Process Technology? Check. Now, Profit

By Todd Taylor | May 12, 2011

It is an exciting time in the biodiesel industry as technological innovations are potentially opening the door for new products, reduced costs and increased efficiencies. Developers of these technologies have a right to be excited, but must temper their enthusiasm about their technology with a realistic commercialization plan. Technology is not an end in itself, it is a tool with which to do business and make money. Understanding the relationship between the technology and making money is critical.

Technology first must be protected from theft or misuse. Patents and trade secrets are the primary means to protect your technology and trying to commercialize technology without the most appropriate protection is foolhardy. Be careful to avoid losing your rights by making premature public disclosures or failing to get confidentiality agreements. Make sure your employees and contractors have assigned their rights as well, this is an often overlooked, but critical step. After the technology has been protected, you need to find someone to use it. Using can mean a sale of the technology, a license of the technology and/or a sale or lease of the equipment or process created by the technology.

Regardless of what you do, make sure that you understand what you are gaining and losing in each situation.

Selling your technology means you do not own it or have rights to it any more, most often this includes improvements and derivatives. Payments can be in lump sum, over time or even a royalty. If selling for anything other than a lump sum, consider your rights and remedies in the event the buyer fails to make the payments. It is common to take a security interest in the technology until paid in full. Buyers will want assurances that you own the technology, that no one else owns it and that they can use it. This usually means selling a patent as patents are usually seen as giving more certainty to a buyer than a trade secret, however there are certainly exceptions. If you are selling internationally, royalties are often subject to double taxation. Consider this for licenses as well.

Licensing is one of the most common ways to commercialize a technology. A license gives the licensee the right to use your technology, but not ownership. That right may be limited to a geographic region, industry, size, time, competitors, etc. The payment can be made up front, but is more usually tied to use, especially for process technologies. One common issue with a license is ownership of improvements by the licensee. Options include joint ownership of the improvements, ownership by the licensor but with a free license to the licensee (the most common) or ownership by the licensee with a free license to the licensor. A license is often required as part of a sale of process equipment, as ownership of the equipment itself does not give the equipment owner the right to use it to make the product. Think of the license you agree to when buying a piece of software. 

Sale or lease of equipment means you use your technology to build a device and then you sell or lease it to someone. They own or have right to use the equipment, along with a license. Consider if there are any warranties that you are giving with the equipment, if there is a service agreement required or special training. Are these your responsibilities or the buyers? If yours, do you get paid to do these? If payment for the license or equipment is not upfront, consider getting a security interest in the equipment to secure payment. Title should also only pass when the full payment is made, so you maximize your rights if there is default.

Developing a good plan for how to commercialize your technology is just as important as the technical and engineering work. Consider the above issues as you work on that plan and think through as many “what ifs” as you can. It will save you time and money and help you make the most profit from your process.

Author: Todd Taylor
Attorney, Fredrikson & Byron
(612) 492-7355

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