Table of contents
- The assignment of an IP right
- Licensing agreements
- Franchising agreements
South-East Asia is a thriving market with the fifth largest economy in the world (a combined GDP of USD 3 trillion in 2020) and 661.8 million people (the third largest population in the world after China and India). The region has witnessed comprehensive digital transformations in various fields: digital infrastructures (e.g. 5G and data centres); artificial intelligence (AI) and robotics; additive manufacturing; the industrial internet of things (IoT); and smart factories. The enthusiastic adoption of digitalisation makes the region a promising destination for foreign companies, and engaging with new markets and partners may appear to be an easy undertaking. However, accessing a new market (i.e. outside Europe), is usually very challenging for a small or medium-sized enterprise (SME) and there are many obstacles that prevent internationalisation from being a smooth process (cultural differences, language barriers, specific local business practices or legislation, etc.).
The Association of Southeast Asian Nations (ASEAN), in their 2019 Handbook on IP Commercialisation: Strategies for Managing IPRs and Maximising Value, correctly observed that, ‘IP Commercialisation is the process of bringing the IPRs [IP rights] to the market in order for them to be exploited in return for business profits and growth’.
Indeed, it seems that IP commercialisation might be the best way for SMEs to quickly and safely develop their activities in new markets. However, before you being able to commercialise your IP, the first step is to establish which IP rights (such as patents, trademarks, industrial designs, copyright and related rights, trade secrets) are suitable to protect your intangible assets and to identify any IP rights your company may already hold (both registered or non-registered rights). IP commercialisation encompasses actions taken either by the IP owner or by third parties (with the IP owner’s authorisation and in exchange for monetary compensation).
In this this article, the South-East Asia IP SME Helpdesk will discuss several techniques for IP commercialisation that are frequently used in the South-East Asian market.
Are you a European SME or start-up doing, or willing to do, business in South-East Asia? Check out the FREE IP services offered by the South-East Asia IP SME Helpdesk.
1. The assignment of an IP right
The assignment of an IP right refers to the transfer of ownership of a specific or several IP right(s) from the transferring party (the ‘Assignor’) to the receiving party (the ‘Assignee’). In other words, you agree to transfer your IP right(s) partially or totally through a specific contract (usually called a deed of assignment), and a fixed price should be agreed between the parties for this transaction. Upon the execution of the contract, the Assignee becomes the new owner of the IP right(s).
The assignment of an IP right may be useful when an IP owner does not have enough resources to exploit their assets and they can receive an immediate payment from the Assignee. However, it is worth noting that, once the deed of assignment has been executed between the parties, the Assignor will have no further rights to the commercial benefits of the IP rights mentioned in the assignment, or the ownership of such rights (in case of a total transfer of ownership). Thus, when negotiating a deed of assignment, an IP owner should always think carefully about: the legal consequences; the impact such transfer of ownership may have on the products or services offered by the company; and if the compensation matches the value of the asset(s) in question.
2. Licensing agreements
Under a licensing agreement, you (as a ‘Licensor’) retain the ownership of your IP right(s) and grant permission to a third party (the ‘Licensee’) to use your IP right(s), or only part of it, during a specific period of time in a fixed geographical territory in exchange for a lump-sum payment and/or royalties (use-based payments). Common types of licences are:
- Exclusive licences. You agree not to grant any other licences regarding the IP right(s) referred to in the agreement, as well as not to use them yourself.
- Sole licenses. You agree not to grant any other licences regarding the IP right(s) referred to in the agreement, but you retain the right to use them yourself.
- Non-exclusive licences. You agree to grant a Licensee the right to use your IP, but you also reserve the right to grant the same licence to other third parties or to keep using it yourself.
Licensing is an advantageous option when an IP owner wants to keep a certain amount of control over their assets. This IP tool allows you to draw a steady income from your IP rights during a specific period of time and to possibly negotiate similar contracts with new Licensees. However, potential risks exist and should not be overlooked. For instance, you could lose control regarding the use of the licensed IP rights if the Licensee attempts to exploit them after the termination of the licence.
3. Franchising agreements
Franchising is a special form of licensing that enables the proven/established business model of a company (the ‘Franchisor’) to be used in different geographical locations by third parties (the ‘Franchisees’). A franchising agreement may involve various types of IP rights and other types of intangible assets that allow the Franchisee to operate within the Franchisor’s business concept/model.
Franchising enables you (as the ‘Franchisor’) to benefit from the Franchisees’ local resources and expand your activities with little investment (the financial risks are usually borne by the Franchisee), and is quicker than setting up a new business yourself. Saving on initial investment costs may sound attractive, however a Franchisor needs to closely and regularly monitor the operations of the Franchisees. This should involve verifying that certain quality standards are being met so that the Franchisor’s reputation is protected, and verifying that the IP rights covered by the franchising agreement are used in accordance with it. Without a comprehensive monitoring process, the Franchisor may risk losing control of the franchised products/services within even a short period of time. A brand’s reputation and revenues can be severely affected as a result.
Selecting the appropriate tool/technique (or several tools/techniques) for IP commercialisation often depends on the IP rights you hold, your target markets and your strategic growth planning. For all the above-mentioned options, the process usually involves a number of rounds of negotiation and requires crucial information to be shared between parties.
More importantly, two crucial steps must be taken before you start to implement an IP commercialisation process:
- the execution of non-disclosure agreements (NDAs) to protect any confidential and valuable piece of information (either internally, with the employees of the company, or with third parties);
- performing due diligence / IP audits on your assets and on the assets of any potential future partner (with the help of a specialist you will be able to obtain a clear and up-to-date list of IP rights and discover any past or pending IP litigation).
Any agreement involving the use, or the ownership, of IP rights must comply with the applicable laws and regulations in the country in which the IP rights are protected. Recording a deed of assignment, or a licensing or franchising agreement may be mandatory in some countries or may simply be in line with local practice. In any case, recording an agreement involving IP right(s) with the local IP office is highly recommended (even if it is not mandatory), as this simple step allows third parties access to such information and keeps the databases of the IP offices updated. Some countries in South-East Asia (such as Cambodia, Vietnam and Indonesia) require a deed of assignment, or a licensing or franchising agreement, to be recorded with the national IP office before it is valid and enforceable.
IP commercialisation is a complex and technical topic that determines the way third parties can use your IP. Working with an experienced IP expert will ensure that you have the proper information, and that you are aware of the benefits and the risks (some risks may be easier to overcome than others) of commercialising your IP right(s). An IP expert should help to draft or review any agreement involving IP right(s). He or she will be able to verify that the provisions accurately comply with the national legal requirements and with your business intentions; and will ensure that your assets are sufficiently protected.
Are you a European company seeking to transfer your technology to South-East Asia? Check out our guide: Transfer of Technology to South-East Asia.
Where to get IP support?
Do you need help reviewing a deed of assignment, a licensing agreement or a franchising agreement with a local partner in South-East Asia? Our Helpline team is there for you. Send us an email at questionsoutheastasia-iprhelpdesk [dot] eu (question[at]southeastasia-iprhelpdesk[dot]eu) and you will receive a reply within 3 working days.
Written by the SEA IP SME Helpdesk
- Publication date
- 28 April 2022