NHS Innovations London - How to commercialise

The Trust (or Innovation Hub on its behalf) will decide on a case by case basis what may be the most appropriate method for exploitation of NHS IP once it is appropriately protected. The preferred option is that the Trust enters into a License Agreement with a company to exploit the IP while still ensuring that the ownership of the IP remains with the NHS.

How can income be obtained from intellectual property rights?

Once an idea has been protected the protection rights can then be licenced, assigned or sold, resulting in income generation. Any royalties or income derived from a license or assignment goes to the Trust who owns the Intellectual Property. The inventor (who is not the owner) then gets reward with a percentage of the income received by the Trust

What happens to the rest of the income?

In general the costs of the exploiting the intellectual property, such as patent fees, will be the first call on any income. The remaining 'profit' will be divided between the parties involved as agreed at the beginning of the process. It will be usual for the NHS Trust or Primary Care Trust who owns the intellectual property to receive the majority share. This income will be used to improve patient services within the Trust.

What is a licence?

A license is a vehicle for transferring the Intellectual Property Rights where the owner of IP retains ownership but licenses another company to use the Intellectual Property.

There are three main categories of licence, exclusive, non-exclusive and sole:

Exclusive licences

An exclusive license means that the Intellectual Property Rights are licensed to just one company for commercial purposes. Such a route should only be taken after careful consideration as to whether the potential licensee has the capacity to develop the product and service the intended market. The type of technology may also determine the outcome. For example, if a new pharmaceutical product is in prospect, this will require major investment in expensive clinical trials before regulatory approval is given. No company can be expected to embark on such a programme unless it will become the monopoly supplier of the product, and thereby hope to recover more than its investment. Sometimes exclusivity will be limited to, say, a geographical area, a particular market or for a limited period of time.

Non-exclusive licences

With non-exclusive licenses, several companies can be licensed to compete in the same market place. Sometimes a non-exclusive license is given in return for research support. In practice, a commercial judgement has to be made on the total size of the market, and the optimum number of licensees which might be attracted to compete for this market, so as to produce the maximum aggregated royalty income.

Sole licenses

A sole licence can be issued, for example, when a commercial company or an organisation is making and selling a product based on an item of its intellectual property, but in addition wishes to license a single other company to do the same. Perhaps the first company had insufficient manufacturing capacity to meet the anticipated demand for the product,but nevertheless wanted to ensure that the demand is met.

So, how is income derived from a licence agreement?

Licensor income is generated through a combination of fixed fees and royalty payments from the Licensee. Fixed fees may be paid for the use of the licence and at various agreed milestones. Royalty payments are associated with product sales. The value of the intellectual property and thus the expected levels of these payments will depend on a number of factors including the market potential, the cost of getting to market and the nearness of the product to market.

What is an assignment?

An assignment is the transfer of intellectual property rights from the owner to another party. This effectively means that the right to ownership can be “sold”, as opposed to licensing where ownership is retained and the licensee is granted rights to use the IP. For example a patent could be half owned by two separate parties, one of those parties could sell their stake to another party by assignment. Restrictions can be imposed on the assignment of rights by geographical region and proportion of ownership. Thus an inventor could assign their entire patent to a manufacturer for a lump sum or an author could assign their book to a publisher with a 50% interest in the UK only.

What about spin-out companies?

A spin-out company is appropriate when it represents the best option for exploiting intellectual property for the benefit of the health service. Establishing such an entity gives freedom to operate in a commercial framework and provides access to public and private development funding available to a small business. The NHS organisation owning the intellectual property, and the employees responsible for generating it, are able to take equity in the company. It should be noted that this route for commercialisation is more complex and brings with it a higher degree of risk. All applications to form a spin-out company must be approved by the private Finance Unit. Your NHS Innovation Hub can advise you on the process.