Tips for Small Technology Business Owners Considering a Strategic Alliance
Posted by admin on June 25, 2008 in Business Start Up Advice, Legal Matters for Business, Patents and Trademarks [ 0 Comments ]
There are many reasons why small technology companies would consider entering into a strategic alliance with other companies. Many small tech companies use these alliances to get access to cash as well as to benefit from the more established channels of distribution, or marketing and brand reputations of bigger, more well-known players. These bigger players on the other hand wish to get access to the brain power of newer technologies for product development.
What are strategic alliances? Strategic alliances have many different meanings but they can be defined as a contractual relationship between two or more parties working together to achieve mutual objectives. These contractual relations are typically defined by one or more contractual agreements which include a license to the intellectual property relating to the technology. For a definition of the various forms of intellectual property that are typically used in protecting technology, see
During the planning and negotiation process, a technology company needs to consider how it can use these contractual agreements to protect its intellectual property rights and what restrictions need to be placed when transferring proprietary information. Furthermore, the ability of a technology company to recover its intellectual property rights and protect its proprietary information is particularly critical if the strategic alliance does not work out. The termination clauses relating to recovery and protection of trade secret information need to be laid out in these license agreements.
In this blog and the next several blog entries, a series of tips directed to small technology business owners will be discussed to help these business owners protect their intellectual property as well as avoid common mistakes relating to licensing of their proprietary technology to other companies.
Tip – Identify the technology available for licensing
As a preliminary matter, a business owner needs to do an in-house technology due diligence review and identify what technology they wish to keep in-house and what to license out. Typically, the technology would fall into three categories, namely (i) technology that the company is currently using to develop its products; (ii) technology that the company is not using but is ready to use; and (iii) technology that needs development such as technology at the conceptual or research level. Core technology that the company is using to develop its products should not be excluded, particularly if the company is interested in a particular product application (e.g., military use instead of a medical diagnostic use) or commercially exploiting the technology in a particular geographic location, e.g., U.S. and Canadian markets only.
Consider also the timing of the license. Why would a company license early? If the company needs cash now and the product (or at least some uses of the product) are more suitable for the licensee, then licensing early makes business sense. Why would a company license later? If the technology is pertinent to the company’s main product, capital is available for developing the technology now and there is a high expected return on investment, then by all means delay licensing, especially if the company’s proprietary position is expected to be stronger in the future. As a general rule of thumb, technology licensed at later stage is more likely to command a higher price.