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Important Considerations When Handling Intellectual Property Commercialisation

Similar to tangible assets, intangible assets such as Intellectual Property (IP) can be leveraged in various ways. While assignment (akin to a sale in the physical world) and licensing (resembling rental for physical property) are the common approaches to IP commercialisation, the potential for monetisation and scaling is even greater for IP. This potential can be fully harnessed through strategic and robust protection and enforcement, taking into account the territorial nature of IP rights.

IP commercialisation involves the transformation of intangible aspects (for example, innovative ideas) into tangible and commercially viable businesses, products or services. It is a process whereby IP owners utilise their IP to generate income, gain a competitive edge, or secure fundings and investments. In essence, businesses can monetise their IP through diverse avenues: using IP to expand into new markets, enhancing product ranges, establishing collaborations and partnerships, and even enforcing IP rights through legal proceedings to seek damages from unauthorised third-party use. 

Achieving successful commercialisation often demands further research and development (R&D), refining innovative aspects, and scaling up production processes before market introduction. Regardless of the chosen monetisation method, the foundational step is identifying, protecting and registering the IP, considering its type (trademarks, copyright, industrial designs or patents), territorial coverage and intended use. While IP prosecution and registration may be time-consuming and costly, they form the essential groundwork for profitable IP commercialisation. 

Each IP right grants exclusive control over R&D outcomes, compelling potential users to seek authorisation from the IP owner. To thrive in a fiercely competitive global market, businesses must not only innovate but also safeguard IP rights, understand their value, gage market demands, engage in effective marketing, and adeptly price their intellectual assets. 

The case of Apple serves as an excellent example of leveraging IP to maintain a competitive edge and achieve business success. Recognised for innovation and design, Apple vigorously protects its IP, creating a brand synonymous with quality and luxury. The perception of superior performance and status surrounding the brand justifies premium prices. By developing a seamless ecosystem encompassing hardware, software and services, Apple fosters customer loyalty and reliance on its IP-protected products. Selecting IP licensing and strategic partnerships generate further revenue streams and exert global influence. 

However, there is no one-size-fits-all approach to IP commercialisation. Variables such as IP type, value, and partner demands necessitate tailored strategies. 

Once IP protection is secured, the subsequent vital step is negotiating an IP agreement. This agreement defines the rights, obligations, and protection for all parties involved, establishing a clear and mutually beneficial arrangement. 

Each IP commercialisation arrangement is unique and while there are common considerations, it is impossible to address all potential issues comprehensively in this article. This article provides a checklist of key considerations, stressing the importance of negotiations, due diligence, and meticulous preparation. No deal should be considered concluded until the agreement is signed.

Key considerations in IP commercialisation agreement include:
  • Proper Commercialisation Vehicle: Identify the appropriate entity with authority to enter into the agreement. It is important to ensure that the assignor/licensor holds the necessary rights to assign or grant the license covered by the agreement. This fundamental step is often overlooked but is vital to prevent future complications. 
  • IP Identification: Clearly define the specific IP assets covered by the agreement, such as trademarks, patents, copyright, industrial designs and/or confidential information and to further define confidential information if necessary.
  • Scope of the Arrangement: Outline the IP rights to be assigned or licensed, specifying exclusivity (non-exclusivity), sub-licensability, geographical scope, field of use, and any reserved rights. 
  • Duration of the Arrangement: Specify the commencement date (which usually, but not necessarily, is the execution date of the agreement), duration, renewal conditions and procedures for renewing the agreement. 
  • Financial Considerations: Address financial aspects of the arrangement, including upfront fees, royalties, revenue-sharing arrangements, payment terms, royalty calculation methods (whether the royalty rate will be based on gross or net income). 
  • Parties’ Obligations and Responsibilities: Define the obligations, the Do’s and Don’ts, milestones, deliverables, key performance indicators and minimum requirements for both parties. 
  • Compliance with Applicable Laws: Incorporate general language to allow flexibility for regulatory changes, while referencing specific laws and regulations relevant to the agreement. It is important to exercise caution when crafting certain provisions that may be perceived as impeding competitions or potentially causing detriment to consumers. Particularly stringent measures, such as exclusive tie-ins, grant-back or resale price maintenance could potentially be regarded as anti-competitive conduct or having anti-competitive effect and may be in violation of Competition Act 2010. 
  • Personal Data and Privacy: With the increased frequency of security breaches and violation of personal data legislation,such inclusion is both necessary and relevant. Ensure compliance with the data protection laws and privacy policies by outlining measures to safeguard personal data, prevent breaches and uphold personal data principles to avoid liabilities under the Personal Data Protection Act 2010. 
  • Acknowledgment of IP Ownership and Enforcement: Such provisions are usually inserted to strengthen the legal position of IP owner and to prevent the former licensee from mounting challenges and attack on the IP ownership post-termination. It is equally important to include a comprehensive provision to outline the roles and responsibilities of each party regarding IP enforcement. 
  • Improvements and Enhancements: While licensees are usually not permitted to make any modifications to the licensed IP without the prior written approval of the licensors, there may be inevitable instances where improvements or enhancements are developed during the subsistence of the agreement. To define clearly what constitutes “improvements”, specify how ownership of such improvements will be handled (whether they will automatically become part of the licensed IP or will they be owned separately by the parties jointly), establish a process for disclosing any improvements and address compensation (or acknowledgements) for improvements made, if applicable.
  • Audit/Inspection Rights: Include provisions allowing the licensor to inspect documents and materials to verify compliance and prevent under-reporting of incomes.
  • Confidentiality and Conflict of Interests: Safeguard confidential information with non-disclosure clauses and restrictions on use beyond the term and/or scope of the agreement. 
  • Representations, Warranties, Indemnity and Liability: Incorporate provisions on representations and warranties to establish trust and credibility and include indemnity clauses and limitations of liability to manage risks.  
  • Termination and Consequences of Termination: Specify termination methods, breach remedies and outline post-termination obligations such as cessation of IP use and return of all materials and de-identifying the premises where applicable.  
  • Governing Laws and Jurisdiction for (Alternative) Dispute Resolution: Specify governing laws, jurisdiction and alternative dispute resolution mechanisms such as negotiations, mediation or arbitration. If it is not feasible to adopt Malaysian laws as the governing laws, it is important to ensure that the agreement is enforceable in the relevant jurisdiction by checking with local counsel. Enforceability and dispute resolution mechanisms vary from country to country.
  • General or Miscellaneous Provisions: Include the often overlooked “boilerplate” clauses such as modification, entire agreement, severability, no waiver, force majeure, notice, execution mode, and which party’s obligation to pay legal fees and stamp duty. 

The checklist serves a general guideline, specifics may vary based on the nature of the commercial transaction.  Unique agreements, like franchise agreements, must have additional mandatory terms, failing which it is an offence under the Franchise Act 1998. Franchising is a form of licensing agreement that enables businesses to expand their business operations without having to reinvent the wheel. The hallmark of a franchise lies in its ability to replicate a particular business model with a proven and successful format.  It operates within a heavily regulated business model overseen by the regulatory authority, namely the Franchise Development and Direct Selling Division of the Ministry of Domestic Trade and Cost of Living. 

While IP protection is critical, enforcement is equally vital to successful commercialisation. Once a new product is launched, competitors may attempt imitation or making a cheaper version of the product, pressuring licensors to enforce IP rights against competitors. 

In conclusion, managing IP commercialisation is a complex task, with success dependent on multiple factors, some beyond an IP owner’s control. However, by understanding and effectively implementing these considerations, businesses can position themselves for profitable IP-driven commercial ventures.