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The In-Depth Guide to IP Commercialisation

Tamsyn Vassallo | July 11th, 2017

Intellectual property (IP) is central to many of the businesses we work with. We invariably assist these businesses with the IP commercialisation process, helping them to generate tangible value from their IP assets.

This will typically take the form of a marketable product, service or process, comprising protected and registered IP.

But if we demystify the ‘IP commercialisation’ buzzword, what does the process actually involve, practically speaking?

The In Depth Guide to IP Commercialisation

The answer is ‘it depends’. The specific process will vary based on individual factors and decisions specific to your business, and there is no one-size-fits-all strategy.

For some, the preferred strategy to obtain value from their IP is to develop it and then sell (and so assign it and part with it). For them, the commercialisation journey ahead will be relatively short.

But if, like most of the businesses we work with, you have commenced or are considering the many other commercialisation pathways available, then a long journey lies ahead. This will include many forks in the road, when key business decisions will need to be made and revised as the business evolves.

The majority of our clients elect to commercialise both locally and internationally, so the following high-level summary of the pathways available is intended to apply equally to local or international markets.

The groundwork – before you commercialise

If taking the prudent approach, most businesses will progress (though not necessarily in this order) through the following preliminary steps before determining whether and how best to commercialise their ideas, brands, products or innovations.

Such groundwork is invaluable for informing your business strategy, but also to assist your business in ensuring that potential IP assets are securely protected and owned by your business before being disclosed and, as a result, compromised.

If confidentiality of your ideas is lost during discussions with third parties (such as prospective investors, manufacturers or distributors) then competitive advantage may be lost if the prospective partner develops their own competitive business, product, service or process. In the case of designs and patentable inventions and innovations, due to confidentiality requirements before filing for registration, these may no longer be capable of being registered in Australia and other jurisdictions. “First to file” requirements for trade marks and domain names can enable competitors to file for registration where the “true” owner starts commercialising without first obtaining their own registration. In almost all cases, lack of formal IP protection will undermine the value of a business, including to potential  acquirers, partners and investors.

Ideation, protection and monopolisation

  • Market research.
  • Assessment of whether ideas, brands, products and/or innovations can be protected (including competitor analysis and availability searches).
  • Develop and protect IP, including through registrations and contractual protections (for example: patents, trade marks, designs, copyright, confidential information).
  • Keeping ideas secret and/or confidential (giving consideration to novelty requirements for patents and designs and first to file requirements for trade marks and domain names).
  • Valuation of IP assets.

Business development

  • Business plans, assessing and determining local and international markets.
  • Capital raising and fund raising.
  • Determining and establishing preferred commercialisation pathways and sales channels in chosen markets.

Legal issues snapshot:

- Advice on IP rights and available protection
- Availability searches and competitor analysis
- Drafting and filing IP registrations (and advice on evidential record keeping)
- Corporate structuring for security of IP and other assets
- Business planning advice
- Non-disclosure agreements
- Identifying partnerships and capital raising opportunities
- IP valuations

The options – ways to leverage IP assets

There are many alternative ways in which to leverage your IP, some of which are outlined here. The key decision underpinning how to proceed will be whether to do so independently or in partnership (whether that be with investors, manufacturers, distributors or other partners).

Examples include commercialisation where:

The IP owner sells/assigns its IP to another business

The IP owner independently (perhaps through a ‘spin off’ or subsidiary for commercialisation purposes):
- sells its products or services locally; or
- establishes international businesses and sells internationally.

The IP owner through partnerships:
- licenses the IP;
- enters into a joint venture or partnership;
- exports internationally and sells through a distributor; or
- commercialises through other partnering arrangements.

The process – which approach is best for you?

Choosing from these types of options will depend on a number of initial, internal considerations and assessments:

  • What are your business’s financial resources now and in the future?
  • What are your business capabilities and what is your expertise? Are you capable of manufacturing? Are you capable of marketing and selling or distributing?
  • What are your business objectives and expectations?
  • What types of IP do you currently own or expect to create and protect?

To plan how to commercialise you will also need to consider key external factors:

  • What are your competitors selling and developing?
  • What is the market for your product or services?

To illustrate these issues, we provide non-exhaustive examples considerations that can be taken into account and steps followed in four scenarios:

  1. selling your IP;
  2. commercialisation by the original owner of the IP;
  3. licensing and franchising, and
  4. joint venture.

1. Selling IP

In this scenario, the business sells some or all of its IP assets to another business (either as a partial or overall business asset sale or transfer of ownership of the entity conducting the business). After the sale and assignment of the relevant IP is complete, the original owner no longer retains any interest in the IP and it is divested.

This option is suitable for businesses without the capabilities and resources to commercialise (or willingness or interest in doing so). It may also be the preferred approach if the business has no use for the IP being sold or needs an immediate injection of funds from the sale for other aspects of its business.

Important considerations in this scenario include the need to have registered IP rights prior to seeking purchasers, who will want to see that the asset being acquired is protected (and registered rights will attract a higher value). It will also be necessary to retain confidentiality of business and IP-specific information throughout the negotiations in the event that the deal falls through. The parties will also need to enter into a comprehensive sale agreement, with all necessary terms, to formalise the transaction, which properly identifies the relevant IP, as well as including terms dealing with payment, warranties, applicable laws, and any conditions to the sale.  Finally, from the purchaser’s perspective, it will be necessary to ensure that the  the relevant IP regulator in the relevant jurisdiction is notified about the new owner.

Legal issues snapshot:

- Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
- IP valuation
- Non-disclosure agreements
- Identifying purchaser opportunities
- Preparation and negotiation of the sale agreement
- Management and completion of the transaction
- Effecting the assignment of IP

2. Commercialisation by original owner

This approach is suitable where your business is already well-established and has significant organisational and financial capabilities (including R&D, manufacturing, sales and marketing, etc). This may also be the preferred approach if you are risk-averse and do not want to disclose any of your business information, ideas and IP to any potential partners (who may become competitors). Alternatively, a business may be compelled to take this approach is it does not have any ability to establish or develop partnerships.

Important considerations in this scenario include keeping your ideas confidential, IP protection and enforcement (as your business IP may be core to your competitive advantage in this scenario).

Legal issues snapshot:

- Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
- Corporate structuring for security of IP and other assets
- Business planning advice
- Agreements with customers (such as service agreements, terms and conditions of sale and privacy policies)

The In Depth Guide to IP Commercialisation

3. Licensing and franchising

In this scenario, the owner (licensor) grants permission to another party (licensee) to use and exploit the IP. In licensing arrangements, the IP owner retains the IP ownership. Often the IP licensing terms may comprise part of a broader and more complex arrangement, including the provision of services (such as manufacturing or distribution services) or with respect to a franchising arrangement.

This approach is suitable if you would like to:

  • make additional income from your IP or make money from IP you are not currently using (but do not want to sell the IP, but wish to retain ownership);
  • only manufacture your products (and do not have other operational resources available to sell and distribute);
  • only sell and distribute the products (and need another party to manufacture these);
  • outsource all of the business and IP commercialisation; or
  • break into other markets through the services or expertise (and existing capabilities) of another party, such as international markets.

Important considerations in this scenario include confidentiality of negotiations with licensees and the terms of the licence agreement (consider, in this respect, whether an exclusive or non-exclusive licence is best for you (in terms of your business plan, your IP; bargaining power; partner’s conditions). Also, you will need to ensure you address all the key terms in the licence agreement (including the term, IP identification, scope, licensed use and restrictions, payment, governing law) and ensure you register the licence if required in that jurisdiction.

Legal issues snapshot:

- Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
- Business planning advice
- Non-disclosure agreements
- Identifying partnerships opportunities
- Preparation and negotiation of licence agreements

4. Joint ventures

In this scenario an alliance is formed between two or more independent entities to undertake a project by sharing the associated risks and rewards. There are IP issues relevant in all stages of this type of relationship. All parties bring to the table their own IP, created independently of each other, and the joint venture agreement will need to address each party’s own IP as well as the newly created project-related IP and each party’s respective ownership or rights of use of such IP (during the project and upon termination).

Legal issues snapshot:

- Securing relevant IP protection (advice on available protection, availability searches, drafting and filing IP registrations)
- Corporate structuring for security of IP and other assets
- Non-disclosure agreements
- Preparation and negotiation of joint venture agreements
- Advice on managing IP co-ownership issues

If you are considering taking the next step in your business, or with respect to obtaining the maximum value from your IP portfolio, we can provide strategic advice on commercialisation specific to your business capabilities and requirements.

Tamsyn Vassallo

Tamsyn is commercial and an intellectual property (IP) lawyer with strong, practical acumen. She works with small to medium enterprises and private clients to assist them to strategically identify and manage businesses’ opportunities and challenges and to develop and protect their ideas and innovations.