Ex­ploit­ing IP can pro­vide new rev­enue

Valu­able as­sets just wait­ing to be tapped

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - LARA BRANDANI & JU­DITH NJU­GUNA

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.



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