By Omoruyi Edoigiawerie, Esq
Intellectual property (IP) refers to the creations of the mind. It can also be referred to as a creative process that defines the reputation of a product and its creator. It also refers to a “property interest in intangibles” and includes copyrights, trademarks, patents, and trade secrets.
Intellectual property ownership confers rights, and these rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of the creation for a specified period.
*Intellectual Property (IP) commercialisation
On the other hand, Intellectual property commercialisation, refers to the process of monetising and deriving value from intellectual property assets. Companies can leverage their IP assets to generate revenue by licensing, selling, or using them to develop new products or services. IP commercialisation is a very effective but often overlooked stream of income for startups.
It involves monetising these IP assets through licensing, outright sale exploiting them in other ways for profit. This is even more profound considering that in today’s digital age, brand utilisation and awareness are at an all-time high.
The world’s biggest brands have built their value leveraging heavily on their brand value. For instance, in 2022, the Apple brand was valued at $947bn making it one of the most valuable companies in the world.
For start-ups, generating a sustainable stream of income is often a significant challenge. While revenue from product sales or services is crucial, many startups fail to recognize the potential value of their intellectual property (IP) as a source of income. Commercializing IP can provide startups with a steady stream of revenue, create new business opportunities, and enhance their market position.
*Benefits
Revenue Generation
One of the most significant benefits of IP commercialization is the ability to generate revenue. By licensing their IP to third parties or creating new products or services based on their IP, startups can earn licensing fees or royalty payments, creating a convenient stream of income.
Market Positioning
IP commercialising can also help startups establish their market position. A strong IP portfolio will enhance the company’s reputation and increase its value in the eyes of investors and potential partners.
New Business Opportunities
Commercializing IP can also create new business opportunities. By licensing or selling their IP, startups can enter new markets or industries, leading to new partnerships and collaborations.
With the above benefits in mind, let us explore the modes of IP commercialization, their benefits, and the challenges that may come with them:
1. Licensing
Licensing is one of the most common methods of IP commercialisation. A license is a legal agreement between the owner of the IP asset (the licensor) and another party (the licensee) that grants the licensee the right to use the IP asset for a specific purpose, such as manufacturing or selling a product or providing a service.
Licensing can provide several benefits to both the licensor and licensee. For the licensor, licensing can generate revenue without the need for significant capital investments. Additionally, licensing can help the licensor expand into new markets or industries without the need for additional resources or personnel. For the licensee, licensing can provide access to valuable IP assets without the need for significant investments in research and development or the creation of new IP assets. For example, global brands like Coca-Cola, Nike, and Puma have gained and maintained global relevance through licensing arrangements.
However, licensing also has its downsides, chief of which is the fact that the licensor is saddled with the responsibility to ensure that the licensee uses the IP asset by the license agreement and does not infringe on the licensor’s rights. On the licensee’s part, it must pay royalties or other agreed fees to the licensor, which may become arbitrary and could impact its profitability.
2. Outright sale
Selling IP assets is another method of IP commercialisation. A start-up can sell its IP assets to another company for a one-off payment or structured payments over an agreed period.
Selling IP assets can provide several benefits to the seller. It can generate immediate revenue without the need for ongoing involvement in the development or commercialisation of the IP asset. Additionally, selling IP assets can help the seller reduce its risk exposure and focus on its core business activities, but it may also mean that the start-up loses its rights to the IP. Start-ups often consider selling their IP if they do not have the resources to develop it fully or if they believe that the IP would be more valuable in the hands of a larger company with the resources to scale it.
3. Joint venture utilisation
Startups can also leverage their IP through joint ventures with other companies. For example, a Fast-Moving Consumer Goods (FMCG) start-up may partner with a larger FMCG company to develop a product or service on the start-up’s IP. The larger company can provide the resources necessary to bring the product to market, while the start-up can earn revenue from the IP. The arrangement which would be bound by an agreement would address issues regarding ownership of the IP rights, profit sharing, and the tenure of the business relationship.
The challenge with arrangements is that oftentimes, the more valuable the IP becomes, the more resources the partner company invests in the product and thereby blurring the lines of ownership which in turn is capable of leading to avoidable disputes.
4. Product Development
Using IP assets to develop new products or services is another method of IP commercialization. A company can leverage its existing IP assets to create new products or services or enhance existing ones.
Product development can provide several benefits to the start-up. It can help it expand its product or service offerings, differentiate itself from competitors, and generate new revenue streams. Additionally, product development can help strengthen a start-up’s IP portfolio and increase its overall value.
However, product development also presents several challenges. The start-up must ensure that it has the necessary resources and expertise to develop and commercialize new products or services. Additionally, it must consider the potential risks and costs associated with product development, including the possibility of infringing on third-party rights or failing to generate a return on investment.
5. Spin-Off
A spin-off is another method of IP commercialization. A company can create a new company or subsidiary to commercialize its IP assets. The new company can focus exclusively on the development and commercialisation of the IP assets, freeing the parent company to focus on its core business activities.
Startups can also create spin-off companies based on their IP. This involves creating a separate company to commercialize the IP, allowing the original start up to focus on other areas of the business. For example, a medical device start-up may spin off a separate company to focus on a specific technology that has commercial potential. The new company can then seek funding and partnerships to develop and commercialise the technology.
Spin-offs can provide several benefits to the parent company. They can help the parent company generate revenue from underutilized or undervalued IP assets, reduce its risk exposure, and focus on its core business activities. Additionally, spin-offs can provide the new company with the necessary resources and expertise to successfully commercialize its IP assets.
The parent company must ensure that it receives fair compensation for the IP assets transferred to the new.
6. Crowdfunding
Crowdfunding can be another way to monetize IP, particularly for startups in the creative space. Today, platforms like Artsplit in Nigeria can raise funds from a large number of people by giving them the right to co-own rare and valuable artworks and music catalogues royalties on their platform.
This can provide startups with the funding necessary to develop and commercialize their IP without the need to give up equity in the company.
At the end of the day, IP commercialisation can be an effective stream of income for startups as it helps them monetize their IP and generate an additional and steady stream of revenue.
However, startups must be careful to protect their IP intentionally and ensure that they are not giving away too much control or value in the process of this commercialisation.
Registration and protection of IP rights by Startups are essential and cannot be bypassed as they lay the foundation for commercialisation of the IP.
In this age of globalisation and the advancement in digital technology, the world has truly become a global village and protecting and start-ups who understand how to adequately protect their IP rights would be at the forefront of benefiting from the impactful commercialisation of their IP portfolio.
Omoruyi Edoigiawerie is the Founder and Lead Partner at Edoigiawerie & Company LP, a full-service law firm offering bespoke legal services with a focus on startups, established businesses, and upscale private clients in Nigeria. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. His firm can be reached by email at [email protected]
