A VC in Vacationland

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There are some simple rules to follow when out-licensing patents and/or intellectual property (IP) from another entrepreneur, university or patent holder:

1. Take a Snapshot of the IP–business processes, technologies and products evolve over time, but the patent/IP associated with them should defined in a static space at one point in time, based on the original patent/IP descriptions.  What you license may not be what the idea becomes. You should not be paying the original patent/IP holder for innovations you do in your startup that are not part of the original patent.
2. Pay as a Share of Profits— rewards to patent/IP holders should be based on a percentage of profits generated to your company from the IP/patent snapshot (see above). You should avoid giving patent holders a share of revenues under any circumstances, and especially if the company is not profitable.
3. Deal extends only through Patent Life–payment for patent use should terminate when the original patent terminates.  In the case of IP where no limit applies, you may want to agree on a period of time, say 5 years, over which payments will be made. The original patent holder could develop new patents or IP going forward.  Be sure that you do not let them patent your ideas as only their ideas.

Under any circumstances, be sure to engage a patent/IP attorney who is well versed in your technology or product area to help draft the agreements.