What is Commercialization of IP
Josiah Hernandez
Direct sales
• Direct sales. In the direct sales scenario, the intellectual
property owner handles all aspects of the business.
While the product may be manufactured by the owner
itself or by a contract manufacturer, the owner will be
responsible for the marketing and sales of the product.
After the owner has paid its employees and expenses,
the balance is profit. A newer venture may find it
difficult to hire people with the knowledge and ability
to market and sell the product. However, the benefit of
this option is that the owner has not made a
commitment to another party, so it may change its
direction at any time and pursue another
commercialization strategy.
Sales representative
• Sales representative. The next scenario involves outsourcing sales to
outside sales representatives. Typically, under this arrangement, a
sales representative will take orders, which may be accepted or
rejected by the company. If accepted, the sales representative will
then obtain a commission of 5, 10 or 15% of sales. While 10% is
common, the commission rate will depend on the industry and the
person involved. For the company, the benefit is that it typically
pays commissions out of money already received, so there's no
advance investment. The company is often also getting someone
with knowledge of the area. However, this type of arrangement also
carries drawbacks. Since the sales representative is not an
employee, that person may not be committed to the product.
Furthermore, the representative may be carrying multiple products
such that if another product is selling better or is more established
Franchising
• Franchising. Franchising is a heavily regulated
area. If a company tries to impose a lot of
marketing obligations on its franchisee, it
must look into many of the obligations under
Federal Trade Commission (FTC) or US law.
One indication that a company is operating a
franchise business is if it charges the
distributor for the right to use a trademark
that extends above and beyond the basic price
of the product.
Distribution
• Distribution. In distribution-type arrangement, a
manufacturer sells its product to a third-party
distributor, who resells it to other people. The
distributor will assume some of the risk after it has
taken title to the product. For the manufacturer, it will
be surrendering more responsibility and profit than in
the strategies above. In the sales representative option,
the manufacturer may be offering a 5-15%
commission. With a distribution agreement, the
manufacturer may be selling at a 30-70% discount to
the retail price, with the typical discount being 50%.
Joint Venture
• Joint venture. In a joint venture arrangement, the intellectual
property owner licenses its intellectual property to some party in
which it holds an ownership interest. A joint venture is a separate
entity where an owner may receive money both from owning the
entity and from royalties. The risk is that a joint venture may have a
different corporate culture and goal than the intellectual property
owner. The benefit is that such an arrangement may potentially
shield the intellectual property owner from some liability. Michael
Diener recommended that owners negotiate the intellectual
property license fees at a reasonable arms-length and that they
consider dividends from their ownership interest as an additional
benefit. Owners who rely on dividends as their compensation may
sometimes be disappointed by the results.
Licensing
• Licensing. Typically, the licensee will manufacture and sell the
product, and pay some kind of royalty of 3-6%. In the case of a
patent license, the licensor may be relying on the licensee to
develop and manufacture the product. If the margins are 20%, the
licensor may receive 5% out of that. The ballpark figure is that 25%
of margins goes to the licensor; however, that may depend on
whether the licensor is just transferring the patent and prototype,
or whether it is also contributing some significant know-how or
other technical information, as well as the amount of mark-up that
is typical for that type of product. Licenses may be exclusive or nonexclusive. If an intellectual property owner was contemplating
selling its intellectual property under an agreement that provided
for downstream payments, Michael Diener recommended that the
owner consider an exclusive license instead so that it would have a
better ability to recover intellectual property.
Sale of Technology
• Sale of technology. The sale of intellectual
property is not seen very often, except for the
sale of a product line or the transfer of a
business. If the intellectual property owner
will be receiving an ongoing payment for the
sale, Michael Diener recommended that the
owner offer an exclusive license instead so
that it will have a better chance of reclaiming
the intellectual property if it don't get paid
along the way.
Spin-off and divestigure
• A corporate spin-off, also known as a spin-out or a starburst, refers
to a type of corporate action where a company "splits off" sections
of itself as a separate business.
• The common definition of a spin-off is when a division of a
company or organization becomes an independent business. The
"spun off" company takes assets, employees,intellectual
property, technology, or existing products from the parent
organization. Shareholders of the parent company receive
equivalent shares in the new company in order to compensate for
the loss of equity in the original stocks; thus, at the moment of
spinning off, the ownership of the original and spun off companies
are identical. However, shareholders may then buy and sell stocks
from either company independently; this potentially makes
investment in the companies more attractive, as potential share
purchasers can invest in only the portion of the business they think
will have the most growth.
Spin-off and Divestigure
• A research spin-off is a company that falls into at
least one of the four following categories:[1]
• Companies that have an Equity investment from
a national library or university
• Companies that license technology from a public
research institute or university
• Companies that consider a university or public
sector employee to have been a founder
• Companies that have been established directly by
a public research institution