Medical technology licensing is a common strategy used by innovators. Licensing provides several benefits to medical technology companies. Some of the benefits include creating brand name recognition among the medical industry, contributes to the revenue stream of the business, provides the opportunity for businesses to scale up, helps reduce research and development costs for the organization relying on the medical technology, and, depending on your creation and what it does, may directly impact patients undergoing medical treatment.
How Medical Technology Licensing Impacts Your Profitability
There are three primary ways that medical technology licensing impacts your profitability as a business.
- Businesses or individuals interested in acquiring the ability to use your medical technology must purchase a license. The licensing fee may be a one-time fee, a monthly fee, or a yearly fee. Of course, you may also offer another fee structure, such as special pricing if a three- or five-year license is purchased. Your licensing fee could be based on the number of users while also requiring renewal after a certain amount of time passes.
- There is the potential for you to license use of your medical technology to multiple businesses or individuals. Much like vendors who service multiple businesses by providing certain goods and services, you can sell licenses to any entity or individual interested. You may also be able to license the use of your technology to those you may consider a competitor in the field. Believe it or not, such a strategy isn’t all that uncommon.
- It may help create brand name recognition that creates trust and encourages licensing use of other medical technology creations you have or that you’ll provide in the future. Think about your favorite brand. Because of your past experience with their goods or services, you trust them and it is possible that you’re at least open to using their future offerings or trying their other existing offerings.
Medical Technology Licensing Can Also Include Royalty Payments to Your Business
Now that you know how medical technology licensing may contribute to your profitability as a business, let’s discuss royalties. Some medical technology licenses include clauses that requires the licensee to pay a certain amount of royalty back to the licensor. Royalties may be impacted by several factors. One of the main factors is whether the medical technology is ready for immediate use. It may also be affected by whether the licensee also holds the right to create other technological solutions that rely on your medical technology. Another factor that may impact royalty rate is whether the licensee is eligible to sub-license the technology on to others.
Royalty rates may also take the form of step-up royalty rates or step-down royalty rates. A step-up royalty rate allows the licensee to first pay a lower royalty rate. As time goes on or when a certain defined event takes place, the licensee begins to pay a higher royalty rate. A step-down royalty rates means that the licensee will pay a smaller percentage as royalty as time goes on.
Medical technology licensing may also rely on royalty stacking. Royalty stacking can be very complex as there may be multiple licenses involved. Careful management is required to manage the royalties as well as to continue to cultivate positive, long-term relationships with licensees. Positive working relationships with licensees make it easier to address issues related to the medical technology or the licensing.
Five Points to Consider When Negotiating a Medical Technology License
At their core, medical technology licenses are contracts. Like other contracts, their scope and complexity may differ. As a medical technology creator, it is possible that you offer more than one licensing option. However, there are five points that are found within almost every medical technology license. These five points may also be key during the negotiation process.
- Is the license exclusive or non-exclusive? When the license is exclusive, the licensee is the only party that will hold licensing rights to the technology. They generally have the option to use the licensed technology as the backbone of their own future creations. No one except the licensee will benefit from the new technology because exclusive rights they have to the original medical technology. As a medical technology company, it is important that you understand how granting an exclusive license may impact your business now and in the future. One of the best ways to determine how your business will be impacted is to discuss your goals with a medical technology licensing attorney.
- Will the licensee pay only a licensing fee or will they also pay royalties? Consider how often the licensing fee must be paid and the amount paid in royalties. Also consider whether the licensee will have the ability to sublicense the technology. You may also consider a clause that gives your business the right to inspect the licensee to ensure they are complying with the terms.
- Can the licensee modify or enhance the technology? If so, will your company have any ownership rights or royalties to the new creation? Will your business have the right to implement the modifications?
- How can the license be terminated? Does the licensee have the right to terminate the license early? If so, under what conditions?
- Are there additional risks to the licensee? Those risks should be explained as well as whether the licensor will be held liable if the medical technology doesn’t work as it should or if the licensee is sued because of the technology. A medical technology licensing attorney can help you decide limited performance warranties, limited intellectual property warranties, and limitations of liability.
Learn More about Medical Technology Licensing and Royalties
If you create medical technology, it’s important for you to understand how licensing and royalties work. Larsen Law Office, LLC has over 30 years of experience in both healthcare and contract law. We strive to help innovators create, understand, and negotiate licensing options. To learn more, call Larsen Law now: 303-520-6030. We want to help you create win-win scenarios.