Commercialise your IP
Intellectual Property (IP) is everywhere. It’s all about human creativity and the products and services we use in our everyday lives.
The products or services that your organisation supply or acquire all use some form of IP. Business assets comprise either physical assets (such as buildings or machinery) or intangible assets (such as your brand, know-how, clever ideas, systems and inventions). All business in the digital economy has to rely on the effective use of intellectual property rights to protect intangible assets from competitors and imitators.
In the age of information, intangible assets are becoming more valuable and more important to technological advances than tangible assets. Continuous innovation, and global information networks and communication technologies (such as the Internet and cloud technologies) are driving the digital revolution, where consumers are more digital savvy, and competition is becoming fiercer on a global scale.
To be successful in a crowded marketplace, businesses must rely on innovation to differentiate themselves from their competitors. Intangible assets are driving innovation, and moving to the forefront to contribute much to a business’s and a country’s competitive edge in the information economy.
Intangible assets are protected by intellectual property rights. These rights recognise the money and time people have invested in their intangible assets, and enable them to exploit and trade their intangible assets.
At W3IP Law, we have extensive experience in IP commercialisation and digital commerce transactions. We can assist you with the negotiation and drafting of:
- assignment agreements for the transfer of IP
- blogger agreements
- click wrap agreements
- clinical trial research agreements
- cloud computing agreements
- collaborative research agreements
- confidentiality agreements
- content acquisition agreements
- contractor and virtual assistance agreements
- crowdsourcing agreements
- distribution agreements
- domain sale and escrow agreements
- electronic contracts
- employment agreements
- hosting agreements
- international commercial agreements (distribution, international agency, licensing)
- joint venture agreements
- licence agreements (trade mark, copyright, design, patent, knowhow and trade secrets)
- manufacturing agreements
- marketing agreements
- outsourcing agreements
- policies (confidentiality, data protection, information technology policy, social media)
- privacy terms
- research and development agreements
- SaaS terms of service
- search engine optimisation agreements
- software agreements (development, licensing, support and maintenance)
- shareholders agreements
- technology transfer agreements
- website sale agreements
What is IP commercialisation?
Commercialising is about bringing your IP to market and creating wealth from clever ideas and new products or services which are innovative. If you’re planning to commercialise an innovation, you must consider the research and development phase of that commercialisation as to who created the IP and who owns and stands to benefit from it. In the research and development phase, the ownership of IP is often forgotten and budgeting is allocated to the research and development itself itself rather than the process of creating IP and the control of its ownership. This is particularly so where a team may consist of researchers, specialists with particular technical expertise and outsourced contractors. The question as to who specifically owns the IP and should share in its wealth becomes an issue when the product is ready to launch or contractors come back to claim ‘their cut’ should the innovation become very successful. It is therefore a key consideration whether an organisation owns the research and development output which it intends to commercialise.
IP as an asset can be exploited in many ways. The owner of an IP asset has the right to prevent others from dealing with it or copying it.
Types of commercialisation
Assignment (sale of IP)
An assignment is a sale or transfer of the ownership of IP rights. It can be approached in the same way as buying or selling any asset. The assignee (the person to whom the rights have been transferred) becomes the owner of the IP and can deal with it accordingly. The assignment of IP is often part of another transaction such as the purchase of a business.
Through the due diligence process, a purchaser will investigate all aspects of the assets that are being sold, including the IP. During this process, the purchaser will have access to confidential information, and obviously the seller will want to protect themselves against disclosure of that information to the public or to competitors – especially if the deal falls through. As a result, negotiations for the purchase of IP usually start with an appropriate confidentiality agreement.
An assignment should be recorded in a written contract or deed. This contract must record the transfer of the IP title and specify any agreed terms and conditions to protect both buyer and seller.
A due diligence is conducted to identify the value of the IP assets being assigned, including ownership rights, scope and enforceability. The extent of the due diligence process will be dependent on the type of IP and its corresponding value to the transaction, and will include an examination of:
Clean ownership of the IP
A purchaser will want to make sure that the seller owns the IP that it is assigning. This process requires verifying the ownership of the IP. This can be a complex task, which includes a thorough review of all of the company’s commercial documents (e.g. employment contracts, collaboration or joint venture agreements, consultancy and outsourcing agreements) to ascertain whether there are any ownership issues.
The validity of the IP and the status of its registration
All the documents concerning registration of the IP, including applications, certificates, and searches including current owners of record, application and registration numbers, filing and registration dates and any upcoming dates for renewal.
An assessment of freedom from infringement or ‘freedom to operate’
An assignment of IP can give rise to considerable liability if using the acquired IP is an infringement. This analysis will involve an evaluation of whether the purchaser can trade in or use the products or services in question without infringing the IP rights of a third party.
Information regarding domain names and social media
This is an aspect of any due diligence which should not be missed, as social media platforms are very important and have economic value in the digital marketplace. There have been cases where employees have moved to a competitor and transferred their social media accounts, which had thousands of followers.
The legal requirements for the assignment
The Patents Act provides that part or all of the monopoly rights in a registered patent can be assigned. The assignment must be in writing and should be registered.
The Trade Marks Act provides that part or all of the IP in a trade mark can be assigned. Note “part” means the assignment applies to only some of the goods or services within a designated class of the trade mark registration. It doesn’t mean it can be used in a particular area. The assignment can be with or without the goodwill of the business in the relevant goods or services. It is preferable that it is in writing and the assignment must be registered.
The Copyright Act provides that all of the IP in the copyright can be assigned. “Part” means it is limited to a class of acts, a place or part of Australia or a part of the period for which the copyright subsists. Whether total or partial, an assignment must be in writing otherwise it will not have effect.
The Designs Act provides that all or part of the IP in a design can be assigned and it must be in writing and registered.
Licensing (‘Licensing out’)
A licence agreement is a contract under which the holder of the intellectual property (licensor) grants permission or authority to another person (licensee) to use the IP in exchange for money or other value, subject to the terms of the contract. There are various types of licensing agreements available, which generally comprise technology licensing agreements, trade mark licensing and franchise agreements, and copyright licence agreements. As a licence agreement can involve a long term relationship between the parties, a successful agreement will meet the needs of each and provide value on a win-win basis.
Key terms of a technology licence agreement
It’s important that the agreement establishes that the licensor owns the technology being licensed or has the right to license it out.
Identification of technology
The licence agreement must adequately identify and define the technology being licensed. This may be a product, a method of manufacture, know-how or trade secrets, along with any accompanying documentation.
License grant (scope of rights)
The grant provision must properly set out the scope and extent of the IP rights. In particular, the agreement must address not only the technology that is the subject of the contract, but also the rights that are licensed in the underlying IP in the technology.
There are many intangible assets that can be licensed, including trade marks (brand names and logos), patents (inventions), copyright (manuals, specifications, formulae, software), know-how (expertise as to how something works) and trade secrets (a formula or method).
The licence agreement should clearly set out what registered and what unregistered rights are being licensed, whether there are any rights to improvements in the technology, and whether such improvements require an additional payment.
A licence agreement can have several different types of grant, depending on the IP being licensed and the laws that apply to it. These may include the right to use the technology, the right to reproduce it, the right to display it, the right to modify it, the right to make derivatives of it, the right to sell or distribute it, the right to appoint distributors, the right to research it, the right to trade it online or the right to sub-licence it.
Other considerations are the ‘have made’ right, where a licensee wants the right to have a third party manufacture a product under its specifications. Licensees sometimes ask for a ‘most favoured licensee’ status to ensure that the licensee has parity with other licensees.
The licence should also address whether there are any territorial limitations as to where the rights can be exercised in Australia, or whether the licence is granted worldwide.
A licence agreement should specify whether the licensee is the only person who has the right to deal with the technology, either through an exclusive licence, or under the terms of a sole licence that allows them to deal with the technology to the exclusion of everyone else except the licensor. The grants of exclusive or sole licences may be anti-competitive, and licensors should seek legal advice on the effects of the Competition and Consumer Act 2010.
Field of use
The field of use limitation in a licence is the provision that allows the technology to be used only for a particular purpose (e.g. research) or in a particular industry (e.g. a patented drug which can only be used for a specific therapeutic use). This enables a business to obtain a licensing fee from its technology in a field which may not be its key target market, or in a market which it does not have the necessary capability or expertise to exploit, while maintaining exclusivity in its own industry.
Minimum performance obligations
A minimum performance or ‘non-performance’ provision is used by the licensor to set minimum performance standards for the licensee. The licence may include a termination provision. The performance required will depend on whether the licence is exclusive or non-exclusive. The provision is very important in an exclusive licence agreement because the success of the licensor’s technology depends on getting it to market and earning revenues. The setting of minimum performance obligations is attractive to the licensor because it will allow an ‘escape’ if the licensee underperforms or circumstances change.
The parties will seek to arrive at a licensing fee that reflects the value of the technology and the terms and conditions agreed upon. These are highly negotiated clauses. The consideration paid to the licensor is some form of royalty, where the licence will address the rate of the royalty, how it’s calculated and how it’s paid. The parties will consider various factors when negotiating the royalty, including the research and development costs for the technology, prevailing royalty rates in the industry for similar technology, the nature of the technology, and the nature of the rights granted (including whether the licence is exclusive or non-exclusive).
Records and audits
A licensing agreement usually requires that the licensee maintains accurate records and accounts relating to the commercialisation of the technology. This ensures the licensor receives all due licensing fees. A licensee is usually required to send a statement or report with each licensing fee payment. To ensure compliance with the terms of the licence, it’s important that there’s a contractual right to inspect the books and records of the licensee, and a right to audit. The licensor generally bears the costs for inspections and audits unless an audit discloses a shortfall.
Maintenance and prosecution
The licensor is typically responsible for maintaining the registration of the IP, to ensure its validity and to prosecute any infringements. The type of maintenance required will depend on the IP rights that are being licensed.
Representations and warranties
The licensor will usually warrant that it owns the IP, and that any use of the technology under the terms of the licence won’t infringe the rights of others. If the licensor can’t give an unqualified warranty, the representation may be qualified to warrant that “to the best of the licensor’s knowledge” the IP doesn’t infringe any third party’s rights. Alternatively, the warranty might be limited to a specific territory. The licensee may also seek a warranty that the technology is fit for purpose or functions in accordance with the specifications.
The licensee typically seeks an indemnity from the licensor against any claims from a third party for IP infringement. If they don’t, they risk exposure to infringement proceedings. The licence agreement may also require that the licensee provides reasonable assistance to the licensor to defend any infringement proceedings.
A licence agreement will typically provide an escalating dispute resolution clause mechanism for resolving any disputes. If the parties are unable to resolve the dispute, they often agree to alternative dispute resolution proceedings such as mediation or arbitration. The agreement will typically include a provision regarding what rules will govern the arbitration, where it will take place and who will pay the costs.
Governing law and venue
The licence agreement should address what governing law and venue will apply to the licence, particularly if the licensor and the licensee are in different jurisdictions. The parties will generally negotiate this provision, with each of the licensor and licensee favouring its local jurisdiction. The parties may take the approach that any disputes will be resolved in a “neutral” jurisdiction.