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Making Money from Royalties
So you've got an invention but you can't afford to manufacture? Licensing may
be the answer.
It's the solution Sydney firm, Bishop Steering has used to great effect demonstrating
that, when managed well, licensing is a clever means of profiting from intellectual
property without giving away ownership of that technology.
The Bishop group, well known for its power steering technology, currently has
more than 500 patents and patent applications from which it earns more than
$7 million each year in royalties. Ninety per cent of this comes from licensees
overseas and 25 per cent of motor vehicles produced every year incorporate Bishop
technology.
Managing all this valuable intellectual property (IP) is a major component
of the company's day to day business. It's all done in-house and Director Dr
John Baxter says that defending it is an important part of their business.
'We have to be very vigilant about defending our patents. If an inventor or
innovator is perceived as being weak in defending his industrial property in
the market place, that market will walk all over him.'
Since Arthur Bishop set up the firm as a sole trader 40 years ago the company
has developed an extensive and very detailed inventory of its intellectual property
and is now a leader in Australia in managing and profiting from intellectual
property.
'It's an interesting aspect of our business that we literally bootstrapped
ourselves from a fairly low base in the late 1960s,' said Dr Baxter.
'At that time we went out and exclusively licensed our technology to various
companies. Exclusivity generated a higher royalty rate but as our products became
more accepted in the market place, we re-negotiated those licences in the early
'80s, making them non-exclusive. This allowed us to substantially broaden the
user base of Bishop technology.'
'The most important strategy we've developed over the years to protect that
property is a layered IP structure which protects not just the product, but
the process,' said Dr Baxter.
This means covering the whole gamut of protection techniques using what lawyer
Sharyn Ch'ang refers to as a ten point best practice IP Management Methodology.
She says that to capitalise on investment in research and development, or their
creative pursuits, intellectual property owners must:
- identify all the IP they own
- record appropriate details about those assets in an IP asset register
audit it periodically
- protect it wisely, using the most appropriate legal mechanisms available-not
all necessarily expensive
- value each IP asset and reflect this in the balance sheet
- to ensure commercialisation of new IP does not expose the company to risk, clear
any new products and processes before marketing
- commercialise the property-there are numerous ways to do this including new
marketing methods available through the Internet
- attribute ownership of IP so that others know who owns it
- enforce their rights when they are infringed or threatened
develop and adhere to corporate policies and practices about handling and managing
IP.
Ms Ch'ang, Principal Consultant on Intellectual Property and Technology Management
with the Sydney law firm Gilbert & Tobin, says that taking a strategic approach
to managing intellectual property is the only sure way of using the IP protection
system to commercial advantage.
'The time and dollars spent on adequately protecting IP is the best business
insurance you can have. However, protecting the assets is not an end in itself.
One's real commercial objective is to exploit the assets to generate revenue
and to maximise profit and success, a strategic approach, encompassing all the
elements above, is needed.'
'Your ability to commercialise your idea is only as good as your patent and
your patent is only as good as your invention so before spending a lot of money
on manufacturing or marketing, it pays to search the Prior Art to be sure your
invention is novel,' said Dr Baxter.
'The inventor is the best person to carry out the initial database search and
if you don't spend at least two or three days doing this search yourself you
haven't been thorough enough.'
'After this it's best to employ a patent attorney to carry out a more exhaustive
search to find out whether or not your idea is truly inventive. If it is and
there's money to be made, the next step is to have your patent attorney draft
and file an Australian Provisional Patent Application.'
Dr Baxter advises inventors to be careful about who they talk to.
'Before filing a patent application, its very important that you don't disclose
your idea to a third party or in any way publish your idea. This immediately
invalidates any patent you might have taken out on it.'
'It's also important to get in early. We use the Australian Provisional Patent
Application system to get the earliest possible priority date for our inventions,
making sure, of course, that we make full disclosure of our inventions. Full
disclosure is particularly important if we ever need to protect our patent in
overseas jurisdictions.'
Licensing your invention can be a sound tactic when you can't afford to commercialise
it yourself, or you need help to tackle the competition. It also works well
for firms who need assistance with manufacturing or with entering overseas markets.
Bishop licenses some the largest automotive manufacturers and component suppliers
in the world including Ford Motor Co, ZF, Mercedes Benz Lenkungen, Koyo Seiko,
JKC and TRW Australia. This Australian company demonstrates just how successful
a company can be using licensing as a means of exploiting intellectual property.
Rather than manufacturing its innovative steering systems it licenses this technology
and invests the income in further research and development.
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