Spin offs are another way to commercialise your intellectual property (IP) and create new economic value. Spin offs are also a fundamental link for technology transfer between university research and industry.
The creation of a spin off is a complex process. It requires the development of a separate business with allocation of IP rights, project and risk management and, in certain circumstances, fundraising to attract investors.
Setting up a spin off
Before setting up a spin off it is important to:
- draft a business plan identifying goals and suitable actions
- set up a spin off management plan consistent with the overall parent organisation’s IP strategy
- guarantee that the parent organisation is entitled to use the relevant IP (ownership or licence rights)
- define an expected financial return
- prepare an exit plan.
A conventional spin off company can be set up in two ways:
- A new company is created from a parent organisation that contributes financial, human and intellectual capital. The aim is to further develop and commercialise the IP created at, and assigned by, the parent organisation. Together with the relevant intangible asset, the parent organisation also transfers the obligations and risks of commercialising the IP.
- A spin off can also be a company established, usually by a person external to the parent organisation, with a view to exploiting the licensed intangible asset. This encourages interested venture capitalists to invest in the development of the IP created by the organisation. This type of company is also referred to as a ‘start-up’.
Managing the IP in a spin off
There are several activities to be carried out, and agreements to be prepared, to manage the IP in a spin off. These include:
This activity should be carried out independently from the type of spin off. Due diligence helps investors to understand the ownership of the IP and any obligations affecting it (for example, research contracts, granting conditions or third party alleged infringement). Doing IP due diligence helps to tidy up your intangibles.
Showing your IP to potential investors is risky. All your ideas, know-how, description of inventions, chemical formulas and research information may be the object of negotiating discussions. In order to ensure the safety of your valuable assets you should consider creating a non-disclosure agreement before starting negotiations.
Employment contracts should cover all issues related to the ownership of any IP created by employees or researchers in their work. This is particularly needed for those spin offs that will act as a scientific research and development company of the parent organisation.
When the research organisation’s IP is assigned to the spin off, the research organisation retains no property and has to comply with its contractual obligations outlined in the assignment agreement.
When the research organisation decides to license its IP assets to the spin off company a licence agreement must be created. By licensing its knowledge, the research organisation will remain the owner and have a certain degree of control over the IP generated by the spin off. The licence agreement must outline the licence conditions, including how the licence will be paid (whether in a lump sum or as royalties).
Things to consider when creating a spin off
- Is the assignment or licence to be under a lump sum or royalty payment?
- Is the research organisation’s financial return only based on its shareholding?
- Will rights be granted on improvements made by using the transferred IP?
- How will inventors be compensated?
- Will the research organisation retain licence rights for teaching and research purposes?
- Can the spin off use the research organisation’s trade mark/s?
- How will IP-related conflicts between the spin off and research organisation be addressed?
- Who is responsible for spin off negotiations?