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Commercialisation Routes: Which one do I choose?

NIC Document


When an idea resulting from intellectual activity is developed (software, technology, product, or process), whether by an individual or an established company, university or NHS Trust, the question will need to be asked “what is the optimum commercialisation route”?  The purpose of this document is to answer some of the key questions relating the commercialisation process, beginning with the most significant question of all “do I have ownership”?

In Brief

  1. Ownership
  2. Commercialisation Routes
  3. Where do I go for Advice on the Best Commercialisation Route?


Do I have ownership of the invention/process/publication?
In order to commercialise something you must first own the property and have proof of ownership. Where something is created through a person’s intellectual activity, whether this be an invention, a process, software or written work, this is known as Intellectual Property (IP).  The legal rights associated with the ownership of such property are known as Intellectual Property Rights (IPR). 

If the intellectual activity took place whilst in employment, the first question to ask is whether you or your employer owns the IP.  The answer to this question can be found in appropriate legislation e.g. The Patents Act 1977 states that :

(1) An invention made by an employee shall be taken to belong to the employer if:

  • it was made in the course of the normal duties of the employee and the circumstances were such that an invention might reasonably be expected to result from the carrying out of his/her duties,
  • OR the invention was made in the course of the duties of the employee and because of the nature of the duties he/she had a special obligation to further the interests of the employer’s undertaking.

(2) Any other invention made by an employee shall be taken to belong to the employee.

The same principle applies to copyright and design rights under The Copyright and Designs and Patents Act 1988.

Is it possible to have shared ownership?
There is no legal requirement on an employer to share commercialisation income with an employee when Intellectual Property is created during the course of employment; however within public sector bodies such as universities and NHS Trusts, policies usually exist which allow employees to benefit from commercial exploitation of IP.  This is less common within industry although companies can operate profit sharing reward schemes. Alternatively an employee may enter into discussion with an employer on a profit sharing arrangement for a specific piece of IP, although as previously stated there is no obligation on an employer to share the proceeds of the exploitation of IP created in the course of employment.

Who decides whether to protect IP ownership?
There are costs associated with protecting Intellectual Property, which may be small in relation to copyright but extremely high in relation to a patent.  Within either a university or a NHS trust, the decision on whether to protect an invention will normally be taken jointly between the inventor and the relevant commercialisation unit (university) or NHS IP hub (NHS Trust), which will hold the budget.  With individual inventors this decision will be a commercial ‘judgement call’ based on the merits of each case e.g. the future potential of commercial exploitation.  It should be noted that it is important that the inventor or inventors’ names are included on a patent otherwise the patent could be challenged at a future date.

Commercialisation Routes

How can I secure commercial income from my IP?
There are two main commercialisation routes available, namely, licensing or the creation of a company, often spin out companies for universities, NHS Trusts and established companies. With licensing, the licensor normally secures a combination of a fixed ‘one off’ licence fee and an agreed percentage royalty payment.  With a company, the commercial value relates to an equity stake in the new company (share ownership). 

How do I choose between licensing an invention and creating a new company or ‘spin out’?
In general terms licensing is the lower risk option, which also provides for an immediate return on investment.  However there are specific occasions when the creation of a new ‘spin out’ company is more appropriate.   These are reviewed below.

There are three types of licence:

1. Exclusive Licence
As the name implies this is where the licensee is assigned the sole rights to use the IP specified in the licence agreement.  This option is likely to be taken where major costs are associated with the future exploitation of the invention/technology, and the licensee would not commit to such costs unless it had a monopoly position.  These costs could be associated with development, for example where extensive clinical studies are required for a pharmaceutical product, or with marketing where only certain companies have the ability to achieve global market penetration e.g. with international imaging companies.

This route should only be taken after full consideration is given to: -

  • alternative routes to meet development/marketing costs  e.g. Venture Capital funds, which would allow the licensor to maintain ownership and build the future value of the IP (see ‘spin out’ companies). 
  • whether the proposed licensee has the capacity to develop and market the IP.
  • the possibility of agreement on a non-exclusive licence.

An exclusive license will usually provide a high ‘up front’ license fee and an annual royalty payment based on performance.  Safeguards should be included in any exclusive licence e.g, limiting the duration of the license, providing exclusivity for specific markets and minimum annual payments to protect against under performance

An ‘option agreement’ could be secured if a potential exclusive licensee required more time to evaluate the technology or undertake some experimental research themselves to validate its commercial viability.  Once an option agreement is in place, which requires the potential licensee to pay an ‘option fee’ annually, the licensor will not be able to negotiate with other potential licensees during the option period.

2. Non Exclusive Licence
With a non-exclusive licence, a number of companies can be licensed to compete in the same market.   Again a ‘judgement call’ needs to be taken on the number of potential licensees given the total size of the market.   A non-exclusive license can also be given in return for research support.  Given the non-exclusive nature of the agreement, the ‘up front’ licence fee and the royalty payment is usually lower than with an exclusive license.  However there is less risk than committing yourself to a single licensee.

3. Sole Licence
This can be used by a company that is manufacturing or selling a product based on a particular piece of IP. This is usually where the company has capacity issues and wishes to provide a sole licence to another company to make or sell the same product.  In an alternative scenario, a technology company may wish to offer a sole licence for commercialisation whilst retaining the ability to continue development work in the area.  Appropriate terms for this sort of engagement need to be agreed with the licensee.

Company formation / ‘Spin out’ companies
With a NHS Trust, university or an established company the formation of a company is often known as a ‘spin out’ company.  This essentially involves transferring the IPR to the new company, and taking shares in the ‘spin out’ (this could apply to an inventor who is an employee, as well as the institution depending on contractual arrangements).  

The formation of a company may be the most appropriate commercialisation route where an invention /technology needs to be developed to a point where it can attract external funding or be licensed.   By creating a stand alone commercial entity it is possible to access public and private development funding intended for small businesses.  Many companies also decide to go this route where the development is high risk and outside their usual product portfolio, as a means to protect their core business.

The formation of a company is high risk, given that returns to the shareholders will be subject to the future success of the business.  It should also be noted that specialist skills are required to operate a business, particularly a high risk ‘spin out’ business, and the future success and profitability of the company will depend on the quality of the Executive.  Indeed, a decision by a Venture Capitalist to invest in a new company will often be based as much on the quality of the Executive as to the novelty and commercial potential of an invention/new technology.

Where do I go for Advice on the Best Commercialisation Route?

If you are an employee of a university or a NHS Trust, you may have an established IP Lead or commercialisation/IP unit which should be your first point of contact.  Every NHS Trust in England now has a regional NHS Innovation Hub who are experts in commercialising healthcare IP http://www.innovations.nhs.uk .

If you are a company or an individual, your first point of contact should be the NIC (www.nic.nhs.uk) or your regional health technology association e.g. Medilink (www.medilinkUK.com) or equivalent, which will have specialist staff/contacts experienced in commercialising health technology products.