4.3 Commercialisation pathways and vehicles

commercialisation pathways and vehicles include:

  • IP licensing
  • IP assignment
  • start-ups and spin-offs
  • joint ventures, and
  • direct commercial use of IP developed in-house.

The choice of commercialisation pathway and/or vehicle depends on practical considerations broader than legal issues, particularly marketing and manufacturing.

Most universities prefer to license, rather than sell, IP rights to third parties, ensuring that if the commercialisation venture is unsuccessful, control of the IP returns to the university. This is particularly important when the licensee is a new or small company where the risk of failure is high.

The common commercialisation choices for universities are summarised below.

Commercialisation pathway/vehicle Advantages for universities Disadvantages for universities
IP licensing Low expenditure and risk. Retain ownership and significant control of the IP   Administration may require complex auditing of sales  
IP assignment Quick exit, no risk Less profitable. Loss of ownership and control of the IP  
Start-ups and spin-offs Created to suit the IP, free of encumbrances of established businesses   Lack of funding, experience and stability means high risk of failure

IP licensing

The licensor (the IP owner) contracts IP rights to one or more licensees, in return for a share in the related income, paid as ‘royalties’. An up-front non-royalty payment may also be contracted. IP ownership is unaltered.

Many variables may be negotiated for each licence agreement, including whether:

  • IP rights are exclusive to the licensee, or non-exclusive, or sole
  • sub-licensing by the licensee is allowed
  • territorial limits apply
  • limits to the fields of use of the IP apply
  • limits to the avenues of exploitation (e.g. marketing, manufacturing) apply
  • time limits apply (expiry terms)
  • royalty terms apply, and what is the royalty rate
  • non-royalty payments are also required from the licensee, and
  • performance obligations (e.g. development milestones and minimum sales) are imposed upon the licensee.

This pathway requires minimal capital expenditure or risk taking by the licensor, but can still achieve efficient and extensive IP exploitation, while the licensor retains significant control of the use of the IP, e.g. the ability to eliminate non-performing licensees.

The licensor must administer at least the collection of royalties, which may require complex auditing of sales.

IP assignment

IP rights may be sold or given away to one or more new owners, the assignees. Multiple assignees usually need to be in different countries.

Compared to alternatives, this commercialisation pathway may achieve a quick exit but less profit for the assignor, because the assignee must accept all the risks of commercialisation just as quickly, so will negotiate a commensurately low sale price.

For university assignors, a further disadvantage is losing all control of the IP. If the assignee’s business collapses, all commercialisation prospects for the IP and its related value to society are lost.

Start-ups and spin-offs

These vehicles are licensees or assignees created specifically to suit the IP. They have the advantages of being fresh and free of the distractions, liabilities and legal encumbrances of established businesses, particularly regarding choice of directors, shareholders and key employees.

For these reasons, start-ups and spin-offs are often preferred for IP that is likely to be ‘disruptive’, i.e. it will dramatically alter the operation of the relevant market, or create a new market. However, these new businesses may lack funding, experience and stability.

Quick quiz – Q1: Licensing as a commercialisation pathway is potentially an attractive route to market, partly because it involves minimal capital expenditure and risk for them. True or false?

CORRECT: Another advantage of licensing, unlike assignment, is that the university retains ownership and significant control of the IP.
INCORRECT: Try again.

Quick quiz – Q2: Universities can license their IP to only one company at a time. True or false?

INCORRECT: Try again
CORRECT: Licensing is a flexible pathway. Multiple licensees may exist for each of various territories and/or applications of the IP.