THE COMMERCIALIZATION PROCESS

1. What is involved in commercializing research?
   The commercialization process is generally long and expensive. It involves a number of different stages, which will differ according to the product or process under development. Example commercialization processes are illustrated in the diagram below for a new medical device and a novel drug. Each stage in the process requires specific skills and resources.

2. What are the possible commercialization routes that I can take? 
   There are various options available for commercializing research. The specific commercialization route to be used will be dictated by the following factors:

• Financial investment required for each commercialization route
• Potential return on investment for each commercialization route
• The nature of the technology/product/process itself
• The target market and how it can best be reached

Each of these factors must be examined before deciding on how to commercialize an invention. Some of the available routes are discussed in more detail below.

I.1. LICENSING

1. What is a license?
   A license is a legal document that allows an individual or company (the licensee) to use the intellectual property (proprietary materials or know-how) of another individual or company (the licensor) in return for remuneration. This remuneration is usually in the form of royalty payments, but may also involve an upfront lump sum payment. Unlike an outright sale or assignment, a license allows the licensor to retain ownership rights of the IP. The major advantage of licensing is that the responsibility for manufacturing, selling, distribution and even further development of the technology/product/process can be transferred to the licensee, thus reducing the investment required by the MRC or the inventor in commercialization.
   
   The license agreement has terms defining the length of time the license is valid, the markets (territory) in which the licensee can use or sell the product, whether or not sublicenses are permitted, the nature and amount of upfront fees and royalties, and whether or not the licensor has rights to any improvements developed by the licensee.
   
   MRC researchers may want to license in technologies for use in their research, or they may have a technology that they would like to license out to industry. The IC, together with the relevant legal experts, will assist MRC researchers in both of these scenarios.
2. What issues must be addressed in terms of license agreements? 
   License agreements are very complex and need to be as comprehensive as possible in order to ensure that the rights of both the licensor and the licensee are covered for all eventualities. It is highly recommended that the negotiating and drafting of license agreements are carried out with the assistance of a legal specialist with expertise in the licensing of technologies.
   
   Below are listed some of the key issues that must be addressed when negotiating a license agreement.
   • Obligation for the licensee to share plans for commercial development
   • Time limits on the development and release of the product onto the market by the licensee
   • Clear definitions of the intellectual property related to the license agreement
   • Clear definitions of the types of products the licensee is permitted to develop using the intellectual property
   • The term of the license agreement (In the case of patents this is often the lifetime of the patents)
   • The payment amounts, structure, and terms
   • The exclusivity and geographical scope of the license
   • Guarantees or warranties on the technology
   • Rights of the licensor to any improvements developed by the licensee
3. What types of technology licenses do you get?
   The majority of technology licenses are for patents, copyright (especially in software) and know-how, and one license may relate to more than one patent and/or other type of intellectual property. The following types of technology licenses can be granted by licensors:

• Patent commercialization licenses provide licensees with rights to patented technology or technology covered in patent applications that have been filed in anticipation of receiving a patent. These licenses can be exclusive or non-exclusive.
• Exclusive licenses are those in which one licensee receives exclusive rights to develop products using the IP. This means that both the licensor and other potential licensees are prevented from exploiting the IP. This often provides the licensee with a significant competitive advantage and the potential for a large financial return, therefore, the royalty obligations and financial terms in such licenses are often quite substantial.
• Non-exclusive licenses give several licensees as well as the licensor the right to develop products using the IP. Such licenses are often given when the technology has the potential to significantly benefit the wider public, and when providing multiple licenses may accelerate its entry into the marketplace. Some non-exclusive licenses allow the licensee to use the IP internally only, e.g. where the technology is useful as a tool or process but is not itself a marketable product.
• Commercial evaluation licenses (also known as options) grant a potential licensee the option (for a fee) to negotiate a license within a specific time, while the company assesses the commercial potential or appropriateness of the technology. This allows the licensee to explore the value of a new technology for a limited time before making the financial and resource commitment of a full license. Commercial evaluation licenses have smaller financial terms and are of a short duration. If the licensee finds the technology meets their needs, then the parties can negotiate a new agreement for an exclusive or non-exclusive patent commercialization license.
• Biological materials licenses provide licensees with access to non-patented materials or biological constructs that were prepared at great effort and expense and may only be available from the laboratories that made them. These licenses can be non-exclusive and for internal use only, or for commercial sale to promote the wider use of unique materials or biological constructs.

4. What are royalties and upfront payments in licensing and how are they decided?
   A license is a transfer of value, and royalties and up-front fees are the agreed price of that value. Since licenses are not traded in open markets, where the price can be set through supply and demand, each negotiation is unique and has to reflect the intense evaluations of each party. A licensor will want, at a minimum, to recover the costs, or some reasonable portion of the costs, already invested in the product, and to generate a steady flow of income. Up-front payments should be high enough, if possible, to meet the licensor's need for short-term income and to assure that the licensee is according an appropriate level of seriousness to the product, but should not be so high as to limit the ability of the licensee to invest in the product and make it a success. Other factors to consider are the life of the product and the life-time of the intellectual property rights being granted. The shorter the life of a product (because other better products are expected to emerge quickly), the less the licensor can ask for up-front fees and, to a lesser extent, royalty.
   
   Royalty rates differ considerably and depend on the following main factors:
   • The stage of development of the product when licensed out
   • The type of product
   • The industry in which it is applied
   • The price at which the product can be sold
   • The maturity of the market
   • The geographical scope of the license
   • The term and exclusivity of the license

Royalties can vary from 0% for technologies or products that are licensed out at the idea stage to 10% for a product with a captured market and distribution channel.

If the license is based on a patent, the level of royalties may decrease, or the license may even expire at the end of the patent life. The issue of license term is more complicated when the license is for know-how. A reasonable approach toward a know-how license is for the royalty to diminish with time and eventually reach zero when both parties agree the know-how would be no longer of value. However, if know-how is essential for the successful manufacture and sale of the product throughout its lifetime, there is no reason for the royalty to change. Also, a licensor may make continual changes in the know-how and pass those to the licensee. Again in this situation, royalties may be collected for a very long time.