Methods of Commercializing Intellectual Property – Part I

Introduction

Intellectual Property refers to those intangible assets which are created by virtue of the human intellect. The various forms of intellectual property are already well known- trademarks, patents, copyrights, industrial designs, trade secrets, domain names and geographical indications. IP assets are primarily directed towards economic gain, either directly or indirectly. Therefore, a predominant aim of the Intellectual Property Law regime is to promote innovation by granting exclusive rights to the owner or creator of an intellectual property. Thus, it makes no sense to register your IP in order to avail statutory protection but then keep them locked away out of the public eye. On the other hand, blindly commercializing one’s intellectual property can lead to a loss of important assets without significant returns. Therefore, it becomes pertinent to grasp the different ways in which one’s intellectual property can be commercialized and how to find the most viable commercializing strategy for one’s organisation.

Methods of Commercializing Intellectual Property

The strategy adopted for commercialization plays a crucial role in yielding returns. An inappropriate strategy may lead to botched results. However, the formulation of a strategy depends heavily on the method of commercialization of intellectual property to be adopted. Hence, below entails a discussion of the different methods of commercializing intellectual property along with a brief outline of some key decisions required to be taken when building strategy. There are five primary ways of commercializing one’s intellectual property. These are as follows:

• commercialization by the Owner.
• commercialization through Assignment.
• commercialization through Licencing.
• commercialization through Franchising.
• commercialization through Joint Ventures.
• commercialization through Spin-offs.

Commercialization by the Owner

Oftentimes, owners of intellectual property, whether individuals or companies, decide to take forward the commercialization of their intellectual property by themselves. It may be because the owner has enough capabilities for carrying out the marketing themselves, or does not have enough resources for entering into a partnership for the same or simply because the owner is hesitant to share their data with third parties. However, commercialization by the owner themself involves considerable risk for the sole reason that owners of intellectual property are businessmen or companies run by businessmen, who may not be experts in intellectual property and the laws applicable thereof. 

Things to Keep in Mind 

1. Maintaining Secrecy – Only inventions and designs which are not previously disclosed can be registered for patents and industrial designs. Furthermore, trademarks and domain names are registered on a first to file basis. Therefore, it is important to make sure such confidential information is not publicised unauthorisedly.
2. Using Intellectual Property Databases and Conducting Freedom to Operate Analyses – Checking intellectual property databases helps to ensure that one’s idea is new, original and worth pursuing. Further, FTO analyses are aimed at evaluating whether a particular intellectual property, specifically patents, can be exploited commercially without infringing any third party rights, thereby helping in avoiding infringement allegations.
3. Keeping Records – Records form a valuable source when drafting patent applications and keeping records of one’s inventions help in proving the date and ownership of the said invention if and when needed.
4. Protect Intellectual Property and Enforcing Intellectual Property Rights – Diligently protecting one’s intellectual property allows for their full utilisation as well as aids in their proper management. Enforcing intellectual property rights is a cost-effective preventive measure for deterring infringing conducts.

Commercialisation Through Assignment

Assignment refers to the transfer of the ownership of an intellectual property, such as copyright or trademarks, and the rights therein to another party. It becomes a useful tool for commercialization when the owner of the intellectual property lacks the capabilities and resources to profitably commercialise their intellectual property. It is an outright sale of the intellectual property, the result of which is that the owner is absolutely relieved from the risks, obligations and responsibilities of maintenance associated with concerned intellectual property and nor is the buying party burdened with the covenant to pay regular royalties. However, because of this very nature of sale, negotiations with regard to the consideration amount may become difficult since intellectual properties such as patents and industrial designs are in and of themselves complex. Further, such sale may also conflict with the existing licensing agreements with regard to the concerned intellectual property, should there be any. 

Things to Keep in Mind

1. Non-Disclosure Agreements – The process of assignment involves detailed negotiations and requires exclusive information to be shared between the parties, although the same might not always result in a successful assignment. Therefore, it is prudent to sign NDAs in an effort to guarantee that any shared confidential information is not to be disclosed or used for purposes other than such negotiations by either party. 
2. Conducting Due Diligence – Conducting due diligence with regard to the intellectual property to be assigned reveals assets and liabilities attached to it and aids in crystallizing its value. Therefore, it also functions as a risk management tool by revealing sensitive information with regard to the concerned intellectual property.
3. Understanding Key Terms – Knowing the relevant issues with regard to the intellectual property to be assigned and the important clauses to be deliberated on go a long way in maximising the efficiency of an assignment agreement. Some of such important clauses are as below:
   • The form of agreement should be in a written form.
   • The intellectual property and the accompanying rights to be assigned must be clearly mentioned and elaborate.
   • The consideration amount, mode of payment and time for payment must be clearly stated.
   • Contractual assurances taken by both the parties concerning specific facts must be precisely elaborated.
   • The parties must clearly agree to the law and form of dispute resolution to be employed in case of conflict. 

Commercialization Through Licensing

A licensing contract is one where the owner of an intellectual property grants permission to use it for some form of regular payment generally called royalty. The ownership is not transferred. It can be understood as renting out one’s intellectual property. Such agreements are generally restricted in terms of time period, purpose of use or the geographical area of applicability. Such agreements are beneficial in the sense that the licensor can avail new revenue streams without giving up the ownership of the intellectual property while also helping in widening their customer base. It also reduces the distribution and marketing expenses to an extent. The licensee benefits from avoiding the research and development costs and the risks associated therein. It also helps in widening their product portfolio. However, it is a double-edged sword because the licensee may become a competitor of or technologically dependent on the licensor. Furthermore, the licensee will be obligated to bear the burden of royalties even when the licensed intellectual property is not generating revenue. Licensing of patents is more complex owing to the technical information involved.

Things to Keep in Mind

1. Defining the Type of Licence – The contract should clearly define the type of licence to be granted, whether sole, exclusive or non-exclusive, based on the requirements and goals of the licensor.
2. Preparing for Negotiations – Licencing agreements are usually long-term business arrangements; they generally entail long negotiations in order to unequivocally define the rights and liabilities of the parties. Some important topics of negotiation are the right to sublicense, improvements, payment, warranties, infringement acts, and governing law and settlement of disputes.
3. Understanding Key Terms – Knowing the relevant issues with regard to the intellectual property to be assigned and the important clauses to be deliberated on, go a long way in maximising the efficiency of an licensing agreement. Some of such important clauses are as below:
   • The agreement should be in written form.
   • The commencement, duration and termination of the agreement must be clearly laid down.
   • The intellectual property and the rights therein to be licenced should be clearly defined and elaborated.
   • The type of licence, whether exclusive or non-exclusive, should be clearly stated.
   • The geographical scope and field of use of the licence should be unequivocally stated and defined.
   • The parties must clearly agree to the law and form of dispute resolution to be employed in case of conflict.

The second part of this article will further explore commercialization through Joint Ventures and Spin-Offs along with a deep-dive into the important steps to keep in mind when strategizing commercialization.