Episode 11: Licensing your intellectual property

Synopsis

The Summit TV thirteen part series on intellectual property (IP) takes a look at licensing your intellectual property this week with Hans Nachenius from the SA Licensing Executives Society (LES).

Transcript

STEPHAN LAMPRECHT: Intellectual Property is an asset, and an asset only has tangible value if it is used strategically or leveraged for social and economic benefit. To dig deeper into the issue of licensing as a means to develop your intellectual assets I’m joined in the Summit TV studio by Hans Nachenius from the South African chapter of the Licensing Executives Society (LES). Hans, how would you define licensing?

HANS NACHENIUS: Let’s go back and remind ourselves one of the main drivers for getting access to intellectual property rights is to gain a competitive advantage - or to maintain a competitive advantage. There are two fundamental ways to do this - one is to create your own, the other is to acquire what’s required from somebody who has already created it and already has a track record. They say: “In return for a payment I will make this available to you.” That is the essence of licensing.

STEPHAN LAMPRECHT: So if I want to start a little business that sells pies I’ve got an opportunity to either go and learn the recipe and put up the whole shop myself - or I can take a franchise license such as for example King Pie or a similar brand to that…

HANS NACHENIUS: Pretty much so. Many successful businesses have grown by evolution - by trial and error, they’ve made their own mistakes. It’s taken them many years. If you want to get going into the market - if you want to minimise your risk - why not use someone else’s experience, why not use somebody else’s brand to get you going as a push start? That is very much where franchising comes into its own - franchising really is licensing par excellence.

STEPHAN LAMPRECHT: Let’s talk about licensing - how does it work in practice? Give us an example of a typical license transaction…

HANS NACHENIUS: A very simple example is software licensing - in principle anybody can write their own programs for their own computer at home. In practice we don’t do that - we leave it to Bill Gates and his colleagues, and we happily pay a fee to acquire a licence to use that software on our own system. We normally overlook the written agreement - we don’t read whatever it is on the screen - but when we’ve double clicked we’ve actually entered into a licensing agreement with Microsoft to use that software. That is a very simple way. In practice there are a lot more complexities - it’s not so cut and dried - and one goes through a more elaborate process of making a fit between a licensor and a licensee.

STEPHAN LAMPRECHT: How should I go about it? How do I know whether licensing is the route? Whether this partner is the right person or entity to license that intellectual property from? Shouldn’t I just go ahead and do it myself?

HANS NACHENIUS: I think going your own way means “have I got the resources, do I have the time?” In this day and age we want to get going very quickly - we might have an opportunity and we don’t have the time to experiment, and be our own guinea pigs. Then licensing is very often a good avenue to go. That doesn’t mean every licensing opportunity would work for you - you need to find a fit. The important part is to understand what the licensor wants out of the deal and what the licensee wants out of the deal.

STEPHAN LAMPRECHT: What else is needed? How do I make this a success? From the LES point of view their aspiration is to strive towards a win-win relationship - over the long run how do I get that right?

HANS NACHENIUS: I think it’s finding a fit - very often you might speak to more than one potential licensor. Bear in mind the licensor has one driver - that is to try and generate revenue out of the intellectual property that he or she might have created. The licensee on the other hand has certain resources - but not all of them to make it work. So you need to find out what is going to suit your needs best? That depends partly on your own capabilities - you might be technically very astute and you might just need a head start, or you might be very new need a lot more than just immunity from a patent or just access to a trademark for example. You might need more support and more access to trade secrets and things like that - which by the way are also eminently licensable. They’re part of the whole basket of intellectual property rights.

STEPHAN LAMPRECHT: I’m glad you mentioned that. I think a lot of people understand licensing a patent for example - there is a royalty involved every time I want to make use of that technology or process - but we’re talking here about all forms of intellectual property. Are they licensed separately or are they part of a package - how does it normally work?

HANS NACHENIUS: I think the word package is a good word to use - it’s really a bundle of intellectual property rights that you’re looking at. If you take a franchise opportunity for example - that doesn’t have to be fast food, it can be tyre fitment or plumbing for that matter - you will need a lot of different things to make the whole venture work. Technically there might be certain things you need - there might be certain recipes to get going, you might need to source material. You might need immunity from somebody’s patent who has actually innovated something - they have a product to launch and say you can only use it if you’re prepared to pay - but having done that you will probably still need some kind of brand support because the product is unknown, you want some trademarks that form a part of your package. Very important you might need assistance with training, with commissioning, with actually entering into the market, and troubleshooting as you get going and things go wrong you would like your licensor to support you to try and deal with that as well.

STEPHAN LAMPRECHT: So it’s not a very quick job or a once-off thing - it’s a process or a relationship. Let’s go to the other side of things - I know you’ve personally been involved in drafting a number of license agreements on behalf of South African companies. Why is licensing a preferred model also for me as the IP holder in the South African context to make that intellectual property available outside?

HANS NACHENIUS: The nice thing about licensing is that it’s not a once-off transaction – on a few occasions, typically when you buy a DVD or software package that might be once-off - but even there you’d feel a lot more comfortable knowing there is a help desk that you can phone when you get stuck, and you’d like to have access to upgrades as they happen. So licensing is very much a continuous process - it’s not something that you buy once and walk away from it as you might do with the purchase of some machinery for example.

STEPHAN LAMPRECHT: This is an important point. There is a licensor who is giving access to the intellectual property - and there is a licensee - obviously it’s not a one-sided relationship. I would imagine if I am not happy with what I am getting from the licensor I would try and pull out of the relationship - therefore the whole thing would come to an end. How do I ensure the longevity of these kinds of relationships?

HANS NACHENIUS: I think you’ve hit the nail on the head - licensing is a long-term process. You normally enter into a licensing agreement with the intention that you want to do things together for a considerable time - you’re talking of many years at a time. What you need to understand is that there is always a continuous learning process involved. Licensing means intellectual property as taken right now - but it also means intellectual property as it evolves. The licensor if they are aware and have the resources will continue improving and enhancing the intellectual property rights that he or she already has - but by the same token the licensor also learns from the licensee, because if there are numerous licensees out there making mistakes they tend to feed that back to the licensor. Again, that experience flows back to other licensees - so there is very much a symbiotic relationship here if you manage it well. Again, by having royalties for example there is an ongoing obligation on the licensor to support those businesses - because the revenue coming out of those businesses is directly dependent on the success of those businesses. So there’s a give and take situation - call it a win-win. On the whole it needs to be supportive of each other - then you’ve got every good chance of getting a successful relationship going. There are many of them around.

STEPHAN LAMPRECHT: The LES is a not-for-gain organisation for people with an interest in learning more about intellectual asset management, licensing and technology transfer. If you want to find out more about its activities visit www.licensing.co.za.