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Other People's Breakthroughs
Licensing becomes one of the new paths to speedy product development
By Paul E. Teague, National Editor -- Design News, February 3, 2003
Newton, MA — Ed de Chazal doesn't believe in the "not-invented-here" approach to product development. He'll take ideas wherever he can get them.
Recently, he got a great idea from Delphi Automotive: technology for simulating various aspects of machining, such as turning, milling, and drilling. Called Math-Based Metal Removal, or MBMR, it enables manufacturers who do high-volume machining to determine through computer models where they can make improvements to their machining processes. Delphi had developed the technology several years ago, but lately the Tier One automotive supplier decided it could make more money by offering it to others rather than just using the software itself.
de Chazal and his colleagues at Webcradle, Inc., an incubator that helps others start new technology companies, formed Precon, a joint partnership with Delphi that will use MBMR to help clients optimize machine-shop operations.
Presto: In very short order, and with comparatively little up-front investment, de Chazal and associates are entrepreneurs with a unique new product.
"MBMR is a very sophisticated technology, and we couldn't have duplicated it," he says. "Licensing it from Delphi gives us a big cost and time advantage."
And within that last sentence, dear reader, lies the reason why licensing deals like de Chazal's—sometimes called technology transfer—are one of the newest trends in engineering and manufacturing.
A Win-Win
In a market where manufacturers are looking harder than ever for every buck they can find, companies from IBM to Rockwell have formed special subsidiaries staffed with engineers, lawyers, and MBAs to sell technology they've developed to others—including, in some cases, competitors—rather than put it in their own products. They and their licensees both win, the former by profiting quickly from their research and development efforts, and the latter by, well, by not funding R&D at all, or at least not funding it much.
"Through licensing, engineers and their companies can quickly get proven technology for a fraction of the usual development cost, and gain a major time-to-market edge over competitors," says Jerry Wald, executive officer at Honeywell Intellectual Property, the intellectual property licensing subsidiary of Honeywell International.
And, the licensees can use the technology in a variety of ways. "For example, engineers can use it to add features to existing products, or their companies can use it to go into entirely new businesses," says Joe Chernesky, who heads the technology transfer efforts at Boeing Management Company, the intellectual property arm of the aerospace giant.
Or, they can use it to streamline product-development efforts. "Licensing enables manufacturers to run lean engineering staffs, and liberates the engineers who are there to concentrate their efforts on really big things," says Ron Anderson, manager of appliance-manufacturer Maytag's advanced technology group.
Sometimes, licensing becomes a two-way street. Often, says Ted Izen, who heads Innovatinve Technology Licensing, which coordinates technology transfer and licensing for Rockwell Collins, Rockwell Automation, and Rockwell Scientific, major companies will enter cross-licensing agreements, effectively swapping technology. One motivation is to avoid lawsuits over potential patent infringements.
No matter: Licensing is a proven profit generator for companies with an excess of technology and technical know how. Take Caterpillar, for example, where staff engineers are particularly adept at inventing new technology: "We can only afford to fully fund a certain number of products," says Bill Berlinger, the company's manager of corporate licensing and intellectual-asset management. "But, we need to make a profit from everything." So, they license some of what they invent or transfer it to others for a fee. "Often, it's more efficient and more profitable to license the technology than use it ourselves," Berlinger says.
Term Limits
Before we go any further, we must take a few sentences to define terms we have been blithely throwing around. Rockwell's Izen says that "technology transfer" means transferring the know how and the show how from one company to another. That's a bit different than "licensing," which he defines as giving another company permission to use your technology and promising not to sue them if they do, but not necessarily teaching them the nifty tricks you developed to easily build a device with that technology.
Jerry Miller, who heads the National Technology Transfer Center, which coordinates access to technology developed by the 700 federal-government laboratories, says "partnering" is the most accurate term for the trend of sharing new technology today. "No one says, 'let's do a technology transfer,' they say 'let's license or partner together'," he asserts.
The Baye-Dole technology Transfer Act of 1986 opened up the work at national laboratories such as Battelle for access by private companies willing to engage in joint research and development efforts. And technology transfer has been part of NASA's mission since the space agency was created. Indeed, battery technology for pacemakers, laser angioplasty, improvements in heart pumps, scratch-resistant coding for sunglasses, and athletic shoes are just some of the developments that NASA originated and then transferred to the private sector.
But as the economic incentives for licensor and licensee have become more compelling, technology transfer has become a quasi industry. There's even a professional association for people who are building careers out of making technology available to others for a fee, The Licensing Executive Society (www.les.org).
And like all successful industries, the technology-transfer business itself has spawned spinoffs. Example: Stratos Product Development, a Seattle-based engineering firm, has expanded to become an incubator, working with companies that have a lot of intellectual property but little wherewithal to develop it into a product. Amnis, a biotechnology company, and Therus Corp., a medical-device manufacturer, are two such companies. Stratos helped both develop their technology and then found venture capital to help them launch.
To pursue other similar opportunities, the engineering firm has set up a subsidiary, The Stratos Group.
Meanwhile, Precon's Ed de Chazal is demonstrating MBMR technology to prospective clients. "We own the technology now," he says. And with a little luck, they'll profit from it.
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