commercialization
Commercialization is the crucial stage in the process where inventors and companies attempt to achieve some return on investment and (hopefully) additional profits, either through product sales or otherwise.
An owner of intellectual property may commercialize that intellectual property by building a company around it to sell products or services; however, it is not necessary for one person or entity to take an invention through the entire innovation process. For example, it is common for university professors to come up with new ideas, for their institutions to procure patent protection, and then license those ideas and related intellectual property rights to industry (which can include companies of all sizes and stages, including start-ups). In addition, inventors and companies often instead elect to sell (assign) or license intellectual property to others.
Licensing
Licensing, as opposed to complete transfer or assignment of intellectual property, provides one path to commercialization. By granting certain license rights to the licensee, unless the license grant is exclusive, the owner (licensor) retains the flexibility to commercialize the intellectual property itself or grant additional license rights to other third parties. The primary elements of a typical license specify the scope of the rights granted, the term of the license, and the consideration to paid to the licensor in exchange for the license rights. Of course, there are many other terms that are often included in a license agreement that are beyond the scope of this discussion.
The license grant states the rights being transferred to the licensee during the term of the license. Among other things, a license grant may be exclusive or non-exclusive, may be limited by geography and by field of use.
The term of the license may be perpetual or may specify a specific license term. For patents, a perpetual license would apply for the life of the patents (typically 17 to 20 years). License agreements may also include provisions specifying when and how the agreement and underlying license grant may be terminated. For example, the agreement may specifically provide for termination upon breach of certain terms of the agreement (i.e., failure to pay royalties or other consideration, or use beyond the scope of the license grant).
There are also many ways to pay for license rights. The license agreement may require a licensee to pay an upfront license fee as well as ongoing royalties based on a percentage of sales. Milestone payments may be used to account for the uncertain nature of intellectual property rights and helps to ensure that the licensor shares in the success of commercialization. For example, milestone payments may be due upon reaching certain regulatory approvals, product development stages or financing stages. More recently, companies that offer hosted “cloud-based” services do so under a “pay as you go” subscription model, which is intended to reflect the licensee’s (and its organization’s) actual use of the service, but can often include hidden and unforeseen costs.
Assignment
Like any other property, intellectual property may be bought and sold. In a sale transaction, the seller gets paid for the intellectual property that he or she or it has created and the buyer as the new owner is free to commercialize the intellectual property as it sees fit. Once intellectual property has been sod or assigned, unless the parties agree otherwise, the seller will lose ownership interest of the intellectual property, and consequently the right to use and further commercialize it.
The intellectual property purchase and sale agreement would typically set forth the commercial understanding of the parties relating to the assignment, which would include, among other things, a clear description of the intellectual property to be assigned and the price to be paid.
Companies with intellectual property portfolios should regularly review their portfolios to assess the relevance of the intellectual property to its strategic goals. For non-core intellectual property it might make sense to sell those assets in order to generate capital and avoid maintenance fees associated with the intellectual property.
An owner of intellectual property may commercialize that intellectual property by building a company around it to sell products or services; however, it is not necessary for one person or entity to take an invention through the entire innovation process. For example, it is common for university professors to come up with new ideas, for their institutions to procure patent protection, and then license those ideas and related intellectual property rights to industry (which can include companies of all sizes and stages, including start-ups). In addition, inventors and companies often instead elect to sell (assign) or license intellectual property to others.
Licensing
Licensing, as opposed to complete transfer or assignment of intellectual property, provides one path to commercialization. By granting certain license rights to the licensee, unless the license grant is exclusive, the owner (licensor) retains the flexibility to commercialize the intellectual property itself or grant additional license rights to other third parties. The primary elements of a typical license specify the scope of the rights granted, the term of the license, and the consideration to paid to the licensor in exchange for the license rights. Of course, there are many other terms that are often included in a license agreement that are beyond the scope of this discussion.
The license grant states the rights being transferred to the licensee during the term of the license. Among other things, a license grant may be exclusive or non-exclusive, may be limited by geography and by field of use.
The term of the license may be perpetual or may specify a specific license term. For patents, a perpetual license would apply for the life of the patents (typically 17 to 20 years). License agreements may also include provisions specifying when and how the agreement and underlying license grant may be terminated. For example, the agreement may specifically provide for termination upon breach of certain terms of the agreement (i.e., failure to pay royalties or other consideration, or use beyond the scope of the license grant).
There are also many ways to pay for license rights. The license agreement may require a licensee to pay an upfront license fee as well as ongoing royalties based on a percentage of sales. Milestone payments may be used to account for the uncertain nature of intellectual property rights and helps to ensure that the licensor shares in the success of commercialization. For example, milestone payments may be due upon reaching certain regulatory approvals, product development stages or financing stages. More recently, companies that offer hosted “cloud-based” services do so under a “pay as you go” subscription model, which is intended to reflect the licensee’s (and its organization’s) actual use of the service, but can often include hidden and unforeseen costs.
Assignment
Like any other property, intellectual property may be bought and sold. In a sale transaction, the seller gets paid for the intellectual property that he or she or it has created and the buyer as the new owner is free to commercialize the intellectual property as it sees fit. Once intellectual property has been sod or assigned, unless the parties agree otherwise, the seller will lose ownership interest of the intellectual property, and consequently the right to use and further commercialize it.
The intellectual property purchase and sale agreement would typically set forth the commercial understanding of the parties relating to the assignment, which would include, among other things, a clear description of the intellectual property to be assigned and the price to be paid.
Companies with intellectual property portfolios should regularly review their portfolios to assess the relevance of the intellectual property to its strategic goals. For non-core intellectual property it might make sense to sell those assets in order to generate capital and avoid maintenance fees associated with the intellectual property.