Intellectual Property Rights have been given protection by nations due to the commercial value they have not only for their owner but also for the nation. An economy strengthens on the basis of two important components pertaining to Intellectual Property Rights, they are the Intellectual Property (hereinafter ‘IP’) vesting in the nationals of a country and the enforcement mechanism to protect the same which should be robust. However, to ensure the same, the ‘IP’ has to be commercially exploitable so much so that it gives maximum returns. In this article, we will try to assess the different ways and methods through which ‘IP’ Rights can be commercially exploited and what could be the possible challenges in different modes of commercialisation.
‘IP’ is generally recognized as a property created by one’s intellect. However, it is not necessary that an ‘IP’ is created only by utilizing one’s intellect on the inherent creation. It can also be created where certain efforts have been made to further develop an already existing creation. For example, a descriptive mark can become a strong Intellectual Property, if it attains consumer recognition. Example could be 7 ELEVEN.
Further, a product which otherwise could be ordinary, may become popular and have uniqueness associated with it, if it is made to best quality by utilizing the geographical conditions of an area or a method of manufacture unique to that area.
In any event, ‘IP’ is developed to commercially exploit the same so as to derive maximum returns. ‘IP’ can be self utilized by one’s own business, can be sold by way of assignment or can be licensed so as to monetize over a period of time while retaining ownership. However, all these modes have their own peculiarities, challenges, issues and benefits.
Types of Intellectual Property Rights
The Agreement on Trade-Related Aspects of Intellectual Property Rights, 1995 (hereinafter referred to as ‘TRIPS’), which is the most comprehensive multilateral treat on Intellectual Property Rights recognizes seven kinds of Intellectual Properties being:
Copyright and Related Rights
Copyright is a right given to creators/owners of literary, dramatic, musical and artistic works and producers of cinematograph films and sound recordings. It is a bundle of rights including, inter alia, rights of reproduction, communication to the public, adaptation and translation of the work.Related Rights are Rights of Performers and of Broadcasting Organisations.
Trade mark can be a word, logo or other sensory symbol used by a manufacturer/seller to distinguish its products or services from others. It may consist of virtually any form of sign. The main purpose and economic significance of a trade mark is to designate the source of goods or services. In effect, the trademark is commercial substitute for one’s signature.
The uniqueness about certain products is the link between their quality characteristics and the attributes of the region where they are being produced. Economically, these are valuable assets as they are able to acquire a high reputation and higher premium. “Geographical Indication” indicates that a particular product is coming from a particular geographical area.
The industrial design recognizes the creation of new and original features of new shape, configuration, surface pattern, ornamentations and composition of lines or colours applied to an articles which in the finished state appeal to and are judged solely by the eye.
Patents are granted for inventions. For protection, an “invention”, must be (1) new; (2) capable of being made or used in an industry which (a) entails technical advance over existing knowledge; or (b) has an economic significance and (3) is not obvious to a person skilled in the Art.
Layout-Deigns (Topograhies) of Integrated Circuit
The IP is the Design of the original Layout of Semi-Conductor Integrated Circuits.
Undisclosed Information refers to protection of Trade Secrets and Confidential Information. Trade secrets are a type of Intellectual Property that comprises of formulas, practices, processes, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, and which the owner takes reasonable measures to keep secret.
Need for effective Commercial Exploitation of Intellectual Property Rights
Historically, the sources of strength of a business were its tangible assets. Today, however, more and more businesses rely for their competitive strength on their intangible assets, especially on trademarks, inventions, trade secrets, copyright, designs, and the like. Commercialisation can be defined as the process of turning an invention or creation into a commercially viable product, service or process. To obtain commercial returns from IP, certain conditions must exist such as the existence of a customer or the ability to create customers and an entity controlling the manufacture and sale of the resulting products.
IP Rights, except for Trade Marks and Geographical Indications are of a limited duration and hence a robust strategy for their Commercial Exploitation is required so as to reap benefits before they fall in public domain. Further, an efficient commercialisation of IP rights ensures generating revenue for owner of Intellectual Property and its business. Consequently, it also ensures better revenue for the government and aids towards a stout National economy.
Effective commercialisation of IP can be demonstrated from the example of “Moki Doorstep”. Around 2019, a couple sold their entire business for Three Million US$ purely on the basis of their Patent and a potential licensing arrangement with a car roof rack Company. The assignors had no interest in running the business. The product was a Doorstep which could attach to the u-shaped latch in vehicle’s open door so a person can reach the roof easily. Images of the said product and its usability are provided herein:
This demonstrates that effective commercial exploitation of an Intellectual Property, leads a person to reap exponential benefits. Further, in some cases, one can say that the IP was not commercially utilised to the best possible extent by the creator. The Nike swoosh logo was sold to Nike by the creator for just 35 US$ in 1971.Though, voluntarily Nike paid a huge sum to the creator later when the business boomed. However, if the creator would have just taken a point zero one percent royalty on total revenue, his earnings would have been in millions every year.
Modes/Methods of Commercial Exploitation of Intellectual Property Rights
An Intellectual Property Right can be exploited in number of ways, which are to be chosen depending upon the nature of the Intellectual Property, the market, the value of the Intellectual Property. The different modes or methods which can be utilized by an Intellectual Property owner are provided herein after.
Direct Commercial Exploitation of Intellectual Property Assets
As the name suggests, direct commercialisation is the utilization of the concerned Intellectual Property by owner itself in the business. In this form of exploitation the owner produces copies of the products covered by the Intellectual Property itself and sells them.
The major investment after creation of the Intellectual Property to bring it to the market is by the owner itself. The owner takes efforts to exhibit the works in exhibitions, fairs, online and reach the consumer. The owner by itself takes action against the infringer. This form of exploitation ensures quality control as well as the reach of the product within the hands of the owner. However, this method involves high costs as well as risks.
Indirect Commercial Exploitation of Intellectual Property Assets
In this method, the Intellectual Property is exploited through other parties wherein the Intellectual Property owner enters into contracts with these third parties for commercial exploitation of Intellectual Property. The advantages of such a method are that the investment of the owner is limited and the potential return can be huge. However, in such a system, the owner lacks control and thus special provisions have to be created in the contract to ensure quality of the product/service and also the control exercised by the owner. Indirect exploitation can be in the form of Assignment of the rights or license of the rights. It applies to all sorts of Intellectual Properties except Geographical Indications is a public property belonging to the producers of the concerned goods. This method can be utilised for whole of the Intellectual Property Right or part of it.
Assignment as a method of commercial exploitation is complete transfer ownership of IP rights in favour of the assignee. In layman’s language it can be construed as sale of IP. In case, of Companies, transfer could also be by mergers or acquisitions. However, it may be possible that the IP owner has multiple Intellectual properties or multiple rights in one Intellectual Property. In such a case, if the IP owner assigns a limited right in the Intellectual Property, the ownership of only that right vests with the assignee. Thus, assignment can be complete or in part. They are perpetual in nature as the assignor for life transfers its interest in the relevant IP. There are multiple advantages of Assignment such as:
- In case of assignment, the IP owner gets the value immediately without having to wait for years to realize the monetary returns;
- Any future risk in business is minimized on assignment of the business;
- The assignor need not to further maintain or worry about post registration requirements of the IP; and
- Assignor need not keep a tab on assignee’s exploitation actions.
At the same time, assignment also has certain disadvantages such as it is difficult to negotiate the consideration. Additionally, assignment does not provide an opportunity to partake in additional profits if the invention turns out to be more valuable than anticipated.
While choosing assignment as a method to commercially exploit an IP, the owner should consider the following aspects:
- Whether the owner intends to get involve in litigations pertaining to protection of IP?
- Whether the owner is interested in future involvement with IP?
- Is IP protectable over a large period of time or the IP or market are of such a nature that monetary returns over a period of time will outweigh the consideration of the assignment?
- Is the retaining of IP best suitable approach to utilise the IP in line with business’ objectives and its synergies?
If the answer of the above questions is in the negative, the owner should exercise the option of Assignment of IP.
Licenses allow owners of IP to utilise the IP in a controlled manner and to receive revenue over a period of time. An IP for example is licensed when the owner of the IP grants permission to one or more entities to use the IP in a controlled manner by way of a mutually agreed contract. In licensing, the ownership in the IP remains with the licensor. This is akin to a landlord retaining ownership when letting out physical property. If a suitable licensee is found, licensor can ensure securing a secure source of income while minimising costs and risk. There are mainly three types of licensing arrangements. A license may be exclusive, sole or non-exclusive.
License is given to one exclusive person who has the right to use the IP, which cannot even be used by the owner. In case of exclusive license the up-front payment and/or royalty rate is usually higher for an exclusive than a non-exclusive license. An exclusive license is more valuable than a non-exclusive license because it means that others, including the owner, do not have the right to exploit the IP. In an exclusive license, it is only necessary to monitor the performance of one party.
Sole license permits the licensee to work the IP. It prevents the grant of additional licenses. However, permits the owner to also work the intellectual property.
In case of non-exclusive license the owner retains the right to exploit the licensed property. In this case, owner grants license to multiple third parties. When there are multiple non-exclusive licensees, the licensor will have the burden of monitoring the performance of each one.
Licensing as a tool for commercial exploitation of IP is one of the most sought after and has multiple benefits, which are enumerated herein below. Benefits of Licensing are:
- Is a source of continuing revenue for the Licensor;
- Expands customer awareness and reach of the IP;
- Licensing overseas helps to overcome the barriers involved in negotiating local government regulations and allows those who are familiar with local markets to maximise returns from the licensed product;
- A license (exclusive or non-exclusive) may ultimately deliver more money than an assignment; and
- Infringement/revocation proceedings are avoided, especially where a potential licensee is already selling a possibly infringing product.
It is not as if licensing does not have its own challenges. There are certain disadvantages of this mode, which are enumerated herein below.
- In the case of a non-exclusive license where there is an infringing third party, the IP owner would be responsible for commencing an infringement action.
- The performance of a licensee may be difficult to monitor: Licenses require constant attention and diligence to ensure effectiveness.
- In case of exclusive license, the IP owner cannot grant licenses to other parties and cannot itself the IP by itself. Thus, if the exclusive licensee is not chosen effectively the value of the IP may diminish or not entail deserving returns.
Another method of Commercial exploitation of IP is effective litigation strategy. Sometimes, despite the IP owner’s best efforts, the IP does not entail the deserved revenue on account of score of infringers in the market. In such a situation, the IP owner should strategise a robust litigation strategy and enforce its IP rights and seek injunction and damages against the infringers along with cost of litigation. This will ensure that despite non-effectiveness of other modes of exploitation, the IP is being commercially exploited to earn revenue.
Litigation also helps in clearing the market from infringers and increasing the revenue of the IP owner post litigation. In multiple cases of software infringement, the infringers end up taking genuine licenses from the owners of IP. In addition to actual damages and cost of litigation, the Courts also additionally grant punitive damages. Therefore, in some cases the owner of IP can monetize the IP more effectively through litigation than other modes of commercial exploitation.
Some specialized forms of Licensing
Generally licensing entails utilization of the IP for the limited purpose for it was created and for one license for one intellectual property. Over the course of development of trade, certain specialized forms of licensing have evolved which go beyond the traditionally recognized form of license. The same are provided herein after.
Franchising is a specialized license where a franchisee is allowed by the franchisor in return for a fee to use a particular business model, its IP including know how, confidential information, business methods, trademarks, copyright, designs etc. supported by training and mentoring. When a business model is successful and replicable at other locations, permitting interested third parties to set up independent businesses based on a proven business model, along with its IP has proven to be an enormously successful and rapidly growing trend.
The licensing of trademarks, designs, artworks as well as fictional characters (protected by these rights) and real personalities are broadly referred to as merchandising. Allowing manufacturers of ordinary consumer goods such as plates, mugs, towels, caps, key-chains, tiffins, stationary, clothes, to name a few, to apply on their products the trademark and copyright of another immediately adds appeal to an otherwise commonplace object and a means of distinguishing themselves in the market place leading to higher sales and revenue.
Through a trademark licensing agreement, a company may team up with another who may be provided with the right to apply the trademark on a new product. For example RAZOR Scooter USA, a manufacturer of children scooters entered into a licensing agreement with Motorola, a manufacturer of mobile phones, to use the RAZR trademark. By this agreement Razor USA successfully extended their use into phones.
Two or more reputed trademarks, not necessarily with the same level of reputation may join together in one product creating a new appeal to the same clientele or break into a new market. For example, Paytm offering Uber free rides and food coupons.Co-branding can be an excellent way to grow a company without having to make a major investment in resources or create expensive marketing campaigns.
It creates a best of both worlds relationship where each business benefits from the reputation, image, and customer base of the other. However, co-branding is not an end all be all solution and should be executed with caution.
Component or Ingredient Branding
A product may license the right to use the trademark or a patented technology or computer software of an ingredient. This in itself influences consumers towards that product. One of the examples could be, computers with the Claim ‘Intel Inside’.
In patent law, a cross-licensing agreement is an agreement according to which two or more parties grant a license to each other for the exploitation of the subject-matter claimed in one or more of the patents each owns. Usually, this type of agreement happens between two parties in order to avoid litigation or to settle an infringement dispute. Very often, the patents that each party owns, covers different essential aspects of a given commercial product. Thus by cross licensing, each party maintains their freedom to bring the commercial product to market. Co-branding can also be said to be a type of cross-licensing for trademarks.
At the end of it all, the way the owner of an IP wants to commercially exploit the IP is based on multiple factors such as whether the IP is strong or weak, whether it could be successfully protected against knock-offs, how relevant or important it is for the consumer, what is the duration for which the protection exists, the extent of market for utilisation of IP etc. Therefore, it is not an easy decision to make and has to be taken by keeping in mind multiple factors. Thus, it should be imperative upon the assignor, assignee, licensor, licensee or any other party to a contractual agreement of commercial utilisation of IP to ensure a thorough due diligence of the IP to do its Audit and reach to the correct valuation of the IP. This would create transparency between the parties and lead to a healthier contractual relationship. IP needs to guarded vociferously and should ensure that maximum benefits are reaped out of it till it falls in public domain. The contracting parties should thoroughly negotiate their inter se agreements to avoid any pitfalls towards commercial exploitation of IP.
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