Commercialising products and processes in Australia: some intellectual property considerations
This article first appeared in the September 2008, Chinese-language edition of Managing Intellectual Property. To view the original article in Chinese, click here (PDF).
Intellectual property rights are a major driver of innovation and commercialisation. This is because the fundamental nature of intellectual property rights is that they give an area of exclusivity to the rights holder and can therefore be used to extract value. Under a licence, the rights holder gives up all or a part of that exclusivity depending upon the terms and conditions of the licence as a means of extracting value.
The likely success of commercialisation of an innovation or product is directly affected by the existence of appropriate IP rights. It is also impacted upon by the presence of necessary complementary assets, relevant core competencies (a set of skills and behaviours that consistently provide a competitive advantage) and either an existing market position with appropriate distribution channels or the opportunity to secure those. Thus, the potential commercialisation of a Chinese innovation or product in Australia will require an investigation of available IP protection for the innovation or product and the IP rights of third parties in Australia plus the ability to ultimately access a vast area but with only isolated urban areas.
A decision whether or not to licence IP rights as opposed to manufacturing in China and exporting the product to Australia must be analysed in the context of a business strategy. To illustrate, licensing can provide cheap entry for a licensor into a market but generally at the cost of a loss of some control over marketing and distribution and, importantly, the quality of the product reaching the market. Similarly, licensing can provide a rights owner with an additional income stream but perhaps at the risk of developing a new competitor in relation to the rights licensed. The business context will play a fundamental part in determining the terms and conditions of a licensing or other arrangement. In addition, local Australian laws must be considered. In particular, the Patents Act prohibits certain tying arrangements whilst the Trade Practices Act contains a variety of prohibitions which, in small ways, affect the freedom of the parties to make their own agreement.
Alternatives to licensing include strategic alliances, joint ventures and commercialisation by the rights owner. Whilst these value extraction mechanisms are not mutually exclusive to any situation, each offers particular advantages to particular situations.
Thus, in assessing an appropriate arrangement under which a Chinese product or innovation is to be exploited in Australia involves an analysis of the relevant legal and business contexts.
If the innovation or product meets a perceived market need then any available protection needs to be secured at an early stage. In Australia, statutory protection (eg. patent, registered design, trade mark, and plant breeders rights) is available when appropriate applications are made and various thresholds are met. If statutory protections are not available then protection through appropriate contractual arrangements ought be considered.
Once the IP landscape has been reviewed, an analysis of the business context needs to be undertaken. If the innovation requires specific complementary assets in order to be commercially exploited and these are not otherwise available, consideration might be given to licensing the innovation to somebody who has those complementary assets; or conceivably, cross licensing the innovation to that person in return for a licence to the complementary assets. Alternatively, a strategic alliance or joint venture might leave more control with the Chinese supplier.
Thus, when considering arrangements with Australian partners, it is important to keep in mind the IP issues and the business objectives leading to the arrangement.