How to Make Money with Your Intellectual Property Licence
So, you have an idea, invention, design or concept that you’ve registered under Intellectual Property Rights, but now you’re not sure how to cash in on that idea? Read on to discover just how easy it is…
What is Intellectual Property and why should you license it?
Intellectual Property (IP) refers to a unique idea, knowledge, invention, trademark, design, logo/brand, concept, the application of something or similar that you have created or thought up. To protect your Intellectual Property, it’s highly advisable to apply for IP Rights, so that you can claim ownership and prevent others from using your IP without permission. It will also allow you to license your IP so that you can charge a fee for its use.
Under an IP Licensing Arrangement, you are giving somebody permission to use (but not own) your IP in exchange for royalties. These royalties are called ‘consideration’.
Licensing Arrangements are an extremely important tool for protecting your rights. If you don’t set up your arrangement properly and follow through with consideration, you may find that your contract isn’t enforceable.
Types of IP
- A Copyright:
- Writing, such as books, articles, manuals, computer software, theses, and dramatic works.
- Music and composition
- Original image and video recording, such as photography, film, DVD, CD-ROM
- Original Artworks
- Surveys, questionnaires, forms
- NOTE: A copyright protects against copying, NOT against ideas themselves. Unlike other forms of IP, a work is protected under copyright as soon as it has been produced – it does not need to be registered.
- A Patent:
- Products or processes
- Development of new technology or an aspect of it
- Development of a drug or medical treatment
- Development of a breed (genetic modification) of plant, animal or microorganism (also see Plant Variety, below)
- A Design:
- A design that can be used to produce a two or three-dimensional item – such as a drink bottle design, for instance – and that will be used in mass-production. This form of IP rights only protects the design itself – not its function.
- A pattern or ornamentation that will be used in mass production.
- A Trademark:
- Names or logos that are associated with products or services of a business or company.
- A Plant variety:
- A new breed or genetically engineered plant strain – such as one that has a larger than average yield or that’s disease resistant – that a breeder has created.
- A Trade secret:
- Confidential information, strategies, processes, ideas or concepts that are made under a confidentiality or non-disclosure agreement.
Consideration for your IP
When you choose to sell the rights to your IP for others to use or share, you obviously want to gain a benefit from this. A consideration under an IP Licensing Arrangement can be anything of value to you, such as:
- A regular (monthly, for example) monetary fee paid to you
- A royalty payment generated from the sale of a service or product related to your IP
- Shares or beneficiary payments under a trust.
- An exchange for something else of benefit or value to you, such as free lifetime supply or usage rights of the end product/service related to your IP
So, one party in a Licensing Arrangement agrees to give you something of value, in exchange for your promise to supply your IP, and this is referred to as Valuable Consideration. As an example, imagine a packaging designer – let’s call him Mr Doe – has created a new type of packaging specifically for chocolate milk, for which he gains IP Rights. Mr Doe knows his design is great, so he presents it to a dairy company, who agree his product is amazing and want to use it. Mr Doe and the dairy company discuss and agree upon a value for the use of the IP (e.g. a set monthly fee), then they all enter an arrangement outlining the considerations, rights and responsibilities of each party.
Besides outlining the general exchange of the IP for a set fee, Mr Doe’s arrangement may – as an example – contain a clause stating that the dairy company can use his idea or knowledge, but not copy it or sell it on. Then again, it could include a clause that allows the dairy company to sublet the IP to others. Mr Doe and the dairy company might even decide to negotiate an exclusive licence, which would prevent Mr Doe from licensing his IP to other companies in Australia and/or internationally, but may result in a larger consideration paid to Mr Doe.
There is a plethora of clauses, restrictions or allowances that could be added to an arrangement and this will depend upon the needs of the parties involved. Each Licensing Arrangement will be different and it’s up to you to determine the terms of your own arrangement; however, a Licensing Arrangement should include a minimum sales clause to ensure your royalties are maximised, as well as a method of termination, so that you’re able to license your IP out again.
It’s worth noting that an IP Licensing Arrangement can also be used to form part of an asset protection strategy. For example, a company who owns an IP can license the IP to another company consisting of just a trading name, bank account and not much else. If something goes wrong and the second company is sued in relation to the IP, the first company is insulated from liability!
How much consideration should I be earning?
Consideration under an IP Licensing Arrangement will generally net you a modest percentage of the value of the end product or service This may at first seem insufficient – even insulting; however, you need to consider the associated costs of materials, production, transportation, distribution, advertising and other costs that go in to making a product or providing a service. Because patents only last around 20 years, it’s important to be reasonable when accepting an IP Arrangement, as 20c per item produced is better than waiting for that lucrative deal and earning nothing in the long run! As long as you think carefully before agreeing to anything and ensure your contracts are thorough and professional, you’ll have no trouble getting your IP out into the world!