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Intellectual Property Revenue Streams

dan Poirier's Profile

Our company is developing a new revenue source in which we put together an engineering design build for a distributor who will then turn around and re-sell that design, with minor modifications to suit their clients (ie scaling up or down). It is our desire to obtain revenue from our distributor each time they sell or use the design with a new customer. We have two issues on our plate at the moment: Issue number 1 is the compensation structure between our company and the distributor: We are currently looking at two solutions: 1) a per use charge for each design build the distributor sells; and 2) commission paid to our company based on the sale/use of the design by the distributor. At this point, I am not entirely happy these two options and was hoping to get some input from the folks in this forum on other options that you may have run across for the resale or licensing of IP. Issue # 2 is a little trickier. We need a method of controlling the distribution of the design work to ensure payment to our company each time our distributor re-sells the service. At this point we are selling a design that does not include any proprietary equipment or parts, which would be a great method of control. The distributor and end users are both located in South Asia and we do not have "boots on the ground".

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Daniel,

For (1) I would look to a third way; license the technology to them for a $/term, flat. This ensures that they have skin-in-the-game, and motivation to recover costs and get upside. Both 1 and 2 have little in the way of motivation, and require audits on your part which are probably not feasible. You give up upside over the term, but....you can always renegotiate at the end. If there is very little visibility, you might keep the term short. Either way, your development is likely based on a revenue forecast, so the term fees should reflect that forecast.

For (2), I'd solve it with the above approach. IP is notoriously tough to enforce on a per-unit basis if you're not dealing with a transparent, trusted, public partner. If there are enough $ involved, you could consider putting "technical support" on the ground, and making sure that your commission covered the cost, but this would not be my first-choice approach.

KP

dan Poirier
Title: Executive Director
Company: XPOband, LLC
(Executive Director, XPOband, LLC) |

Keith, thank you for your thoughts. It is helpful to have additional options and I think the flat $/term method sounds worthwhile.

DP

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