Commercialising intellectual property (IP) is about getting your products or services into the market. Your commercialisation strategy depends on many variables:
- your individual circumstances
- business capabilities
- competitive environment
- access to finance.
The role of IP in commercialisation
IP is a novel creation of the mind – a new idea or invention – that is commercially (or artistically) useful.
Commercialisation of IP means extracting value from the IP by marketing a new product, production method, or service based at least partly on the IP.
IP is an important intangible asset that can complement the tangible assets of your business – e.g. money, machinery or real estate – and the uncreative (non-IP) intangible assets – e.g. a list of important potential customers or staff expertise.
IP can help a business to do better than it otherwise would, or it can kick-start a new business.
The role of IP protection in commercialisation
Because it’s a novel creation, IP can be clearly defined and differentiated from other assets, particularly those of potential competitors. The right to use the IP can be protected for the benefit of the IP owner – initially, the IP creator or his/her employer.
IP protection can reduce the risks of commercialisation by deterring competitors from using the protected IP.
Initially, protection can come from keeping the IP a secret. An example of this is Coca-Cola using trade secrets to keep its formula from becoming public. IP secrecy is also important if you intend to file for a patent or design. Subsequently, legal protection is available as a valuable alternative to secrecy.
Creativity and innovation in IP can greatly benefit society and attempting to keep it secret during commercialisation may have some practical limitations. Legal protection provides competitive advantages to IP owners, without any need for secrecy, and prevents competitors from using the IP in manufacturing, marketing or application in specified countries for a specific period of time.
Commercialising a new product or service is typically a journey of many steps comprising a ‘route to market’ or ‘commercialisation pathway’.
Examples of steps towards commercialisation (not necessarily taken in this order) include:
- sourcing a commercialisation opportunity, e.g. by accessing clear legal rights to existing IP
- defining and documenting the IP and its related commercial opportunities
- evaluating the IP to determine if the risks of commercialisation are worth taking
- establishing a legal business structure, at least for the first stage of commercialisation
- filing for IP protection
- preparing a detailed commercialisation plan
- sourcing funding
- developing the product or service to a marketable level
- building capability for manufacturing (if applicable), sales and marketing.
On the commercialisation pathway, several steps may be taken simultaneously, some may be skipped, and some repeated. The most appropriate steps and their best sequence depend on the specific IP involved and require careful consideration.
The ‘commercialisation strategy’ is the overall plan of action designed to achieve the long-term aim of the commercialisation venture. It guides, and interacts with, the considerations involved in choosing the commercialisation pathway.
This strategy is usually critical to the prospects of the venture. It may be adapted as needed. Often, a dominant part of the strategy is the marketing strategy.
Questions to consider when determining the strategy include:
- how does my proposed new product or service fit with the established core business interests of the venture participants?
- who will want it, and why it instead of an alternative? (i.e. what is the ‘business proposition’?)
- how, where and by whom will it be sold?
Example: ‘First to market’ strategy
A simple example of a commercialisation strategy is the ‘First to Market’ approach, or ‘First-Mover Advantage’. This strategy is chosen when the venture is confident that it can enter and capture a new, lucrative market before competition can develop sufficiently to challenge its dominance. Continued commercial success may depend on having an established presence in the market and a respected brand – being the ‘original and best’.
Successful examples of this approach include eBay (the first online auction service), Kleenex (the first packaged facial tissues) and Amazon (the first online bookstore).
This ‘first to market’ strategy may be an effective option if the IP can only be kept a secret for a short period of time, it has a short effective lifespan because it exists in an industry that’s rapidly evolving or if it doesn’t meet the inventive step required for a patent.
Many other commercialisation strategies exist and usually relate to the choice of ‘commercialisation vehicle’.
Commercialisation vehicles and business structures
You need to determine how legal rights to the IP will be held and conveyed during commercialisation. The commercialisation vehicle or business model refers to this manner of conveyance and relates to practical considerations broader than legal issues. Examples of commercialisation vehicles are licensing and franchising.
By contrast, the concept of a business structure refers to a purely legal (including tax-legal) entity.
A business structure is a category of entity that is legally recognised by, and defined by, a government authority. Any business structure applies only in a specific jurisdiction (e.g. a country). Each venture participant may be involved in one or more business structures, or all venture participants may be covered by a single business structure.
In Australia, a common choice of business structure for small-to-medium IP ventures is a type of private company known as a proprietary limited (Pty Ltd or P/L) company.
The choices for the commercialisation vehicle and the business structure(s) are closely related and interactive. A vehicle can be altered and several types may be used simultaneously during commercialisation. As your business grows and changes you may also decide to move to a different type of structure, however you need to be aware of the differences and obligations for each.
If you’re considering entering a global market, you should consider where you would generate the best returns and whether you have the resources to successfully commercialise in, and supply to, countries outside of Australia.
Before entering a foreign market, it’s important to ensure your IP is protected in the relevant country.
It’s also important to understand IP protection in the country you would like to establish your market position to ensure you don’t infringe on existing IP in that country.
Next step to consider: decide how to source and protect your idea.