology licensing arrangement can be key strategic enabler for successful and sustainable innovation in manufacturing.
