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How to licence your IP
By licensing your IP, you can give someone else permission to use it in exchange for payment.
What does commercialising IP mean?
If you have a promising idea or technology, you can commercialise it to make a profit and generate value. You can generate the profit yourself by launching the product independently, or work with others to bring the product to market. This may involve assigning, licensing or franchising your IP.
How does it work?
Here's a quick video that explains how to commercialise your IP.
What is commercialisation?
What is commercialisation?
If you have a promising idea or technology, commercialising it will help you make a profit or generate value.
You can generate the profit yourself by launching the product independently, or you can work with others to bring the product to market. This may involve assigning, licensing, or franchising your intellectual property, or IP for short.
Before commercialising your idea, it’s important to secure intellectual property rights in markets that you want to operate, so you can protect it from imitation and prevent competitors from using it in their own commercial activities.
Want to learn more? Check out our Commercialise my IP page.
If you have a promising idea or technology, commercialising it will help you make a profit or generate value.
You can generate the profit yourself by launching the product independently, or you can work with others to bring the product to market. This may involve assigning, licensing, or franchising your intellectual property, or IP for short.
Before commercialising your idea, it’s important to secure intellectual property rights in markets that you want to operate, so you can protect it from imitation and prevent competitors from using it in their own commercial activities.
Want to learn more? Check out our Commercialise my IP page.
What to consider before commercialising your IP
Here's some things to think about before you get started.
Secure IP rights before you go to market
By securing IP rights in markets that you want to operate in, you can protect your idea from imitation and prevent competitors from using it in their own commercial activities. This includes manufacturing and marketing.
By protecting your IP:
- You'll have the right to prevent others from using your idea
- You'll clearly define and differentiate your IP from other assets, including those of potential competitors
- You'll discourage competitors from using the protected IP
- You'll have legal protection against competitors who may infringe on your IP
- You'll help secure investment for your idea, so investors can see that you're serious about your efforts and how they'll make return on investment.
Capitalise on your intangible assets
For investors, intangible assets, such as software data, new inventions and brands, are a marker of future business growth. They're typically scalable, meaning they can be used over and over, by many different people at the same time. However, capturing value from intangibles can be challenging as they're easily imitated.
Evidence shows that, for start-ups, trade marks and patents increase investors’ estimates of their value.
- Trade marks signal that a company is serious about carving out a market niche
- Patents signal a company is well-managed to capture value from technology investments
- IP rights are valuable in attracting interest from investors.
Consider international IP protection
If you're considering taking your idea to overseas markets, you'll need to consider IP protection in each of the countries you plan to deal with.
Choose a business structure
Before you get started, you'll need to choose a business structure to hold and commercialise your IP rights such as:
- Proprietary limited company
- Sole trader
- Partnership.
How to select a business structure
Consider how to finance your plan
If you need financial assistance or other support to fund your venture, you can explore:
- Australian Government R&D Tax Incentive
- Australian Government grants and programs
- Austrade grants and programs
- A 'business angel'
- Crowdfunding
- Private venture capital companies (usually for larger ventures)
- Entering a joint venture
- Inviting a merger or acquisition
- Offering shares in your public company.
How can I commercialise my IP?
There are many ways to get value from your IP.
First, you'll need to decide whether to compete or collaborate with existing market players. Consider if you want to compete directly with them by launching your product independently, or build value with partners by sharing your ideas.
How well you can protect your IP will influence your options.
How it works
You can launch your new product or service independently, and establish your own market presence.
You might outsource some manufacturing but otherwise, you take on the work, the risk and the benefits associated with launching a new product.
Commercialising independently might involve:
- Creating value for under-served customers
- Developing or acquiring the capabilities to manufacture and market your innovations
- Building out the standards and supply chain for your industry.
This might be a good option if your idea:
- Has the potential to displace existing products
- Was created in-house and the business has, or can gain, the capabilities to bring it to market.
Do I still own the IP?
Yes, and you'll continue to be very involved in the IP's journey.
Do I have to pay for the IP?
You'll need to pay for the cost of developing the IP and the future costs of protecting it, such as renewal fees.
When will I start to make money?
You'll see a financial return once you start selling your product or delivering your service.
Risk
There's maximum risk involved, as you're investing in the production of the product or service. If there aren't any sales, you won't see a profit.
Return
The level of return is high if you aren't sharing profit, but you may have limited ability to scale.
How it works
An assignment is the sale of your IP. This involves you transferring the ownership of the IP to another entity, and therefore losing the rights to use the IP.
Do I still own the IP?
No, and you won't have any involvement moving forward.
Do I have to pay for the IP?
The assignee will bear the risk of commercial development, and be responsible for all costs, including renewal fees and production expenses.
When will I start to make money?
Once you've signed the agreement, you'll receive payment for the sale.
Risk
There's minimal risk involved in assigning the IP to someone else. There's no outlay of funds for development or delivery of the idea. Even if there are future sales that come from the IP, you've already received your payment.
Return
You'll receive a guaranteed payment regardless of whether any products or services are sold. However, this is usually at a reduced price compared to what you might make by commercialising the idea yourself, or by licensing or franchising your idea.
How it works
Licensing, rather than selling, is a common commercialisation option. This means giving permission for someone else to use your IP on agreed terms and conditions, through one or more licensing agreements.
Licensing can be an effective strategy when you don’t have the resources or experience to develop and market your product or service yourself.
Typically, each licensee will pay a percentage of their sales revenue to you on an agreed basis.
Do I still own the IP?
Yes, however, your level of involvement will depend on the licensing agreement. If you give someone exclusive licence, then you can't continue to use your idea. If the license is non-exclusive or sole, then you can continue to use it as you'd like, or license it to other parties.
Do I have to pay for the IP?
This will depend on the licensing agreement.
When will I start to make money?
You'll receive royalty payments once the licensee starts selling the product or service. In addition, you may receive milestone payments before the sales begin if they're included in the licence agreement.
Risk
The risk level is reduced as you'll have responsibility for some cost of development and delivery, but if there aren't any sales, you won't receive any royalties.
Return
While the return is reduced per sale as a sharing profit with the licensee, there's a potential for greater overall profit from more sales.
How it works
In a franchise agreement, you give one or more parties the right to use your trade mark or trade name, your business systems and processes.
The licensed rights are used by the franchisees to provide goods or services to agreed specifications.
In return, they pay royalties and fees. Franchisees often contribute to marketing costs for the brand as well.
Do I still own the IP?
Yes, and you'll continue to be very involved in the IP's journey.
Do I have to pay for the IP?
You'll need to pay for the cost of developing the IP and the future costs of protecting it, such as renewal fees.
When will I start to make money?
There are usually three categories of payment that you may receive, including:
- An upfront fee
- Training equipment and business advisory fees
- Ongoing royalties as a percentage of operation.
Risk
The risk level is reduced as the franchisee is responsible for delivery and sales.
Return
While the return is reduced per sale as a sharing profit with the franchisee, there's a potential for greater overall profit from more sales.
How it works
You might decide to set up a new company to commercialise your IP, including:
- An IP start-up — a new entity created specifically to commercialise IP
- An IP spin-off — an IP start-up created by partitioning it off from an existing (parent) company.
It might be advantageous to set up a start-up company, when:
- The IP is highly inventive
- You're working with a research organisation to develop new technology
- You want to be free of the distractions and liabilities associated with established entities
- You want to attract venture capitalists to invest in the development of the IP.
Advantages
- Overcomes concerns about experience and stability, as the parent company offers financial, human and intellectual capital support
- The risks and obligations of commercialising the IP are transferred with the rights.
Disadvantages
- A lack of experience and stability
- How potential investors might perceive it.
Do I still own the IP?
It depends— the IP can be assigned or licensed to the new company. The level of your involvement moving forward will be a discussion for yourself and the investors.
Do I have to pay for the IP?
No, the new company will usually pay for the cost of developing the IP and the future costs of protecting it, such as renewal fees. If licensed, it will depend on the agreement.
When will I start to make money?
When there is an exit and someone buys the company.
Risk
Risk is reduced as the new company burdens the cost of development and delivery of the idea.
Return
There's a high return as the company will 'incubate' your idea. This de-risks the development phase and adds value, making it worth more to the acquirer of the company.
Corporate level options offer ways of deriving value from IP.
Options include a:
Merger
This is a legal consolidation of your business with another to form a single entity
Acquisition
Where an entity takes ownership of another smaller company, especially where the deal is forced upon the company. For example:
You’re an inventor who holds IP as an asset in a small, non-operational company that you own and run for prototyping and demonstration purposes only. When it's time to commercialise the IP, you decide to explore acquisition by or a merger with a larger organisation that has the money or equity to undertake commercialisation.
Joint venture (JV)
This involves two or more entities that agree to collaborate on a new entity without altering the ownership of the original companies. For example:
You want to sell overseas in a market or country that foreigners aren't allowed to enter. You find a local business in that country and set up a JV that allows you to access the new market together. You also benefit from the new partner's local distribution network.
