COMMERCIALIZATION OF Intellectual Property Rights INTELLECTUAL PROPERTY RIGHTS SENSITIZATION PROGRAMME Organized by FICCI 22nd January 2009 Indian Institute of Technology, Kanpur SAMEER RASTOGIPartner
Introduction Do you know ?
Introduction EU-Commission estimates the global IPR trade to be €100 bn Do you know ? US PTO issue around 2,00,000 patents yearly Indian PTO granted 17,618 patents during 2008
Introduction In 2008 1.56 lakhs International applications received in WIPO Do you know ? US topped the list with 52,580 applications, India’s applications were only 686 Average Patent filings by resident of India is just 3 per million population, as compared to a world average of 250
Introduction IBM holds more than 40,000 U.S. Patents IBM approx registers 3,000 every year IBM generates more than $ 1 bn each year from technology licensing revenue Do you know ? IBM tops the list in 2008 with 4,186 granted patents
Introduction IPRs are not only a legal asset, it also represents a Commercial value & may thus be a financial instrument • To reap the commercial benefits • an IPR may be • Sold • Licensed • Collateral or Security
Introduction • To maximize revenues an IPR can be used for • Sponsorship • Merchandizing • Publicity A direct way of monetizing a patent is to base a company on its patent and develop a business around that technology
Contents • Royalty on Technology Transfer and IPRs • Holding of IPRs in tax efficient manner • Auction of IPRs • Role of IPRs in Venture Capital • Business Growth & Valuation Enhancement • IPRs in Recession
Royalty on Technology Transfer and IPRs Royalty can be Lump-sum fee percentage of sales
Royalty on Technology Transfer and IPRs Royalty for use of TM and brand can be paid upto 2% on exports and upto 1% on domestic sales. Royalty for Technology (Patents) • Lump sum payments upto $ 2 mn • Upto 5% for domestic sales and 8% for exports, without any restriction on the duration of the royalty payments.
Royalty on Technology Transfer and IPRs Issues in Technology Transfer • Define Technology and List of IPRs • Grant of License • Rights & Obligations of Licensee and Licensor • Exclusive / Non-exclusive • Transferability and Sub-licensing
Royalty on Technology Transfer and IPRs Issues in Technology Transfer • Term • Revocability • Territory • Advertising & Promotion • Audit of accounts from outside agency • Royalty Payment and Calculation
Holding of IPRs in tax efficient manner The owner of the IP sells it to an offshore company (ideally when the IP is still at a low value). The offshore company licences some or all of the rights for the use of the IPRs to an onshore intermediary or agency company created in a jurisdiction offering tax benefits (i.e.. tax treaty network, withholding tax exemption for royalty payments and other advantages).
Holding of IPRs in tax efficient manner The onshore company then sub-licenses IPRs customers in various countries. Royalty fees pass to the onshore intermediary company, which may be subject to zero or a low withholding tax rates due to double tax treaty. The (small) % kept by the onshore company for work done in negotiating contracts are subject to tax. The balance after tax is passed on by the onshore company to the offshore company free of any further withholding taxes.
Holding of IPRs in tax efficient manner Case Study (MALTA) A company develops and registers a patent not under its own name but under the name of a 100% owned offshore company (e.g. a BVI company). The offshore company then enters into a license agreement with a Maltese company for the offshore company’s European patent rights. The Maltese Co. now has the exclusive right to exploit the offshore company’s IP in Europe. The Maltese Co. then enters into contracts with European customers, through which it exploits the rights, which it now owns.
Holding of IPRs in tax efficient manner Contract 1 is with a German Co. for the patent for which the Maltese Co. holds the rights. The Contract 2 is with an Italian Co. The income passes fully to the Maltese Co. without withholding taxes in any of the EU-countries. The Maltese Co. retains a 5% licence fee and pays tax on this income but it will be able to pass 95% to the offshore company where no further tax will be levied. If the Company had negotiated these contracts directly it could have suffered up to 35% income tax on the income. If the US company sells the rights, any gains may be taxed at 35 %. However, if the offshore company sells the rights, the capital gains tax is 0%.
Auction of IPRs Goal of auction is to provide IPRs to companies and thus help them to expand into new markets or to enlarge their range of products and services. Worldwide amount of royalties between 1990 and 2000 have risen from 10 billion USD to 100 billion USD some experts see the current volume as high as 150 to 200 bn USD
Auction of IPRs • Advantages of auctions: • The acquisition of a trademark, a patent or a license can also provide the basis for expansion into new markets. • The focus on a short and clearly defined period of transaction reduces especially the costs of "endless“ legal services and the latter may result in lower Overall transaction costs.
Auction of IPRs • Some IPR auctions: • October 2008: In Chicago, OT auctioned NASA’s 10 US patents and one domestic patent application • October 2008Carlson Wireless Technologies, Inc. USA auctioned its patents for $902,000, which was double of their estimate • August 2005: Ocean Tomo auctioned the patents of a bankrupt company in the US to pre-selected bidders. (approx. $15 mn) • October 2006: OT Fall Auction in NYC ($22 mn at the live-auction)
Auction of IPRs Mechanical engineering Aviation Automotive Electrical engineering Process automation Microelectronics/IT Consumer products Medical science “Green” technology, Online & Mobile Advertising RFID & Barcode Tech. Security / Digital Rights Mgt. Social Networking & Web User Interface Technology Wireless/Network Communications Digital Music & Video e-Commerce & Web Services Insurance & Financial Services Integrated Circuits & Semiconductors Integration Technology Interactive TV & VOD Biotec/life science
Role of IPRs in Venture Capital Venture Capital (VC) has been major drivers of innovation, economic growth, knowledge base industry and start ups. VC industry follow the concept of “high risk high gain.” VC value intangible assets while making equity investments, which generally conventional sources of financing may not consider.
Role of IPRs in Venture Capital Increases the valuation of the company Better IPR portfolio gives competitive edge in attracting VC
Business Growth & ValuationEnhancement “IPRs being intangible assets forms substantial part of assets of a company and thus increase the valuation“ “IPRs helps in expanding the market share and venturing into new markets and businesses“
Business Growth & ValuationEnhancement Importance Joint Ventures & M&A • 1. Company reputation & image • Negotiation Power • Valuation • Finance Arrangement • 5. IPRs can also be used as security in JV / M&A
IPRs in Recession • 1. IPR can generate revenue, which can be helpful in recession • Recession is the time to acquire IPRs • In Recession IPRs add good valuation to company, helpful in JV, M&A and strategic alliances • 4. Helps in discovering new markets in recession
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