How to put a price on a technology before you license it
Neither side should walk into a licence negotiation with a number they cannot explain. A practical method for owners and licensees to value a technology together.
1. Define exactly what is being licensed
Patents, applications, know-how, software, data, samples, inventor time. A licence to a patent alone is worth less than one that includes the know-how needed to use it.
2. Size the realistic market
Estimate the products the licensee could sell in the licensed field and territory, over the life of the patent. Be conservative. Owners who inflate the market lose credibility at the first meeting.
3. Estimate the cost and time to market
Use the TRL to judge how much development, testing and regulatory work remains. Every year and every crore needed before the first sale reduces what the licence is worth today.
4. Work out the technology's share of the value
Ask how much of the product's profit exists because of this technology, rather than the licensee's brand, distribution or other features. This share, not total sales, is what is being priced.
5. Look for comparable deals
Published licences in similar fields, royalty surveys and your own past deals give a range. Adjust for differences in readiness, exclusivity and patent strength.
6. Choose a payment structure
Split the value between an upfront fee, milestones and running royalties to match each side's risk. Early-stage technology usually means lower upfront fees and higher milestones.
7. Stress-test the deal
Model a bad year. If the royalty and minimums would sink the licensee when sales fall, adjust now. A licence that survives only the best case will be renegotiated or abandoned.