The challenge of maximising your intellectual property (IP)

“Just 30 years ago, most company valuation was determined by capital assets, such as plant and equipment. Today, intangibles probably account for more than half of market value for the average company listed worldwide”

Source: PricewaterhouseCoopers 2007 – Exploiting intellectual property in a complex world

“IP is a core strategic asset: the focus is shifting from litigation to managing and enhancing its value”

Source: PricewaterhouseCoopers 2007 – Exploiting intellectual property in a complex world 

These quotes illustrate well not only the importance of IP today but also the shift in emphasis towards its monetisation.

The legal tools used to exploit IP rights:

In much the same way as, physical assets can be bought, sold, leased or used as security so too can intangible assets although the terminology differs:

• Assignments – when IP rights are bought and sold

• Licences – a right to use some-one else’s IP generally for a defined period, akin to a lease or rental of a physical asset – e.g software licences, franchising and merchandising

• Mortgage – an assignment by the IP owner to the lender with a condition the IP will be reassigned to the owner when the debt is repaid

Assign or license?

An assignment generally involves a once and for all capital payment and no further rights whereas with a licence the rights are retained, and a revenue stream generated.

The Legal Challenges of Licensing

Licences allow IP owners to capitalise on their IP without scaling up by granting a right to use the IP, in return for a licence fee, whilst retaining ownership.  These contractual agreements can reach across national and international borders to enable profits from multiple markets. However, licensing, particularly in the emerging markets, can present a number of issues:

• non-compliance with license, particularly under-declaration of production
• piracy
• under-developed judicial systems for enforcement of IP rights

Policing is therefore an important consideration when deciding whether to go for a one-off payment or royalties. If your technology is going to be sold for many years across the world, do you have the resources and inclination to police infringements and fight for royalties if necessary?  

How to protect yourself

• select your licensee with caution and undertake sufficient due diligence 
• ensure your contract contains an audit clause giving you the right to appoint a third party to examine the books and facilities of your licensee

Talking to license buyers

UK Trade & Investment (UKTI) can help you set up meetings with potential licensees. But before starting discussions you need to protect yourself with a binding confidentiality and non-user agreement.  If the licensing arrangement is likely to involve transactions with parties outside the UK speak to a lawyer in the relevant jurisdiction to check the agreement will be enforceable against the other party. 

Franchising

Franchising is a form of IP license which can be used for services as well as products.  You should seek to register as much of your IP as is possible.

UK trademarks are registered with the UK Intellectual Property Office.  Once you have a UK or EU registered trademark the World International Property Organization can take your trademark protection global. 

The arrangement should also be based on a comprehensive contractual agreement whereby the franchisee:

• is authorised by the franchisor to use a business model in return for a fee

• is licensed to use a collection of IP rights typically trademarks, trade secrets and copyright material

• is supported by advertising and on-going training and technical support from the franchisor

Merchandising 

A particular form of licensing often of trademarks, designs and artworks (copyright) relating to fictional and real personalities or items

It has the advantage for the IP of a low cost of exploiting it in that a third party generally manufactures and pays a royalty to the IP owner

Technology Transfer

In some circumstances the IP may not be sufficiently developed to license in its current form. This could be for a number of reasons:

• lack of resources, capabilities or desire to use or develop the technology further

• lack of sufficient marketing or distribution capabilities to get the new technology to market efficiently

• Desire to take the development of the technology in a direction in which the owner has no expertise. 

• Lack of commercial capabilities e.g. universities and charities.

If this is the case you can consider collaboration or joint venture agreements under which two or more parties agree to work together in the context of researching, developing or exploiting technology for the benefit of both parties.  Sophistication can vary greatly from deal to deal from basic ‘joint venture’ companies with transfer of assets to more complex arrangements involving licensing and more particularly cross-licensing where products involve numerous patents in different ownership.

Before exploring any co-development opportunity ensure you protect your idea/product by entering into a confidentiality and non-user agreement with any potential partner before starting any discussions.

Dividing up the market

It’s perfectly possible to negotiate several licence deals at once but buyers are inevitably attracted by exclusivity. To prevent conflict be clear about the markets and territories you’re offering from the outset.  

One big deal

Alternatively, licensing deals can involve surrendering your commercial rights to just one company. Pharmaceutical giants buy many of their new medicines from smaller drug developers. In return the development companies receive hefty sums. Back in 2006 GSK bought the full license to Genmab’s leukemia drug for $2.1billion. 

Edward Coxall, Partner
ecoxall@mayowynnebaxter.co.uk
www.mayowynnebaxter.co.uk