There are several methods that an owner can use to commercialise a product or idea. For example, the owner can
- sell the finished product himself;
- license a third party to commercialise the product or idea;
- appoint distributors or resellers to improve the ability to get the product to market; or
- partner with someone to do these things.
There are advantages to the owner selling or licensing the product himself. By retaining control of the product, the owner will have greater influence over its commercialisation. He may also receive greater financial returns, as he will not be paying distributors and resellers. However, if the costs of establishing the sale and distribution network are high, the owner may end up worse off.
While selling or licensing the product like this may be feasible in New Zealand (and possibly Australia), it may be difficult to continue, as the business expands into new markets, particularly if the owner does not have the capital to establish his own distribution network. If this is the case, the owner may want to consider licensing the product to a third party, or appointing a distributor or a reseller.
Licensing the product to a third party is another method of commercialising the product. Effectively, a third party handles the development and commercialisation of the product, either internationally or in particular territories.
This approach may reduce potential returns, as the owner will only receive royalties and will be relinquishing a degree of control. However, it can save time and produce more money in the long run, as the owner will be buying the third party’s skills, contacts and systems, which could be invaluable for the commercialisation of the product.
It is important that the licensing party is selected carefully and that the owner ensures that it can terminate the licence if the third party does not develop the business as expected (giving the owner significantly less royalties, for instance), or fails to meet expectations in other areas.
A more advanced method of licensing products through a third party is to continue developing the product, but appoint distributors or resellers to handle the marketing and sales of the product.
The distribution rights that the owner grants can be exclusive or non-exclusive.
Exclusive rights permit only the distributor to provide the product to end users. Such exclusivity can be worldwide, but it may be preferable to grant distribution rights in respect of distinct areas (for example, exclusive only to certain territories, markets or industries.)
Exclusive distribution rights may also be granted with conditions attached. They may be subject to criteria such as minimum sales or particular levels of royalty being met. Such conditions, properly drafted, would allow the owner to revoke distribution rights and grant them to other parties if commercialisation goals are not being met.
Non-exclusive distribution rights, on the other hand, allow the owner to retain the right to exploit the product or to grant further rights to others. This approach may give the owner less money up front than exclusive rights, but it allows the owner to retain more control of the product, which will be especially useful when expanding the product into new markets.
Whichever option the owner chooses, the drafting of the distribution agreement can be crucial to the success of the arrangement. The owner should carefully consider the rights granted to a new partner, such as exclusivity of territory. Continued rights should be linked to satisfactory performance, and the owner should ensure that he can continue to use any structures, trade marks or contacts if he decides to change distributors.
Partnerships and joint ventures can result in reduced time to market, lower R&D expenditure and less risk. A partnership or joint venture also gives the partner a stake in any future success of the product, making them keener to work in the best interests of the partnership.
A partner may be based in New Zealand or overseas, depending on the target market. Where a partnership or joint venture is created for the introduction of the product into a new market, a partner with expertise, experience or a network in the new market would be valuable.
A partnering approach requires a joint venture contract, allowing the owner continuing rights to develop or terminate the partnership as the product expands into new markets. It should also address ownership of IP, improvements to it and confidentiality of information.