Intellectual property (IP) can be a business’s most valuable (even only) asset. Once you’ve taken steps to understand what the five main IP rights are, how they are created and how to maintain them, you can turn your mind to converting those IP assets into a source of revenue. Here are the three main ways IP owners can commercialize their IP rights.
- Use Them
The most obvious way for the owner of IP rights to turn them into a source of revenue is by using them to create and sell goods and services itself. Here’s an example: a founder designs a new smart speaker, writes speech recognition software for it, designs a box in which to package it, a name for it, and related artwork for a logo. Each of these activities creates associated IP rights the founder might own (and should take steps to protect and retain). The founder can choose to turn those IP rights into a revenue stream by manufacturing the application, packaging it in the box, and branding it with the logo.
- Assign Them
The owner of IP rights can also commercialize them by assigning all or a part of those IP rights to another party (the “assignee”) and allowing the assignee to exploit them. Effectively, an assignment of IP rights is a sale of those rights, transferring the ownership to the assignee. The original IP rights owner can assign those rights from the beginning, or it can assign the IP rights as part of the sale of its business, after exploiting them itself for a period of time. Using the smart speaker example, the original IP owner can do one of the following:
- Immediately assign the IP rights in the smart speaker, voice recognition software, box design and logo, never having manufactured the application itself.
- First manufacture and sell the smart speaker itself for a period of time, building up a market for – and value in – it. If the original IP owner eventually decides to sell the business, they can: sell the IP rights in that sale, and ultimately assign them directly to the purchaser (in the case of an asset sale); or assign them to the founder’s company and then sell all of the shares in the company to the purchaser (in the case of a share sale).
- License Them
Finally, the owner of IP rights can commercialize them by licensing all or a part of those IP rights to another party (the “licensee”) to use in exchange for a fee (usually called a “royalty”). A license of IP rights doesn’t transfer ownership in the IP; it only gives the licensee permission to use the IP within the terms of the IP licensing agreement (the legal contract by which the IP rights are licensed). Using the smart speaker example, the owner of the IP rights in the smart speaker design, voice recognition software, packaging and logo can licence a manufacturer to: manufacture the smart speaker, using the IP owner’s design specifications and voice recognition software; and package it in boxes the IP owner designed and that display the IP owner’s logo.
Benefits. One benefit that licensing offers the original IP owner is the flexibility to “carve up” its IP rights, such as by geographic territory, time and field of use. For example, the owner of the IP rights in the smart speaker, software, box and logo can license one manufacturer to manufacture and package the speaker in one geographic area, and license another manufacture to manufacture and package the speaker in a different geographic area.
Licences. There are three primary kinds of licences, each of which conveys different rights to the licensee:
- An exclusive licence.
- A sole licence.
- A non-exclusive licence.
Licensing Agreement. It’s critical that an IP owner that chooses to commercialize its IP rights through the grant of a licence of any kind enter into a carefully drafted written IP licensing agreement that both satisfies the requirements of any applicable laws and adequately protects the IP owner’s rights. An IP licensing agreement can be lengthy and complex and while its specific provisions will vary depending on the particulars of the deal, all IP licensing agreements typically include 10 key terms.
Please contact your McInnes Cooper lawyer or any member of our Startups & High-Growth Companies Team @ McInnes Cooper to discuss this topic or any other legal issue.
This article is information only; it is not legal advice. McInnes Cooper excludes all liability for anything contained in or any use of this article. © McInnes Cooper, 2020. All rights reserved.
This article was originally published on February 12, 2020 on the McInnes Cooper website.