Exploiting IP can provide new revenue
Valuable assets just waiting to be tapped
GLOBALISATION in the past century has led to the growth and expansion of businesses at an unprecedented rate. Despite this, the exploitation of intellectual property (IP) as a means of creating a new revenue stream and increasing asset value continues to be a missed opportunity.
This is mainly because business tends to view IP as a peripheral legal matter rather than an asset with revenue potential which can be used to increase revenue. A number of businesses, however, are now mobilising their IP, thereby increasing profits by implementing a robust IP strategy that values, appropriately protects and exploits their IP assets.
There appears to be a common misconception among businesses and consumers in general that patents are the only or the most valuable and worthwhile form of IP to have. However, there are many other forms of IP which can be very valuable and which a business can exploit by licensing their use to others. For example, rights of copyright, trademarks, designs as well as other intangibles such as general “know-how”, trade secrets and confidential information associated with the systems, procedures and methods used by a business which make it successful and gives it a competitive edge.
It is also not necessary for the IP to be registered before it can be licensed. Although it would be preferable for an IP owner to protect his/her/its IP through registration (where registration is possible), registration is not a legal requirement nor a pre-requisite for the licensing of IP to others.
Furthermore, while there is generally an instinctive reluctance to “share” IP with others for fear of losing the competitive advantage it gives in the market, significant advantages can be gained by “sharing” IP. For example, it can create an added revenue stream without the need to incur any significant cost — a form of passive income. Alternatively or in addition, IP owners who agree to pool their IP assets could create new business opportunities or develop and expand their businesses and product offerings. Such IP “sharing” or exploitation is best achieved through licensing. In the technology sector for instance it is often in companies’ interests to cross licence their respective IP to each other in order to jointly develop new technology.
Effective licensing of IP should ideally include the long-term goals and objectives of a business and should be founded on a sound IP strategy. This in turn, should be based on a thorough IP audit to identify what forms of IP a business has and how it can be exploited. Often a business will have more IP than it initially thought.
Licensing is the process by which a party owning valuable IP (the licensor) grants another party (the licensee) the right to use its IP so that the licensee can produce and/or sell products and/ or services which are based on or incorporate the licensor’s IP.
In return the licensor can request a licence fee or royalty which is typically calculated as a percentage of the licensee’s net profits.
So, for example, a licensor that has licensed its IP to a car manufacturer (which is able to produce and sell better cars using the licensor’s IP) can request a percentage of the car manufacturer’s net retail price at which it sells the cars multiplied by the number sold.
If the car manufacturer is established and has a good distribution network and an aggressive marketing strategy, the sales could be enormous and so also the resulting passive income of the licensor.
A licensor can licence its IP to the licensee subject to any (legal) conditions it wishes to include. For instance it can grant someone a licence to use its IP in a particular geographical region only, for specific goods and/ or services only and/ or for a specific period only. The licensor is then free to license its IP to a business in another territory and in respect of other goods and/ or services. Furthermore, the licensor can stipulate
IP owners who agree to pool their IP assets could create new business opportunities or develop and expand their businesses and product offerings
precisely what things the licensee may or may not do with its IP including one or more of the following: the right to use, copy and/or sub-licence the IP and/ or to display, develop, make, manufacture, market, sell or distribute the products using the IP.
In summary, through licensing, the IP owner commercialises its IP and obtains a right to royalties in exchange for granting the licensee the right to use the IP. In return, the licensee obtains rights in previously unavailable IP which it may use to develop a new product or enhance its existing products thereby gaining a competitive advantage over competing businesses in the marketplace.
Licensing is also a good way to expand into new countries. By aligning with a partner in another country, a licensor can establish itself in a foreign country thereby gaining entry into a new market ahead of its competitors.
Licensing agreements need to be carefully drafted. From a licensor’s perspective, the agreement should only licence the IP that is actually required by the licensee rather than all of the licensor’s IP. It will therefore be in the licensor’s interest to define the IP as narrowly as possible.
Furthermore, as some forms of IP are not capable of being protected through registration, the only real manner in which they can be protected is contractually. For instance. knowhow cannot be protected through registration. This makes know-how difficult to protect and often poses significant challenges for businesses.
From the licensor’s perspective, therefore, any licensing agreement should be carefully tailored to safeguard its know-how as far as possible, including provisions protecting the licensor from unlawful disclosure or use of its know-how or other confidential information.
PASSIVE INCOME AVENUE