Author: Clarissa Ceruti

One of the most important decisions when licensing a technology covered by a patent or a patent application (herein referred as intellectual property or IP) is to select the right time when to start searching for a potential licensee.

If you wait for the patent to be granted, you may risk having to pay for the maintenance fees before having found a party willing to take care of such fees through a license or an acquisition of your IP.

A very good option is start as soon as you have filed a patent application and there is a date proving that you are the inventor of the idea described in that application. Until the application becomes public, about 18 months from its filing, it is recommended to keep the data confidential. Confidential does not necessarily imply to be secretive; it means to be conscious and cautious.

Whenever you discuss your idea with a party that is not involved in its development, such as an external collaborator, a service provider, a supplier, or a potential customer or investor, you should ask that party to sign a non-disclosure agreement (NDA) also known as a confidential disclosure agreement (CDA). The NDA is a legally binding contract that establishes a confidential relationship between two parties and prevents them from releasing, to the public, sensitive information obtained by a party during the discussion for a period of time indicated in the agreement.

Companies are very familiar with NDAs, and they usually have no problems in executing this type of agreement. Once the NDA is in place, then and only then you can freely disclose the details of your invention to the other party.

However, some companies or organizations (such as Venture Capital firms) may not want to sign an NDA; in such case, you have two options: 1) wait until the patent application is published (18 months from the filing) or 2) talk in general about your invention but omit specific confidential details so that a “person with skill in the art” cannot infer your invention from the description you give. “A person with skill in the art” is defined as a hypothetical person who has common general knowledge in the art to which the claimed invention pertains and the ability to use ordinary technical means for research and development.

Nothing should be stopping you from searching for a potential licensee or acquirer (buyer) for your IP while your invention is being examined by the patent office.

Another factor to consider is that about 18 months from applying for a PCT, the applicant must designate the countries in which the patent, once approved, will be validated. Corporate business are interested in technologies that are broadly covered by patents not only in countries that represent profitable markets, but also in countries nearby these profitable markets, countries where competitors are very active, or countries where the technology can be manufactured.

For technologies in some industries, the total number of countries can be considerably high and so is the investment to validate the patent once granted. In general, the more countries a patent is validated, the more appealing and valuable the patent is to a partner, but the most expensive the investment is going to be. Thus, identifying a business partner that can assist you in selecting the countries where to extend a patent (e.g. a PCT), and financially contribute to the patent fees, is a step that should be taken sooner than later.

Also, once you have identified potential business partners, contact them and do not hesitate to explore opportunities with each of them at the same time because it is not infrequent that the research or business focus of a corporation changes almost overnight, jeopardizing your ability to execute a deal before deciding in which countries to extend the PCT. If you have multiple conversations with prospective business partners active at the same time, and one fails to materialize, you still have the others and you have not wasted time.

Never underestimate the time required to complete a license or an acquisition of the IP. Before committing to licensing, purchasing, or investing in the IP (or, as a matter of fact, in any important investment opportunity), the licensee or the buyer performs a due diligence analysis that is more detailed and extensive depending on the complexity of the technology and the amount of the investment (for more info on the due diligence look here). A due diligence can take from a few weeks to several months, and this step is never skipped. Following the due diligence, the licensee or the buyer performs a market analysis to evaluate the market opportunity of the technology, and finally the negotiation of the licensing or purchasing agreement.

Overall, the process can take up to one year, which does not leave too much margin for procrastinating in the search for a business partner once the IP application has been filed.

In August 2020, I was approached by an inventor with an issued EU patent covering a device to be used to prevent forging a signature or other sensitive information on paper documents. Because he is not interested in bringing this technology to the market himself, as his area of expertise it totally different, he requested my assistance in looking for a licensee or even better a buyer of his patent. His conditions: to license or preferably to sell the patent by end of January 2021 (six months later) for a selling price of at least €150K. He was definitely in a hurry to transfer the ownership of this patent, because he wanted to avoid the payment of maintenance fees due starting in February 2021. Needless to say, the patent is still in his hands despite having investigated >200 relevant companies, read some reports on signature forging and the technologies to prevent it, and contacted about 100 companies.

From a closer look, the priority date of the patent was in February 2013, the date of its publication was in December 2014, and the date it was granted was April 1, 2020. What happened in term of licensing activities between February 2013 and August 2020 is unknown, but I suspect the inventor waited for the patent to be granted to start searching for a licensee.

Let me tell you that six months are not enough to execute either an IP license or a purchase agreement for the simple reason that any potential licensee interested in a technology performs a due diligence before committing to acquiring the IP (for more information about the Due Diligence

In legal terms, due-diligence is the investigation conducted by a party of a business transaction (usually the buyer) for the purpose of reviewing relevant information and documents of the counterparty with regards to such transaction. The due diligence is always performed prior to the closing of a merger-and-acquisition (or M&A) deal or of any investment process, because it provides the buyers with a reassurance on what they are getting with the deal.

While the M&A due diligence targets several aspects of a business including financials, taxes, employments and human resources, legal, marketing and sales, governance, regulatory, compliance, technology, etc, the licensing due diligence focuses mainly on the last aspect—technology and the related IP.

Thus, before committing to licensing, purchasing, or investing in the IP, the licensee or the buyer evaluates the strength of and the freedom to operate the IP, the development status of the technology, the market and the competition to better understand the investment they are about to make. It takes time to perform a complete due diligence, from a few days to several months, depending on the complexity of the technology, the size of the company, the number of people involved, the number of competitors eyeing the technology, and the internal competencies a party has.

Thus, the suggestion is to not procrastinate in searching for a potential licensee for your technology. The sooner you start, the better chances you have at finding a party willing to license or buy your IP and sustain the maintenance fees to keep your IP alive.