Delusions of Technology Licensing

You’ve recently come across a groundbreaking technology, a disruptive breakthrough that promises with some credibility to turn lead into gold. What’s more, after several meetings and brainstorming sessions, the technology owner has graciously offered you an exclusive, perpetual license to commercialize the technology across North America, or even across the globe in a particular vertical market.

What a deal…right?

Not so fast. Like any technology venture, a technology licensing deal has to be approached with a great deal of due diligence. And, unfortunately, like any technology venture, most tend to fail because of a combination of proven, avoidable pitfalls, namely:

It’s too good to be true: The technology has proven itself on the laboratory bench or an obscure test market in suburban Qumar, but will it work for your market? Will it perform in practice as it does in theory? And most importantly, will customers pay for it? The reality is, in most cases, you have no idea.

Risk Imbalance: The way many of these deals are structured financially is in two components. One is an upfront or recurring licensing fee, and the other is ongoing royalties, both paid to the technology owner in return for your right to execute on the technology. When structured this way, the technology owner is virtually guaranteed some financial success, while you’re left to fund 100% of operations and carry 100% of the risk.

Conflicting Objectives: Your job is to use the technology to create a product with the features and benefits your customers will buy. Unless the technology owner is an operating company with the same objectives, their goals are typically to experiment with technology development in many different applications, often for simple sake of advancing science. Without having the same objectives, or without direct control over the product development team, you’ll find it difficult, if not impossible, to offer your customers a product they need.

As any university or public sector technology transfer office will tell you (check out the Ontario Centres of Excellence, Queen’s University’s PARTEQ or U of T’s Centre for Management of Technology and Entrepreneurship) successes abound in the world of technology licensing. To be sure, such organizations have spawned hundreds of successful companies and generated millions in royalties for their respective organizations. But before you sign on as the exclusive, worldwide distributor of the perpetual motion machine, make sure your diligence addresses the delusions that may come along with it.