with Laurier Mandin, Andreas Schwabe and Trevor Prentice on November 13, 2019
A licensing deal can be transformative to an inventor or product brand. It can open up new markets and create ongoing passive income. But doing it wrong can be a nightmare and leave piles of money on the table.
In our fourth instalment of Product: Knowledge, we did a fly-over of intellectual property with Erika Murray, an Intellectual Property Lawyer and Director of Innovation at PCK Intellectual Property. This episode drills down into a sub-topic of intellectual property: licensing.
Licensing is Trevor Prentice’s specialty. He’s an Intellectual Property Strategist. He’s worked with businesses in a wide range of industries and circumstance. In this conversation we get a clear definition of licensing. Trevor also explains how a good licensing strategy can benefit the inventor and brand, and even propel a new product forward.
We talk about how to decide what to license, valuation strategies to figure out what your product or process is worth, what you can license, and more.
What’s clear is talking to an IP strategist like Trevor Prentice can contribute to your bottom line and make issues around intellectual property easier to navigate.
Andreas: Welcome to Product: Knowledge, the podcast about marketing products that improve people’s lives. I’m Andreas Schwabe, director of media services at Graphos. Seven episodes ago, in our fourth installment, we did a fly-over of intellectual property with Erica Murray, an intellectual property lawyer and director of innovation at PCK Intellectual Property in Toronto.
Andreas: In this episode, we cover the intellectual property sub-topic of licensing. Licensing happens to be the specialty of Trevor Prentice, an intellectual property strategist. As a consultant, he’s had the opportunity to work with businesses in virtually every industry and circumstance. In this conversation, we get a clear definition of licensing, but Trevor Prentice also explains how a good licensing strategy can benefit virtually every business and even propel a new product forward. We talk about how to decide what to license, valuation strategies to figure out what your product or process is worth, what you can license and more.
Andreas: What’s clear is talking to an IP strategist like Trevor Prentice can contribute to your bottom line and make issues around intellectual property easier to navigate. Trevor Prentiss joined me and Graphos CEO, Laurier Mandin, in the Graphos studio. And we started by asking what is an intellectual property strategist?
Trevor: I’m not a lawyer, but I help clients, entrepreneurs, companies with the strategy surrounding their intellectual property. Should they be considering intellectual property? Usually the answer to that is yes, but more more specifically than that, what types of intellectual properties should they could be considering? Do they have some potential to file a patent on some of their inventions? Usually most companies should always keep in mind filing a trademark. That’s one type of intellectual property, on their brand and maybe copyright or trade secret or any of the other types. That’s where I help people figure out what type of intellectual property should they be looking towards, and how.
Andreas: Tell us a bit about the route that got you to where you are today.
Trevor: I mean, I studied more technical stuff in school, university. I did a physics degree and then aerospace engineering master’s degree. And during my master’s actually I started getting involved in the business program. I was able to do the certificate program that was half an MBA and I did the entrepreneurial half, which was the fun half in my opinion. And that really got me more interested in that. Finishing school, I started looking around thinking what can I do that’s at the intersection of science, engineering and business. And that brought me to some of the intellectual property stuff. Because the cool thing about patents and other types of intellectual properties, is it really is like a scientific journal article, but then turned into a legal document that can be used to help your business gain value. So it’s a real cool intersection of all those things.
Laurier: One of the things that really interests me in your work is relevant to many of the clients that we talk to who are inventors and they have an idea, but they may not be resourced enough. They may not have the finances to go and take their invention to market. You help your clients to license their inventions and to find someone who’s interested in taking that on, and doing the financial heavy lifting for them. How does that work?
Trevor: I definitely help at a number of different stages and one of those stages that comes a little after you’ve figured out what you can protect and how you can protect. One of the things that comes after is licensing, if that’s the model that your business is focusing in. And I definitely recommend, in most cases, it’s something that entrepreneurs should consider. Because it can be another way to bring revenue into your business using your intellectual property while you’re pursuing development of your own product in parallel. That’s where basically the licensing means you can take your intellectual property, take an idea, and give someone else the right to use it. And in exchange for that, usually they’re paying you, so you’re bringing in some revenue on the side as you can then pursue your own market or your own industry in a certain jurisdiction.
Laurier: And then how does the inventor benefit from licensing a product compared to creating and marketing that product themselves? Obviously there’s less risk for them, but is there less gain as well?
Trevor: It doesn’t have to be one or the other. I think this is one common—not necessarily misconception—but something that entrepreneurs and businesses don’t really think about to the degree they maybe should. It doesn’t have to be one or the other. A lot of times in the patenting process you can try to keep your patent more broad at least initially. Maybe you’re filing a PCT patent, which is something that can allow you to eventually get protection around the world. If you do that, if you’re a small business, you’re probably focusing on a smaller, more local market for your own manufacturing, production, marketing. And this is where if you have a broader protection on your patents, you could potentially license other jurisdictions. Maybe you’re licensed just Europe, to a big European firm because you know your business is going to be a while before you really make it over to the European market.
Trevor: That’s one way where you could benefit quite quickly from licensing to a company, a large firm in Europe that’s in a similar kind of industry or in another jurisdiction. Then you’re bringing in some revenue that helps support the development of your invention back in a local jurisdiction. I mean, if you live in Europe obviously you could flip that. So that that’s one way. Another way is if your invention, maybe you’re working in oil and gas or something and you come up with a new technique for something to do with pipelines. But then you realize actually that could be applied to other areas, maybe ship hulls or some other application. But your business is really just focused on the oil and gas so you could license the other applications to other industries.
Trevor: And now again you’re bringing in revenue. A license might come with an upfront payment. It typically has some royalties associated with it. So every time the business that you licensed to make some money, they give a portion of that money to you. So that money, that extra revenue coming in can really help support and accelerate your business growth in the market or the jurisdiction that you’re focused in.
Laurier: It seems to me that the biggest pitfalls though are that the inventor has no idea how the licensing world works, right? And how does an inventor go out or how do you help them to go and get a good deal? As opposed to if they’re dealing with somebody who’s experienced, there must be sharks out there who are going to take advantage of inventors that really don’t know what their idea is worth and aren’t good negotiators. So how do you work that landscape?
Trevor: Yeah, definitely. I remember one, actually, I think this was a colleague’s client that came to us and had a patent and had filed a patent on this invention in the software space. It was a mapping tool, this was years ago. We were in this meeting and the entrepreneur says, “Oh yeah, Google actually approached me and they offered me $1 million for it, so I just took it.” And we were like, “Oh well, you might’ve been able to get a lot more than that because this is…” It could have been, and again, this was a long time ago and that was my colleague I think. But it could have been one of the core patents for Google Maps, let’s say. And that would have been worth a lot more than a $1 million dollars potentially.
Trevor: So you’re right, yeah. If you don’t really know how it works or the process, you could be taken advantage of. This is definitely one of the things I help with the client. In the licensing process you’re certainly going to need help from a lawyer as well to really nail down those important legal clauses. But where I tend to help more often is looking at the business side. What is your intellectual property worth? Doing some of the valuation work. And one of the first things I’ll do with respect to that is just try to find comparable deals that have been done. I have access to certain databases and I’m aware of some of the places to go to find those types of deals.
Trevor: And then looking at those and seeing is this a similar type of a license, similar industry, similar product. And if it is, then you can start to say, well these guys got this much, so maybe that’s where we should start or start a little higher than that and see if we can get a deal there. That’s one way. And there’s other valuation techniques as well that can be useful.
Andreas: Are there any license indices or standards, because-
Trevor: Yeah. There’s a few ways to do that type of valuation. As I mentioned, comparables is one of the first things I look at. What have people licensed this type of thing in the past. At this stage, in the world there’s been tons of software licenses, there’s been tons of things and they’re not usually made public, especially the financial terms. But there are certain databases not publicly available, but databases that have that information in them. So that’s definitely a good place to start.
Trevor: There’s other ways to value some of that IP as well. Let’s say you look at a business and the business without intellectual property, how much would they be making in the industry? How much revenue from a specific product versus now that you’ve filed intellectual property? How much more would you reasonably expect to make if you were manufacturing that and selling it yourself? And the difference there is what the IP is worth in a sense. That’s the income approach in a sense.
Trevor: Then the third technique, which I tend not to use as much, but it’s another one that you can compare to the other two, is called the cost approach. I guess the question there is if you’re considering licensing to another party, and even from their perspective, they might be thinking, “Well, how much would it cost us to develop an alternative to this intellectual property ourselves?” Maybe internally they do some research. So it’s going to take this many research hours for the engineers and scientists. So trying to figure out those prices.
Trevor: Then on the other side from the licensor, the person doing the licensing, how much did it cost them to develop it? I mean you might’ve had to pay your engineer a certain amount and then you’ve paid for the patent or other forms of protection. These are different ways you can value. It does sometimes become pretty arbitrary and a lot of people don’t dig into that much detail. They just throw a number out there and then negotiation goes from there. But it all comes out in the end where hopefully both parties are happy enough at least to move forward with the partnership.
Trevor: You’re listening to Product: Knowledge, the podcast about creating and marketing products that improve people’s lives.
Laurier: Well, how do you go about locating those prospective licensees and approaching them? Because you probably don’t know them in the first place. Are you just Googling around or do you have a process you follow to find people who might be interested in purchasing?
Trevor: This is actually one of the hardest things, and I think a lot of entrepreneurs think the hardest thing is coming up with the idea. But honestly everyone has a cool idea. Protecting it is tricky, but then really finding someone that wants it is probably the hardest thing. And one of the things that people tend to forget or they just save it for later, but making sure you have a market for your invention or for your idea is pretty important before you go and spend your life savings. Now if you’re protecting with a patent, there’s ways to keep the initial costs a little bit cheaper. Maybe file a US provisional first and then that gives you a year before you really have to start putting in the next level of cash. So in that year you can go out and try to find a market.
Trevor: Now the best way I find is just to take advantage of your own network. I’ll give you an example, maybe someone coming from the oil and gas industry. Again, just because that’s an industry lately here that we’ve had a bit of a downturn. So I see some people coming out of that industry, maybe they got laid off or something and they’ve got all these ideas because they’d been working there in that industry for years. And they see how it’s done and they’ve been doing it this way that they’re like, “Oh, I could be doing this better.”
Laurier: Yeah. Well, we talk a lot about product market fit and if you have somebody who works in a sector and they know there’s a need, then they’ve already done the needs assessment themselves very often. So they know that that demand is going to be there. They know there’s product market fit that if they can come up with this innovation and it’s going to be needed and adopted. Because they know that the cost they can produce it for, it’s going to fit with the available resources that the customer has, then that’s fantastic.
Laurier: I think when it comes down to something that’s an invention that someone just hopes there’s a market for, then it’s a lot less likely they’re going to find someone who’s going to be a really willing licensee that’s going to give them what the invention might be worth, right? Because it’s untested and it’s a bigger gamble.
Trevor: Yeah. And still take a look at it, but just maybe take a look at that market first before you start spending a lot of money on the patent, or manufacturing, or prototype development, or anything. Make sure you have some sense. That’s where, yeah, in the oil and gas example or in any example like that where you’ve been working in the industry for a long time and you really know that there’s a need there. And then the other benefit to that is presumably if you were laid off or something, there’s still some people in that industry that you’re connected with. Those would be the great people to get started with that conversation and ask them, “Hey, would your company be interested in potentially licensing this?” And keep it at that higher level like, “I’m just doing some market research, want to get a good sense.” Then maybe they refer it up to their manager or to the technology licensing team in the company and now you’ve got that relationship already.
Trevor: That’s really the best way to get in the door and get started with licensing. If you don’t have those types of connections, that’s not to say it’s impossible. You can start sending cold emails and making cold calls, but it’s going to be a lot trickier.
Laurier: Yeah, you’ve got to build trust. Because when you have the relationship already, then you’re starting at an elevated level with that trust compared to the stranger out of an email, out of a cold email out of the blue. Let’s imagine your client comes to you and you do the valuation work and you manage to find someone who is an interested licensee. At what point do you hand this off? Do you take all this stuff and hand it off to a lawyer to do the rest of the work? How far can you take it?
Trevor: I guess it wouldn’t necessarily be at a certain point. I mean, you probably want to have your lawyer involved throughout the process as well. Especially, I probably wouldn’t put together a whole license draft for a client. that’s something you’d want to have your license prepare the template and make sure all the important legal clauses are in there right from the get go. And then I can help throwing in some of the financial terms and some of the more business oriented stuff and do a review, almost like a double check. Make sure, especially from the business perspective and from someone who understands the technology really well and understands the relationship that you’ve built already with the licensee. I can do that second, double checks, that review.
Trevor: One thing I notice is that sometimes once you start lawyering up, the conversation can get a little bit less good pretty quick. Especially if both sides just throw their lawyers into the ring. And now it’s just lawyers talking to lawyers. Which certainly there’s a place for that. But I think there’s a lot of room for having someone like a business person like me or even the entrepreneur themselves managing that conversation, the negotiation. Then it’s barely even like a negotiation. It’s more just a matter of making sure we don’t miss anything and we anticipate all the potential-
Laurier: It’s a partnership.
Laurier: You have two people and you have two parties that are working towards coming up with something that’s going to work really well and make everybody happy longterm. Right?
Laurier: As opposed to two parties that are each trying to make sure they get a good deal. Sometimes at the expense of the other one potentially, or not caring so much if the other party gets a good deal. Right?
Trevor: Yeah. Yeah. I mean, definitely it’s important to have that lawyer involved throughout the process. I can help with the negotiation and putting some of those business or financial terms in. Then once the two parties come to a point where they think they’re both pretty happy with it, then certainly have a lawyer review to make sure that again, there’s nothing on the liability side or the warranties that are missed, some of that more illegal stuff. Because that’s really important too and it does come up. You’ll always plan for a good relationship in the longterm, but if something does go wrong, it’s important to have all that stuff in the agreement as well, the legal stuff.
Laurier: For sure. Our Graphos product clients come to us almost all over the place in their journey. Some of them have an invention that’s ready to market and sell. Some of them have sketches on a napkin. So it really is all over the place. At what point should an inventor or the owner of a product business first reach out to you?
Trevor: Yeah, that’s my experience too. I get clients at all different types of stages in their entrepreneurial or their commercialization process. And they all have their own unique circumstances. Generally speaking, I guess it’s hard to say but that’s where I usually just try to say earlier is better, come chat with me. And as I think we mentioned earlier on, I do a lot of that help with the protecting your invention side as well. So if a potential client or an entrepreneur needs help with that type of thing as well, then probably good to come even earlier because there’s certain things with patent protection where if you sell or publish your invention, now you lose the ability to patent in most jurisdictions. North America is the exception, they have a year grace period. But even that, you want to really careful about when you publicly disclose or tell someone else about your invention.
Trevor: In those cases, even to learn that type of information, it’s really good to have at least a quick conversation with someone like me earlier on. And I think a lot of times it makes sense to come to me because I don’t charge quite as much as the lawyers and I can give that broader strategic perspective on all different types of IP. But you certainly will need to go to the lawyer to ask for the specific license. Okay, time to do a license agreement, we need that template, we need that help on the legal side.
Laurier: I really love the service you offer Trevor.
Trevor: Thank you.
Laurier: Our clients and listeners can really benefit from talking to somebody like you early on in the process and feeling less pressure than thinking, “Okay, this isn’t quite serious enough that I got to take it to a lawyer and start incurring those big fees.” Or even knowing if that’s something that’s going to be right for them. How should the listener reach out to you? How can they get in touch with you to talk to you and find out what the next steps are that are right for them?
Trevor: Sure, yeah. My consulting firm has a website, it’s whiverwill.com, so W-H-I-V-E-R-W-I-L-L.com, that’s probably the best place to start. And my email address and phone number’s on there so feel free to get in touch and I’d love to chat with anyone. I always have a lot of fun learning about people’s inventions and helping them through this process. I love having that conversation with people.
Laurier: Fantastic, and we’re going to put that in the show notes as well, so you can go in there and get that web URL. It’s not the easiest thing to spell. There’s an H in there you might not see coming.
Trevor: Yeah, exactly.
Laurier: Awesome. Do you have anything else you want to add for our listeners so that they can maybe do preliminary research or what do you recommend that anybody does before they go into taking that next step of licensing or even deciding if licensing is something that they want to consider?
Trevor: Yeah, again, I think in order to license you really need something to license. Usually that’s where thinking about that intellectual property strategy perspective, what types of intellectual property should the entrepreneur pursue? Whether it’s copyright, patent, trademark, trade secret. You can license all types of different things, but you need to have something relatively tangible in that agreement. That’s where you certainly want to start. If you already have, let’s say a patent portfolio or even just one patent, then you’re definitely further along. Then it becomes a matter of looking at the market and looking at your business strategy. What jurisdictions are you wanting to hold for yourself, for your own business to do manufacturing, if any? And then what other areas do you think you could license? Maybe other industries or other jurisdictions where you’re happy to license those areas. Then the conversation goes from there based on the circumstances that you’re in, in the business strategy.
Andreas: That’s it for this episode of Product: Knowledge and our conversation with intellectual property consultant, Trevor Prentice. Visit his website at whiverwill.com. We’ll have links in the episode guide, but it’s spelled with W-H-I-V-E-R-W-I-L-L.com. Visit graphosproduct.com where you can find out more about Graphos, our services, ideas, more podcasts, and our blog. All our podcasts are transcribed for the deaf and hard of hearing and people who just prefer to read. Reach out on Twitter @graphosproduct, or email us through the form on graphosproduct.com. Thanks for listening, I’m Andreas Schwabe.