Have you decided which selling option you will pursue?
It is necessary to weigh up the pros and cons of establishing your own start-up business to commercialise an idea (a resource and time-intensive process) against licensing or assigning you technology rights. Each option dictates different levels of investment in research and development, company structuring and marketing operations, with differing levels of potential financial return.
It is necessary to weigh up the pros and cons of establishing your own start-up business to commercialise an idea versus licensing or assigning your technology rights. Each option dictates different levels of investment in research and development, company structuring and marketing operations, with differing levels of potential financial return.
Most new ideas or inventions ultimately fail to find a market for a wide variety of reasons. While lack of seed and start-up funding has been identified as one of the major impediments to the commercialisation of new technologies in Australia, even well funded projects often fail to get off the ground. Bad management, poor timing of market entry, or unforseen technology advancements impacting on the marketplace are just a few causes of new venture failure.
Electing to start your own business can be a personally and financially rewarding experience. However, the commitment required to the product development, manufacturing, marketing and global distribution process is highly demanding in terms of time, money and risk.
In general, at this point in the commercialisation of an idea, it would be appropriate to form a Proprietary Limited Company to provide an appropriate vehicle for development and growth.
The company start-up option is generally considered where you can demonstrate you have a platform technology with a large potential market. The company should hold a strong intellectual property position and be able to demonstrate competitive advantages for the technology in the market place.
One of the key issues at this point in time is also to decide if you are capable of leading the company through its formative stages. Bear in mind that business angels and venture capitalists look closely at the experience level of the management team of prospective investments. If you are not experienced in starting up and growing a technology commercialisation company, you may need to consider recruiting experienced professionals to help you manage the business.
Licensing allows someone to use your idea, trade mark, or copyright (or other form of intellectual property) in exchange for money or other form of financial return. If you decide to use a Licensing Agreement, you still own the rights to your idea, trade mark, or copyright.
Licensing is a common approach adopted by universities and smaller companies for commercialisation of technology. In an increasingly competitive global environment, licensing is becoming more and more popular as a means of indirect market entry. A licence is usually a formal agreement between two parties with the licensor granting temporary use of its intellectual property to the licensee in return for certain undertakings and payments over the period of the licence.
Most commonly it involves manufacturing and marketing rights for inventions, technologies, software, manufacturing processes, products, or artistic and literary material.
Generally, the licensor is responsible for protecting the value and integrity of its intellectual property. The licensee is responsible for using the licensed intellectual property to produce goods or services that it will market. Like a lease of real property, property ownership doesn’t change in this “lease” of intellectual property. The licensee receives usage rights and compensates the owner or licensor for these rights in the form of licence fees or royalties.
- Notable benefits of using the licensing option include:
- faster market entry through licensing to established companies in the target market space
- reduced amount of time, effort and resources in commercialisation, no need to manufacture and distribute yourself
- passive income – revenue is largely profit.
It is important to note that licensing may still require the establishment of a company to manage certain tasks including:
- periodic audits of the licensee use of the technology
- technology or product development to support licensee commercialisation efforts
- technical support for licensees
- marketing support to assist in driving sales of licensee products or services.
Licences are granted on an “exclusive” or “non-exclusive” basis. Careful assessment needs to be given to how the licenses are assigned, particularly with exclusive licensing agreements. A pitfall of the exclusive licence is the licensee may effectively shelve your technology – with no intention of utilising the technology themselves, simply to keep it out of the hands of competitors.
In order to protect against such a situation arising, it is recommended to utilise the services of legal counsel or technology licensing specialists experienced in negotiating and preparing licensing agreements.
Assignment is selling the rights to use your patent, trade mark, copyright or other form of intellectual property (IP). If you decide to use an Assignment Document, you sell the rights to your idea, trade mark, or copyright.
Assignments usually call for one lump sum of money to be paid to the assignor (seller), and may also involve the payment of a smaller royalty stream over time to the assignor, if the IP is successfully developed and generates profit for the assignee (buyer). However, with an assignment, you give up your rights to your intellectual property.
Whether a licensing agreement or an assignment of rights is suitable for your business depends on a number of factors, including your intellectual property. How strong is your patent, trade mark, or copyright? How much interest does a company have in your intellectual property? Do you have international rights for your patent, trade mark or copyright?
As with licensing, the services of appropriate legal counsel or technology licensing specialists are highly recommended in the assignment process.