Licensing Example
Pure Gas Manufacturing, Ltd. (a fictitious company) currently adds a tracer
to its manufactured specialty gases for certain key customers to allow them
to quickly detect leaks when they occur within the customer’s facility.
However, this tried and true method, adopted from the natural gas industry,
adds another contaminant to otherwise "pure" gases and does not offer the
specificity needed to pinpoint the exact leak. Pure Gas therefore has
offered to install a distributed network of Ceramitron℠ analyzers
throughout the customer’s plant to provide at-point monitoring of
selected pipelines and interchanges. To accomplish this quickly,
and to take advantage of Ceramitron’s cutting edge technology,
Pure Gas decided to exclusively license Ceramitron sensors for gas
pipeline monitoring and will have units built to its specifications
through a specialty subcontractor. Proprietary units will contain
embedded Ceramitron℠ gas analyzers and are targeted to sell for $4500.
Costs
Pure Gas and Ceramitron negotiated an exclusive license over four-years
for a single up-front exclusivity fee which includes an option for
Pure Gas to extend the license beyond this term. Actual royalties
were negotiated to 3% of net unit sales, with an annual minimum
royalty equivalent to royalties due on actual sales of 100 units.
In each year in which actual sales exceed 100 units, Pure Gas pays
royalties only on actual units sold in lieu of minimum royalties.
At the end of four years, Pure Gas may elect to extend the license
by 2, 3, or 4 years by paying the exclusivity fee negotiated by
the parties for each annual extension, plus a minimum or actual
royalty, whichever is due.
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