Tips on negotiating

It is always a good idea to know what precedents have been established (if any) that could bear on the terms negotiated in the next license. For example, the relative contributions of the two parties should influence the allocation of profits.

• Licensors (who grant the license) can reasonably expect to get more out of the agreement if they
  
  

  - have a unique product with a broad market

  - have a history of protecting their patent interests through litigation

  - have know-how that can up-date the product regularly

  - have been a party to successful (profitable) transfers of technology in the past

  - have patents pending or issued.
  
  

• Licensees (who receive the license) can reasonably expect to get more in the negotiation process if they
  
  

  - are already equipped to manufacture the product

  - have established channels to the market

  - have an edge over the competition in reputation.
  
  

In practical terms, licensing is not the best avenue to pursue in many cases. Licensing agreements are most often negotiated for rehabilitation products which

You will need to give some thought to the way in which royalties will be calculated. They can either be a percentage based on sales price or as a variable amount tied to before-tax net profits. (Basing royalties on selling price has the advantage that this base is more easily defined than net profits.) A common starting place in industry for the latter is the "25% rule." This is really not a rule at all but a rule of thumb, derived from the premise that the patent holder's share should be set at about 25% of the "savings" over the nearest alternative patented product.

For many rehabilitation products, there may be no prior alternative to which the cost-savings reasoning could be applied. In this situation it is more common to use a percent of the actual price of the product. This percent is often in the 3 to 6% range.

A sample license prepared by the Department of Commerce is on file in the RR & D Center and can readily be adjusted to take into account the preceding suggestions. You shouldn't try to "start from scratch" but rather use that sample as your model, making changes as you, the Investigator, the Center Director, and the prospective licensee see fit.

Investigator

Transfer Officer

Center Director