IP and Software Licensing
by Earl Reinkensmeyer

Licensing models for intellectual property (IP), operating systems for computers, embedded code, and EDA application software have been evolving.ýGone are the days when the buyer had but one option to license software whether it was for an operating system or EDA application.ýThe buyer would obtain a perpetual license for an up front fee, or sometimes no fee, and an annual maintenance fee.ýIn this article we review new licensing options now prevalent and describe what has led to the popularity of new licensing arrangements.

The drive for new licensing options can be contributed to rapidly evolving technology, the ever-increasing need to adjust to chip pricing pressures, higher complexity chips, and wide variances in production volume for the spectrum of integrated circuits serving the electronics industry. In the previous contributed articles, ýThe Intellectual Property Businessý and ýServing the Semiconductor Customer a Potpourri of EDA Products, IP and Servicesý, I have given a critique of the business challenges when the product is IP or EDA application software. New licensing options are now offered to balance the value provided with IP and EDA tools. These new options have become available to adjust to business needs, and to still yield a flow of revenue and reasonable margin for the supplier.

Have you heard someone say, ýmake it up with volumeý?ý Sometimes this is a tempting consideration during a business climate of low margin caused by pricing pressures in the semiconductor or EDA electronic business segments?ý Without an encore, this is folly. Capturing timely market share to achieve a leading market position but having no strategy for winning profitable business that leverages the market leadership gained is likely to result in failure. Many .com companies begin by offering free products.ýThey expect an encore to allow them to become a ýrealý business with lasting value.ýIf a supplier is offering ýfreeý licensing or services, be aware that for the supplier to remain viable they expect to realize ýrealý revenue either from you later or from other customers who in turn expect to sell their wares to you as well.

We have been familiar with the lost leader sales approach in discount retail and grocery stores.ý Examples of lost leaders today are discounts on personal computers if you commit to a service contract for Internet service—or free cellular phones if you commit to a wireless service contract—or free IP from a semiconductor company if you agree to an acceptable chip price and volume of business.ýThe .com company may need to claim a level of ýhitsý that you as a user contribute and that you present future sales opportunity for products offered over the web.

We have made reference above to IP licensing by semiconductor companies where its return is received from the production of semiconductor products.ýThe IP business segment that specializes in the design and marketing of IP products and support services, but not semiconductor sales, does not have this same option.ýHowever, they may offer options with no up-front license fee but a royalty on a per chip use or chip production basis.ýIn contrast they may offer a perpetual license at a substantial price without limitations on the number of applications that use the IP product, or on your chip volume. Maintenance and enhancement agreements may be offered to match the model used for the initial license.

When computers arrived on the scene, the operating system licensing price was bundled within the system price.ýEventually there was a movement to unbundle the OS from the hardware pricing.ý With the advent of the personal computer the OS price is again bundled as a system computer sale.ý The UNIX operating system is unbundled often at a bargain price.ýThe Linux OS is typically not obtained from the computer supplier.ýThose companies offering Linux for only a nominal handling fee are positioning themselves to provide Linux OS support and Linux enhancements for a fee.

Yet another software licensing practice applies to embedded operating systems and firmware.ýWe will include the BIOS for computers in this discussion.ýThe most used licensing in this arena is a royalty on per unit sales.ýHowever, an upfront perpetual license for a product family or a segment thereof is also in practice.ýThe value of the targeted product using the embedded code leads to this variance.ýAn industrial controller with embedded software will sell for an amount different by an order of magnitude when compared to a product such as an information appliance that includes embedded code or a scaled down operating system.

For EDA products time-based licensing is attractive to both the seller and buyer.ýTime based licenses are typically licenses that expire within one to three years. Floating licenses where individual users check out from a license pool are in mainstream use. Perpetual licenses with companion maintenance agreements and floating license options are still popular.ýThere has been experimentation with ýflex-accessý where you can swap various application licenses of like value. Application service providers in the chip EDA segment are now launching their businesses and they will require a type of use license.ýEDA companies have been known to agree to site licenses when the transaction offers a large installed base, and corresponding revenue.

In the Table 1 I listed suggested licensing arrangements that would be preferable depending upon needs and circumstances of the group purchasing IP or EDA tools or services.

For any organization a combination of two or more types of licensing arrangements may be attractive.

To contract with an Application Service Provider for chip design the prerequisite must be that Internet or Extranet security practices are in place.

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