You should weigh up the pros and cons of establishing your own business to commercialise an idea (a resource and time-intensive process) compared to licensing or assigning your technology rights. Each option dictates different levels of investment in research and development, business structuring and marketing operations, with differing levels of potential financial return.
Many new ideas or inventions ultimately fail to find a market. While lack of seed and startup funding is a major impediment, even well-funded projects fail. The choice of business model, the way the innovation is managed, the timing of market entry, and unforeseen technology advancements impacting on the marketplace are just a few causes of business failure.
Starting your own business
Starting your own business can be personally and financially rewarding. However, the commitment required to product development, manufacturing, marketing and global distribution is highly demanding in terms of time, money and risk.
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.
One of the key things to decide is whether you are capable of leading the business through its formative stages. 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 business, you may need to consider recruiting experienced professionals to help you manage the business.
Licensing allows someone to use your idea, trademark, or copyright (or other form of intellectual property) in exchange for money or other forms of financial return. If you decide to use a licensing agreement, you still own the rights to your idea, trademark, 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 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.
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.
The 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 (i.e. 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 exclusive licences is that 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.
To protect against this, engage legal counsel or technology licensing specialists experienced in negotiating and preparing licensing agreements.
Assignment is selling the rights to use your patent, trademark, copyright or other form of intellectual property (IP). If you decide to use an assignment document, you sell the rights to your idea, trademark, 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 several factors, including your intellectual property:
- How strong is your patent, trademark, or copyright?
- How much interest does a business have in your intellectual property?
- Do you have international rights for your patent, trademark, or copyright?
As with licensing, the services of appropriate legal counsel or technology licensing specialists are highly recommended.
- Last reviewed: 02 Aug 2016
- Last updated: 02 Aug 2016