SAMEER RASTOGI India Juris International Law Firm

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COMMERCIAL ASPECTS OF Intellectual Property
Rights
AN INTERACTIVE SESSION Organized by Amity
Innovative Incubator INDIA JURIS
4th July 2008, Amity Innovative Incubator, Noida
SAMEER RASTOGIIndia JurisInternational Law Firm
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Introduction
EU-Commission estimates the global IPR trade to
be 100 bn
Do you know ?
US PTO issue nearly 200,000 patents yearly
Indian PTO granted 15,262 patents during (07-08)
IPRs are not only a legal asset, it also
represents a Commercial Value and may thus be a
financial instrument
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Introduction

• To reap the commercial benefits
• an IPR may be
• Sold
• Licensed
• Collateral or Security

A direct way of monetizing a patent is to base a
company on its patent and develop a business
around that technology
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Contents

• Licensing of IPRs
• 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

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Licensing of IPRs
Important issues in software licensing

• Define Licensor Licensee
• Software Description
• Term of License
• Expiry / Termination
• Renewal
• Upgradation
• Single or Multi-user
• Concurrent User
• Network in which it is to be used

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Licensing of IPRs

• Home or Commercial use
• Access to source code
• Transferability
• Division of Components of Software
• Downloading uploading
• Sub-licensing
• Operating Systems for software
• Non Liability through wrong usage
• Anti Piracy clause

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Licensing of IPRs

• Software Auditing
• Remedies - damages / injunction /
• criminal liability
• Liability Obligation of Licensee
• Territory
• OEM unbundling
• Royalty
• Taxation
• Repatriation

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Royalty on Technology Transfer and IPRs
Royalty can be
Lump-sum fee
percentage of sales
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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.

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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
• Term
• Revocability
• Territory
• Advertising Promotion
• Audit of accounts from outside agency
• Royalty Payment and Calculation

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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).
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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.
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Holding of IPRs in tax efficient manner
Case Study (MALTA) A software company develops
software and registers the 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
companys European patent rights.
The Maltese Co. now has the exclusive right to
exploit the offshore companys IP in Europe. The
Maltese Co. then enters into contracts with
European customers, through which it exploits the
rights, which it now owns.  
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Holding of IPRs in tax efficient manner
Contract 1 is with a German software Co. for the
right to subscribe to the software 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 software 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.
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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
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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.

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Auction of IPRs

• Some of the major IPRs auctions
• January 2003 Japan Patent Research Association
  held an auction in Tokyo
• August 2005 Ocean Tomo auctioned the patents of
  a bankrupt company in the US to pre-selected
  bidders. (approx. 15 mn)
• April 2006 public auction of OT in SF (approx.
  3 mn at the live-auction itself and appr. 7 mn
  in the post auction)
• October 2006 OT Fall Auction in NYC (22 mn at
  the live-auction)

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Auction of IPRs
Mechanical engineering Aviation Automotive Electri
cal engineering Process automation Microelectronic
s/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 Digita
l Music Video e-Commerce Web Services
Insurance Financial Services Integrated
Circuits Semiconductors Integration Technology
Interactive TV VOD Biotec/life science
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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.
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Role of IPRs in Venture Capital
Increases the valuation of the company
Better IPR portfolio gives competitive edge in
attracting VC
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Business Growth Valuation Enhancement
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
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Business Growth Valuation Enhancement
Enhances company reputation, image, negotiation
position and gives edge in JVs and MA
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