Licensing Structures and Compliance in an Evolving IP Landscape

Abstract

As we discussed during the roundtable in the 2020 LES Annual Conference, there are various types of licensing structures available to licensors, each having its own unique set of pros and cons. However, over the past two decades, licensing has seen a gradual transition from the traditional running royalty-based agreements to various, more predictable financial solutions, including fixed annuity fee structures and one-time lump-sum payments. This business transition was accelerated by the adoption of the accounting rule ASC 606, which defines when and how royalties should be recognized. While this transition is by no means complete, the increased commonality of predicable financial solutions mentioned above has made licensing negotiations more nuanced, introducing variables previously not considered. Depending on the type of deal structure agreed upon, these new variables should be considered and explored in preparation for deal making, as well as at the negotiating table—be it real or virtual.

Keywords: Licensing structures, compliance, IP, ASC 606, financial solutions, annuity fee