Patent mapping and technology licensing

By David Lambourne, Freehills Patent & Trade Mark Attorneys
Monday, 09 October, 2006

Australia is a net importer of intellectual property rights (for example patents, trademarks and designs), through licensing agreement and technology transfer arrangements. A question that all people who invest in intellectual property should ask is "Are you paying too much?" The answer to this question in many cases is "Yes!"

The reason why we are prone to paying too much is that we assume that we have no option but to pay what is demanded. However, through greater knowledge of the available technology, licensing fees can be greatly reduced or even eliminated.

Minimising licensing costs by design

An example of a company which has directly challenged the necessity to be dictated by third-party intellectual property rights is a manufacturer of consumer printer cartridges and toners.

The company has a Chinese manufacturing base which exports consumable products to the major retail chains in the US and Europe. To ensure that its products don't infringe existing patents, a team of patent attorneys is employed to create a patent map of printer cartridge and toner technology.

By mapping the protected technology, they find gaps in the technology landscape, which enables them to produce technologically advanced products without infringing existing patent rights.

While I'm not suggesting that such a strategy is appropriate to all companies, it does highlight the benefits of creating patent maps to gain a greater understanding on how to minimise the licensing cost of intellectual property rights.

If you don't ask, you won't know

What do you do if, after a trip to an international conference, you were attracted to new technology which would enable you to open up new product markets? The technology owner is keen to tout the bottom line benefits of such a product and an exclusive licensing agreement for Australia soon arrives on the table.

The royalties appear reasonable, especially given the attractive benefits that the new technology will deliver. However, before you sign on the dotted line, ask and answer the following questions.

What are you buying?

The licensing agreement will generally relate to technology covered by at least one patent, associated know-how and possibly a trademark for the technology. It is important to assess whether the patent is enforceable in Australia.

Due to the cost of filing and gaining enforceable patent rights, overseas companies do not always file for patent protection in Australia. Companies with a limited budget may prefer to focus on the US and Europe. Patents which are not registered in Australia may be used without the need to pay royalty payments.

Another issue to be aware of is the possibility that the time lag from filing a patent application to obtaining a patent may be up to five years or longer. As a result, many licensing agreements are based on applications which currently do not have any enforceable rights and ultimately may not cover the technology.

If this is the case, you may be signing up to a technology which may not ever be enforceable. It is in your interest to ensure this scenario is catered for in the licensing agreement, with the royalty fees adjusted accordingly.

What alternatives are there?

Before a patent application becomes granted and enforceable, it is examined. In the examination process, the application is assessed against past patent applications and published literature which is within the same technological field. It is a worthwhile exercise to conduct an assessment of your own to determine whether other published technology may also deliver a similar commercial result.

If you, as the buyer, can establish that there are alternative technologies in the market, then you may be able to use competitive forces to negotiate the price of the technology down.

How do I go about patent mapping?

A patent map may be generated in a field of technology by searching patent databases for patents about similar subject matter. This is typically performed by patent attorneys or specialist patent searchers.

To avoid the time and expense of patent searching, as a minimum requirement you should obtain a list of most relevant patents cited against the offered patent application during examination, if available.

What do I do with the patent map?

The information derived from the patent map may be used to assess the scope of possible protection relating to the patent application and therefore the value relating to the eventual granted patent.

In the example below, patents A, B and C were cited against patent application X. All of the patents on the map should be assessed to determine whether they are in force in Australia and whether they may also provide an alternative technological solution for you. In assessing the patents, any overlap in technology between patent application X and the prior art patent (A, B and C) may be determined.

In this case, the scope of patent X may need to be narrowed, during examination, so it does not cover the technology of patent B. By gaining a greater knowledge of the technology you want to use, you will be able to more effectively negotiate with the licensor.

Patent Map

Additionally, if the commercial use of the offered technology falls within the overlapping area between B and X, then this could indicate a potential infringement problem if patent B has an enforceable Australian counterpart. This could affect your ability to fully utilise the offered technology and the licensing arrangement should reflect this problem.

Can I profit from patent mapping?

In addition to reducing your licensing costs through creating a better negotiating position, patent mapping may also lead to generating income. Through detailed analysis of the patent map you may be able to find a gap in the patent map (D) which is not currently covered by patent protection.

Therefore, you may develop your own intellectual property which satisfies your needs through designing around the current patents in force. You may even be able to patent and license the technology yourself.

Even when you are using licensed technology, you still have the ability to profit from the benefits of any improvements developed by you in relation to the technology.

In the process of using the licensed technology, further developments or improvements in the technology may be made to overcome problems or cater for specific customer needs. Colorbond steel is a classic example of technology that was initially licensed by BlueScope Steel (formerly BHP) from a US steel producer. BlueScope Steel further developed and improved the technology such that it became a highly successful product.

Can I profit from my improvements?

In some cases, improvements to the licensed technology may be patentable in their own right. Indeed, it is common for licensing agreements to include clauses relating to 'improvements'. Licensing agreements drafted by the licensor, not surprisingly will be written to their advantage. It is not uncommon to see 'improvement clauses' in which the technology developed by you, the licensee, becomes the property of the licensor.

It is in your interest to pay attention to the detail and negotiate an improvement clause which produces a more favourable outcome. For instance, a more attractive improvement clause will enable the licensee to own the improvements they make, but give the licensor the option of licensing rights to use the improvements.

Devil in the detail

The devil is often in the detail. Don't sign anything until you understand what it means. If necessary, get professional advice. Evaluating licensing agreements and the practice of patent mapping involves specialised knowledge. Large companies which offer to license their technology often have experience in patents going back over one hundred years.

In the USA, patent licensing and licensing strategies have been developed and refined within a highly competitive marketplace. In contrast, innovation in Australia has been driven by necessity brought by isolation, rather than competitive forces.

Negotiating a licensing agreement is not about 'outplaying, outwitting and outlasting', it is about building up a sufficient level of knowledge of the technology and its value such that you can negotiate a fair price for using it.

David Lambourne is a patent attorney with Freehills Patent and Trade Mark Attorneys

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