Intellectual property (IP) is an intangible, yet extremely valuable asset to your business. It can include:
- inventions; or
- creative works.
To know the worth of your IP will provide you with an edge over the competition, as other businesses can overlook IP protection. Sometimes, you may not be best equipped to effectively utilise your IP. There is more than one way you can leverage the commercial value of your IP. This article will explore two ways to commercialise your IP - assigning and licensing.
As the owner of IP, you can licence your IP out to another person or company to use. Both yourself and the other party agree on the terms of this use. This is known as a licensing agreement, and in this example, you are the licensor, and the other party is the licensee.
- restricting the licensee's use to a particular geographical location; and
- the payment of rights in the form of royalties.
Types of licenses include:
- exclusive, where the owner of the IP grants only one licence and is not able to use the IP themselves;
- non-exclusive, where the owner of the IP can grant more than one license and is able to use the IP themselves.
- sole, where the owner of the IP can grant only one licence and is able to use the IP themselves.
Unlike a licence, an IP assignment is a permanent transfer of IP. This transfer is irrevocable and generally occurs as a sale or transfer from an owner (assignor) to the purchaser (assignee).
If you are looking to transfer IP ownership, you should ensure that this transfer is in writing by way of a deed or other written agreement. These documents can transfer present or future IP rights in exchange for a lump-sum payment.
Why Assign or Licence Your IP?
The main reason why you might want to assign or licence your IP is to ensure that it is being used effectively. Businesses often overlook the potential value in their IP, and consequently, they lose out on the benefits. You should consider licensing or assigning your IP if you have no current or future plans to use it. You should also consider the potential benefits of licensing your IP. Below are some reasons why assigning or licensing your IP can be beneficial to your business.
Assigning or licensing your IP opens up the opportunity for investors to invest in your IP without worrying about the development phase, which is often expensive and time-consuming.
Manufacturing and Distribution
By licensing your IP rights, you can have your IP exclusively manufactured and distributed by a licensee. In this type of relationship, you enjoy the royalties, while the licensee manufactures and exploits your IP.
As a licensor, you may want to use an exclusive licence to commercialise your IP. Similar to manufacturing and distribution, you will gain royalties from the licensee's commercial use and exploitation.
IP Holding Company Structure
Another way you can use your IP is to create a holding company and assign ownership of your IP to a holding company. This way, your holding company licenses the IP to subsidiary companies. This is a great way to ensure that you are getting the most out of your IP and streamline ownership.
If you are an employer, you should ensure your employment contract stipulates that your employees assign all IP they create during their employment to your business. If you have not mentioned this in your contract, as an employer you can also ensure employment is terminated should IP be misused.
Similar to employment, universities often require their Honours or PhD students to assign current and future IP to protect any work created. However, the difference is that, typically, universities enter into agreements that allow for co-ownership of patent-worthy inventions and to share royalties.
Is Licensing or Assignment Most Suitable for Your Business?
You must consider the payment structure that your business uses before you assign or license your IP. Licensing your IP will mean that you have a flow of royalties over an agreed period. If you instead choose to assign your IP, you will receive a lump sum. The most appropriate choice for your business depends on which option offers the most commercial value.
The most important thing to consider when choosing to assign or license your IP is the commercial value of each option. There are two important ways of leveraging the commercial value of your IP:
- assigning; and
Assigning is an irrevocable sale or transfer of your IP to another company or individual.
Licensing allows you to transfer ownership of your IP under certain agreed-upon conditions and for a specific period of time. The potential reasons why you should consider assigning or licensing your IP include:
- manufacturing and distribution; and
An IP holding company structure is a great way to set up ownership in your own entity and license it out to subsidiary companies. Employers and universities may have terms in their contracts that assign IP created by their employees or students to them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.