GUIDELINES FOR INVENTORS & TECHNOLOGY OWNERS

You're here for business; let's get to it:

First, any business relationship you may develop with a prospective licensee is to be negotiated between you and the licensee. 2XFR simply accelerates the connection between you and the licensee ... period.

Once the connection is made, you take it from there. Unlike many tech exchanges, we stay out of your business. That's why it's called a Frictionless Marketplace.

Process:

There are 5 fundamental phases to successful licensing:

1. Preparation & Strategy
2. Marketing & Presentation to Licensees
3. Licensing Negotiations
4. Realistic Technology Valuation
5. Sign, Seal & Maintain the Relationship

If you have a need for financial, legal or business advice, you will need to contact the appropriate professional. We do not provide these professional services, and nothing on this site should be construed as financial, legal or business advice. Throughout the licensing process, you are expected to assess your need to competent legal counsel, and retain an attorney before executing any licensing agreements. Locate an attorney by clicking on the Attorney Directory link.

Phase 1. Preparation & Strategy

97% of all patents never earn more money than they have cost - in part because the inventors / owners held on to expectations that showed lack or preparation, and that were clearly unreasonable.

The most important key to licensing success is understanding your "buyer", the licensee. Without this understanding, you can't develop a solid licensing strategy, and will be ill-equipped to structure a "Win-Win" licensing scenario.

It is strongly suggested that you develp an early understanding of the business issues related to your patent in order to effecively present your technology / invention.

By first understanding how managers from the licensee's legal, engineering, marketing and manufacturing departments will review your technology, you can substantially increase the likelihood of licensing success.

Invention Assessment Software: We have made available our invention assessment program on the Licensing Software page to help you quickly understand and simplify this invention analysis if you do not have this information available now. These "business points" are guaranteed to be core to your licensing discussions.

Continue to Phase 2. if you understand and agree that:

• licensing is a long term relationship that requires your continued support and participation - not a "get the money and run" event,
• your ability to license successfully is directly related to your commitment to understand the licensee's problems, concerns and objectives,
• you have worked through the valuation process, and have realistic and arguably defensible revenue expectations ready to discuss.

Phase 2. Marketing & Presentation To Licensees

The first point of marketing your invention or technology is to list it in the 2XFR database where your NON-confidential information will be made instantly available to thousands of potential licensees.

Interested licensees contact you by e-mail through 2XFR. The licensee may require you to sign a NON-CONFIDENTIAL DISCLOSURE AGREEMENT before they will agree to receive your presentation materials.

Agreements and Forms Templates: We've made available a variety of agreement templates that you may find to be useful models for confidentiality agreements.

Consult an attorney if you are unsure of what information related to your invention is confidential and what is not. Package your invention technology and business information presentation materials into separate "confidential" and "non-confidential" files.

Respond smartly by sending your non-confidential information to prospective licensees. This should include information related to manufacturing, marketing, safety, environmental impact, and other BUSINESS information that you developed in Phase 1 above. Licensees reasonably need this information to further evaluate whether a license to your technology will likely meet their business objectives.

Your insistence on a Confidential Disclosure, or NDA at this point would show your lack of understanding of the process, of the licensee's liability and risk, and of what information you should consider confidential and non-confidential. Your insistence will also kill any further communication from the prospective licensee.

Once interest and discussions move to the next level, and after the initial building of a business and personal relationship, both parties will be ready to consider signing a Confidential Disclosure or Nondisclosure Agreement before sensitive, detailed confidential information passes hands.

Phase 3. Licensing Negotiations

If the first steps do not produce a feeling of trust, forget about moving forward. A licensing agreement is only as good as the people behind it.

Only if there is a mutual feeling of trust and respect for what both parties can bring into a licensing relationship, can negotiations begin.

Before negotiating the "value" of your invention or technology, review these few business points.

• Look out for the licensee's interests (liability, investment risks)

• Understand your options regarding "exclusivity".

A nonexclusive license means that the intellectual property rights conveyed may be granted to more than one licensee.

An "exclusive license" does not necessarily mean you license exclusive to only one licensee. It may mean that the "scope" of the license is exclusive based upon a "field of use", a geographical area, or to an industry or product category. The licensee of an exclusive license may have the right to sue for infringement - an important consideration if your licensee must protect their investment in your technology.

• Realistic Royalties: A "Royalty" fro the manufacturer's perspective is considered a "cost of goods". It's factored in to the total product cost along with materials and labor. Therefore, by definition, it cannot be the major part of the costs associated with a product - rather the opposite. Otherwise, the product would not be marketable by or profitable for the licensee.

• Generally, royalty rates range from less than 1%, to 15% of the manufacturer's net sales (unusually high royalty rates are often associated with software). Most licenses provide for royalties in the 3% to 5% range.

• Know when you should bring in legal counsel.

License Agreement Kit: This clear, yet highly detailed book and licensing agreement software covers many more issues related to crafting a licensing relationship.

Phase 4. Realistic Technology Valuation

Valuation is a pivotal point to any licensing agreement - and a tough one. What is the overall value of the invention to a licensee? This drives the profit motive that governs the tenor of a licensee / licensor relationship.

The deciding factors on valuation include: the type of technology, level or engineering risk, the targeted user market, intellectual property strength, amount of perceived risk, and the total costs associated with bringing the technology to market. You now see how incredibly important the earlier discussed invention assessment exercise is.

The licensee will use one or more of the following methods to determine the value of the technology:

• Quantitative: Revenue / Income Potential
• Qualitative: Comparable Deal Analysis, and
• Cost Method: Budget-driven

Negotiation of a fair value will likely incorporate one of more of these methods.

Quantitative: Revenue / Income
Fairness: Good
Accuracy: Fair
We've made available a proprietary, On Demand analysis tool that calculates the value of a given patent based on a number of economic factors including the relative percentage of the Gross Domestic Product (GDP), the remaining life of the patent, industry segment, and other factors. This is an impartial mechanism to determine a quantitative point of reference. Keep in mind that future-looking valuation, regardless of the method used, is not absolute, so determining an "actual" value quantitatively is extremely difficult.

Qualitative: Comparable Deals
Fairness: Very Good
Accuracy: Good reference
By reviewing licensing agreements executed by other companies within your industry or technology segment, you can begin to paint a picture of the "going market value" of similar technologies. Although other deals are a good reference point, they do not accurately reflect the nuances that differ in every deal.

Cost Method: Budget Driven
Fairness: Very Poor
Accuracy: Very Good
This method is very "accurate" from the licensee's point of view since it reflects precisely the amount of money a licensee has budgeted to acquire a technology. However, this method disregards the needs or objectives of the inventor / technology owner. In essence, it lays out the framework for a "take it, or leave it" negotiation.

If you are considering negotiating using the Cost Method, prepare by completing the estimated commercialization cost section of the Invention Assessment Software program.

Phase 5. Sign, Seal & Maintain

The license agreement is the definitive memorialization of your licensing relationship. Not only does it reflect the "deal", but sets forth the post agreement activities.

Other agreements may be a part of the licensing agreement, and might include a consulting agreement outlining how the licensee will hire your services to help transfer associated know how associated with your technology, joint development agreements, option agreements on future inventions, and more.

All parties in a deal must understand that the "agreement" is not the conclusion of the business relationship, but the start.

Each party to a licensing agreement should have their own attorney represent them in the completion and execution of any legal agreements.