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Licensing, Technology Transfer and Open Innovation

What are Technology Transfer and Licensing?

In its most basic form, technology transfer may be defined as a range of formal and informal cooperation between technology developers and technology seekers.

In addition, technology transfer involves the transfer of knowledge and technical know-how as well as physical devices and equipment; (a) for products, the license from one organization to another for manufacture, marketing, and sales; and (b) for technology, the license of a process or information from one organization to another.

The most common forms of technology transfer are transfer, purchase, licensing-in, licensing-out, and cross licensing.

A license is a contract, which contemplates the granting of rights of manufacturing and economic exploitation of a patent in return for the payment of valuable consideration on the part of the licensee, which normally involves the payment of a fixed amount, the so-called “lump sum”, and of a variable amount, referred to as “royalties”.

A license may be exclusive or non-exclusive and it may regard a product or a process. A license may be limited both at a territorial level and in the sphere of exploitation of the patent rights.

The term “licensing-in” refers to the acquisition of a license for the exploitation of a patented technology and possibly of the corresponding know-how. Licensing-out is the same agreement viewed from the other side, i.e., from the point of view of the subject offering the technology under license. Finally, “cross-licensing” refers to each party licensing the other on inventions, know-how, trade secrets, or the like.

Licensing Rationale

Licensing provides a means for an owner of intellectual property to exploit the intellectual property to reach markets that may not otherwise have been available. An intellectual property license can involve a wide range of subject matter including patents, trademarks, copyrights, trade secrets, and technical expertise.

A typical structure is to provide a royalty income to the licensor in return for rights and privileges granted to the licensee to make use of or practice the intellectual property.

Typically, an organization will license technologies which have yet to be developed to a state of market-readiness. Given the increased competitiveness in patenting inventions, in-house development projects will increasingly risk infringing “prior art”. In such cases, it may be necessary to license-in new technology in order to clear the way for continued in-house development activities.

Hence, it is becoming necessary to view licensing and development not as alternative strategies, but as complementary parts of an integrated product development strategy. Fortunately, the process of clarifying requirements and of generating and selecting the best alternatives is fundamentally the same for both internal development and licensing.

Licensing has the following benefits:

  • Minimize risks in terms of cost, timescale and probability of success

  • More flexibility – licensing is often a faster process than in-house development and can begin later in a research program

  • Lower investment – in R&D, development and time

  • Retain focus on core competencies – licensing-in can enable an organization to remain focused on its strategic core competencies

What is Open Innovation?

Open Innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center for Open Innovation at the University of California, Berkeley, in his book Open Innovation: The new imperative for creating and profiting from technology Chesbrough, H.W. 2003.

Open innovation is a term used to promote a mindset toward innovation that runs counter to the secrecy and "silo mentality" of traditional corporate research labs. The concept is related to user innovation, cumulative innovation, Know-How Trading, mass innovation and distributed innovation.

“Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology” (Chesbrough, H.W. (2003). Open Innovation: The new imperative for creating and profiting from technology. Boston: Harvard Business School Press, p. xxiv).

The boundaries between a firm and its environment have become more permeable; innovations can easily transfer inward and outward. The central idea behind open innovation is that in a world of widely distributed knowledge, companies cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions (i.e. patents) from other companies. In addition, internal inventions not being used in a firm’s business should be taken outside the company (e.g. through licensing, joint ventures or spin-offs).

Over time, several factors emerged that paved the way for open innovation paradigms:

  1. The increasing availability and mobility of skilled workers

  2. The growth of the venture capital market

  3. External options for ideas sitting on the shelf

  4. The increasing capability of external suppliers

These four factors have resulted in a new market of knowledge. Knowledge is not any longer proprietary to the company. It resides in employees, suppliers, customers, competitors and universities. If companies do not use the knowledge they have inside, someone else will. Innovation can be generated either by means of closed innovation or by open innovation paradigms.

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