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Prelude

Licensing is an important element of patent exploitation within firms. Various types of licensing are practiced, including unilateral licensing cross-licensing and patent pools.
It all involve an agreement by the owner of a patent (licensor) to allow another party (licensee) to make, sell and use the patented invention on an exclusive or non-exclusive basis, without transferring ownership of the patent. Generally, a licensor receives financial rewards in exchange for the licence, in the form of royalty payments. Licensing is, therefore a suitable mechanism for transferring technology between licensors and licensees, who want to complement their internal technological capabilities.

Licensing is widely used as a means of commercializing inventions. In a survey of European firms, licensing was the most commonly cited use of patents for generating income (used by 88% of respondents), followed by an alliance or partnership (61%), joint venture (56%) and sale (38%). However, this is not because licensing is seen as the most promising strategy to generate income. Interestingly, many firms assign a low probability of success of efforts to commercialize an invention via licensing. In this connection, they tend to view franchising as the most successful method. The main reasons for the lack of successful commercialization via licensing may include under-performance of licensees and dissatisfaction with licence agreements due to a lack of negotiation skills.

Direct Benefits

Generating Cash

One of the most direct benefits of patent licensing is generating revenue for the patent holder. Today a number of firms have been able to generate considerable royalties from outward licensing of technology. IBM Corporation, which started to more actively manage its IPR in the late 1990s and averaged more than 3000 US patent grants a year between 2000 and 2004, received more than USD 1 billion in annual revenues from licensing royalties and sales of IPR; about half of these revenues came from licensing.2 Other technology - intensive firms such as DuPont, Merck and Amgen also report significant amounts from patent licensing.

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* Contributed by: -
Prof. (Dr.) R.P.Verma,
MASD (USA), MRES (London),
Ex. H.O.D & Dean,
Faculty of Commerce,
Ranchi University, Ranchi,
Dr. Arabinda Bhandari, MBA, Ph.D.
(Strategic Management)