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Make money from your intellectual property

Almost all businesses have some form of intellectual property (IP), but few make the most of it as an asset. Kate Horstead explains how to identify your IP and - crucially - how you can exploit your IP and turn it into cash

Your firm's intellectual property is likely to include everything from your website content, to software you might have designed to your company logo. To exploit it, however, you will need to have protected it by copyright, trademark, patent or design right.

The Intellectual Property Office's (IPO) new online diagnostic tool can help you identify and protect your IP, as well as advising whether you can make it work for you through licensing, franchising or selling.

Licensing your IP

Licensing gives someone the right to use your patent or copyright - for example a soft drink formula or an article for publication - in a certain area or for a particular group of customers. The licensee will give you royalties in return - typically, you will receive a small proportion of the value of the product, based on what it cost to produce before transport and distribution costs are added.

"A patent only lasts up to 20 years, so if you don't have the resources to exploit your IP yourself, accepting a licensing agreement that offers you 10p per sale is better than making no money from it at all," says Miles Rees, business development adviser at the IPO.

There are various kinds of licenses to suit different trading scenarios. For example, you can license your IP so that other businesses have the right to exploit it in a particular region where you agree not to compete. Alternatively, you can grant a sole licence, which allows you to exploit your IP in the same region as the licensee, but means you can't grant further licenses to any other businesses in the market.

"To help increase the royalties you receive, the licensing agreement should include a minimum sales clause," advises Rees. "It should also include a method of termination so you can license it out again."

Become a franchise

Franchising involves allowing someone to set up and run their own business under your name. You provide practical support and oversee the way your offer is marketed; they pay you a fee - usually a percentage of turnover. This may be suitable if your firm is service-based - for example, a food delivery business.

You will need to be sure that your offer can be replicated without variation in quality, as your customers will expect it to be the same everywhere. If your firm has only short-term sales potential or a geographically restricted market, it is unlikely to be suitable for franchising.

"Franchising requires ongoing management because you're allowing people to use your brand and your goodwill," explains Rees. "You need strict rules - if you're a delivery service and a franchisee uses illegal drivers, that's damaging."

Sell your IP

"Most firms wouldn't sell their IP until they sell up, as their IP is a fundamental part of the business," Rees observes. "The exception is if their purpose is purely to create things for other businesses. For example, you might sell your IP if you are a designer, but not if you are a manufacturer."

If you are drawing up an IP agreement to license, franchise or sell, you must seek legal advice. "Keep your business negotiations confidential and consult with a patent or trade mark attorney," concludes Rees.

You can find further advice on protecting and exploiting your intellectual property on the Law Donut.