Licensing is perhaps the most common means of an IP-orientated start-up exploiting its technology; it may not have the resources or expertise to make or sell the relevant products itself so it licenses a third party (or third parties) to do so along the lines discussed above. A good example of this is a biotech start-up developing a small molecule compound with therapeutic efficacy against defined disease targets for which patent protection is obtained. The biotech company licenses that patent to a large pharmaceutical international which further develops and takes that compound to market as a finished drug and pays the biotech company a royalty in return.
However, sometimes the start-up may wish to sell products into the market itself. If it does so, it may still need to appoint a manufacturer to make those products on its behalf. In such circumstances the key IP provisions to look out for are:
- The manufacturer should be granted a licence to use the relevant IP to make products for the licensor only; and
- There may be scope for the manufacturer to develop a manufacturing process, scale up an existing one or even improve the product design. All such developments may comprise IP and some of it may even be patentable. The licensor will want access to (and preferably ownership of) all such developments.
In selling into the market the start-up may sell to customers direct, in which case it should be aware of the additional legal obligations involved in selling online and/or to consumers or, if it needs third party help to access a particular market, via an agent or distributor. Their respective roles are as follows:
- The distributor buys the product from the principal and resells it to the customer; and
- The agent introduces the customer to the principal and picks up a commission when the principal sells the product to that customer, as happens with a theatrical or literary agent securing a deal for their client.
A licence to the IP in the technology or design of the product may not be necessary in such circumstances but, if the agent or distributor is promoting the product, it may need a licence to the principal’s branding and other marketing materials. Furthermore, if the agent or distributor generates its own promotional materials or has the original ones translated into the language of the country where the customers are, the principal should ensure that it secures ownership of the copyright in that new material so it can still use it if it appoints a replacement intermediary.