Methods of Commercializing Intellectual Property – Part II

Commercialization Through Franchising

Franchising is essentially a subset of licensing whereby the owner of an intellectual property grants the franchisee to replicate the entire business concept in a different location. The franchiser (owner) provides continued support and training in order to ensure the maintenance of the sanctity of their business concept. Franchising is commonly adopted to commercialise trademarks.

Things to Keep in Mind

1. Conducting Feasibility Study – This helps in forming an outlook for the adoption of a franchise. It elaborates the viability of a franchise in the target business and location while also aiding in planning the setting up of a franchise.
2. Testing the System – Applying the developed franchising system in at least one pilot unit in the same or similar market can help in testing the operational aspects of the business and in perceiving the possible defects before the launch of franchising.

Commercialization Through Joint Ventures

A joint venture can be understood as a collaboration of two or more parties to achieve a specified goal or fulfil a specified project by sharing risks and resources. Since parties generally bring their intellectual property to such joint ventures, commercialization of their existing intellectual property often becomes one of the ends of a joint venture. Such an arrangement is advantageous because it allows for the exploitation and development of intellectual property by reducing the burden of investment and risks due to the same being generally shared between the parties. However, unequal expertise between the parties may result in an imbalance in the intellectual property assets and investments brought in by all the parties. Further, adapting intellectual property management to different management structures as required by a joint venture may also result in hindrances in the efficient commercialization of intellectual property. 

Things to Keep in Mind

1. Pre-contractual Considerations – Executing non-disclosure agreements to protect one’s own intellectual property while also conducting due diligence with regard to the intellectual property of the other party(s) is important to ensure that the negotiations do not become detrimental to any of the parties.
2. Contractual Considerations – Knowing the relevant issues with regard to the intellectual property to be assigned and the important clauses to be deliberated on go a long way in maximising the efficiency of a joint venture.
   • Explicitly outline the extent of access to the rights of background intellectual property of all the parties.
   • The financial contribution of each party to the joint venture with regard to intangibles should be clearly demarcated.
   • The management structure of the joint venture should be precisely defined.
   • The effect of termination on the background intellectual property that was developed during the joint venture and the rights therein should be clearly accommodated.
   • The effect of exit of existing partners or entry of new partners on the background intellectual property that was developed during the joint venture and the rights therein should be delimited in express terms.
3. Consideration during implementation of the Joint Venture – Bring the ownership regime of intellectual property as determined in the joint venture agreement into effect, demarcate the ownership of all the improvements made or to be made to the background intellectual property and decide the extent of the commercializing activities allowed to all the parties. 
4. Considerations when Terminating the Joint Venture – The consequences of termination of the joint venture or exit of a partner on intellectual property and the rights therein as mentioned in the agreement should be given effect.

Commercialization Through Spin-Offs

Spin-offs are separate legal entities created by the owner of an intellectual property with the primary aim of commercializing the said intellectual property. They generally act as a bridge between the market and the owner by converting the subject of the intellectual property into a marketable product and releasing them into the commercial market. Thus, spin-offs often function as an important means of technology transfers within the market.

Things to Keep in Mind

1. Transferring Intellectual Property – Generally, the capital of the spin-off consists predominantly of the intellectual property. Therefore, it is important to decide the mode of such transfer, in essence, by assignment or license, in accordance with the requirements of the owner of the intellectual property.
2. Conducting Due Diligence – Conducting due diligence of the intellectual property allows investors to ascertain the significance of different methods of transferring intellectual property and the resultant consequences on the owner and the spin-off.
3. Necessary Agreements – Executing comprehensive non-disclosure and non-solicitation agreements with the investors, key managerial personnel and the employees of the spin-off along with detailed licensing or assignment agreements are crucial to protect the intellectual property.

Important Steps When Strategizing Commercialization

The commercialization of intellectual property involves a detailed strategy mapping out the different stages involved in the process. The strategy varies greatly on the basis of different kinds of businesses, different business philosophies, etc. Two key influential factors are the methods chosen to commercialise the intellectual property and the extent to which the intellectual property is to be commercialised. On the other hand, the strategy and its implementation influence the outcome, that is, the economic gain from such commercialization. Thus, the importance of choosing a suitable strategy cannot be downplayed. While the formulation of a strategy depends largely on the owner, their business and economic experts, there are some things which are recommended when deciding on a strategy to commercialise intellectual property. These are as follows:

• Market Analysis
• Intellectual Property Audit
• Intellectual Property Valuation

1. Market Analysis

A market analysis is basically a thorough study of the target market in order to gauge its strengths, weaknesses, opportunities and risks with regard to a product or service. It is crucial to conduct a comprehensive market analysis in all the markets where the intellectual property is sought to be commercialised in order to analyze the probability and extent of success. A good market analysis entails an evaluation of the following:

• The economic value of the intellectual property and the rights therein sought to be commercialised via a product or service.
• The size of the potential market.
• The actual and potential demand for the product in the target market.
• The purchasing power of the potential customers.
• Whether similar products or services are already available or will be available in the near future in the target market.
• The size and potential of the competitors in the target market.
• The size and capacity of potential business partners.
• The logistical issues which may arise in the physical delivery of the product or service.
• Domestic legal framework affecting the business in the target market.

2. Intellectual Property Audit

Like the phrase suggests, the intellectual property audit is the process of reviewing all the intellectual property that one owns or uses. It includes both registered and unregistered intellectual property. The intellectual property acquired from a third party should also be included in such an audit. Generally, it should be done once every year, but it becomes crucial when strategizing the course of action for the commercialization of one’s intellectual property since it helps in:

• Cataloguing one’s intellectual property and the rights therein, which in turn also aids in using them as collateral for loans and borrowings.
• Determining the aggregate economic value of one’s venture including one’s intangible assets.
• Assessing potential risks to one’s venture and accordingly establishing counter measures and corrective plans to mitigate the same.
• Incorporating best practices and effective strategies to better protect and manage one’s intellectual property.
• Monitoring compliance with contractual duties and obligations.
• Ensuring timely registration and renewal of all intellectual property, which will accord better protection to such assets by facilitating their enforcement.

3. Intellectual Property Valuation

The next step after conducting an audit of one’s intellectual property is their valuation, which includes assessing and quantifying the economic value of such intellectual property including their current and potential economic benefits. Its importance can be realised from the following:

• It provides full awareness of all the required information interacting with the value of one’s intellectual property.
• It outlines the financial outlook of the consequences of potential risks posed in the commercialization of intellectual property and thereby aids in the formation of counter measures and corrective plans.
• It aids in acquiring an economic understanding of the concerned industry, the target market and the specific business sector which may influence the valuation of one’s intellectual property.

Conclusion

With the evolution of the market, intellectual property has become an important asset for any venture or enterprise seeking to accumulate economic gain. However, like with any other asset, the commercialization of intellectual property requires considerable planning and strategizing. The intangible nature of intellectual property only adds to the complexity associated with economic exploitation. Therefore, this article has sought to collate and simplify the different ways in which intellectual property assets can be commercialized and some key steps during strategizing for the same. At this point, it is important to note that the aspects of commercialization vary according to the nature of the concerned intellectual property. A more detailed understanding of different types of commercialization agreements with regard to specific kinds of intellectual property is provided here. Thus, on an end note, while the aim of the instant article has been to provide a brief background on the same from a melange of legal and economic perspectives, the precise economic planning should certainly be left to the experts of the field.