Licensing agreements are contractual arrangements that allow a licensee to use, manufacture or sell particular assets with permission from the contractual owner. Licensing has been integral for smaller medical device companies to gain access to resources, including specialist regulatory expertise or manufacturing and marketing capabilities. Compensation to the licensor can consist of a combination of the following:
Most licensors will want some form of lump sum payment at the commencement of the license.
Milestone payments are made during significant events that occur as a result of Product Development and Marketing. As a product progresses further down the commercialisation pathway, the risks associated with bringing the product to market are lessened. For example, for the development of a medical device, this may involve successfully completing human clinical studies or achieving regulatory approval from the TGA/FDA. Once these milestones have been achieved, a payment may be made to the licensor.
Royalties might be something you associate with musicians but are equally applicable to any form of licensing agreement. The payment represents a percentage of net sales derived from the use of an asset. You will need to decide in your agreement whether the rate will be fixed or has the ability to increase/decrease with net sales or changes in circumstance, e.g. third party competition, choice of territory, patent expiry, etc.
Licensing agreements involving loans are less common. This is where Company A may make available a loan of $X million to a start-up company. The potential credit available may have more attractive interest rates and payment terms compared to traditional financing methods.
Wherein instances like these, the financial terms within the agreement may enable the waiving of cash payments, in return for an equity stake in the company.
Inner Maven has experience negotiating terms of agreements to ensure the inventor is protected, and both parties are happy with the outcome.