HOWZAT

For those licensing out, one of the big attractions is the tax treatment of innovation. A firm’s royalty income is tax- free and the dividends paid by these businesses are also tax-free. It is no coincidence that revenues from much of Microsoft’s patents is routed through Ireland.

Licensing is part and parcel of the software industry, but the practice is not limited to technology. Cutter & Buck is one of the best known brands of golfwear in America. In the aftermath of 9/11 it decided to move out of supplying the European market directly, and looked for a licensee.

Eurostyle, a Cork knitwear firm that makes and sells Green Lamb, a brand of ladies’ golfwear, successfully pitched for the business. “We had the experience of the market and we knew what it took to build a brand in that market,” said Alan Dwyer, the managing director.

In the initial period sales were slow. American sizes and designs were looser fitting than those favoured by European golfers. The Cork company took the design and styling of the golf gear in-house and tailored them to European tastes. Now Cutter & Buck European styles, originated in Cork, account for 50% of the American brand sales in the European market, and these styles are also being sold in America and other markets.

An initial five-year licence agreement has been extended for a further four years.

The firm still markets its Green Lamb range, even though it is a direct competitor of Cutter & Buck.

Dwyer says the key to a successful licence agreement is good preparation, market research and analysis. “If an American brand sells $200m (€158m) in its home market, there is a feeling, because the size of the markets are similar, that they should be selling the same in Europe. That may not be case. The brand may be less well known, the styles might be different. It is important that expectations are realistic on both sides.”

It is also important, he adds, to get a handle on the future strategic direction of the licensers and to make sure that it fits naturally with your own ambitions.

One of the benefits of open innovation is its global reach. Garryvoe Foods is a maker of fresh organic sauces and soups in Tralee, Co Kerry. Founder Pat McGrath has been searching for suitable biodegradable packaging for several years.

He has now linked up with a Swedish company that makes totally degradable and recyclable food packaging from chalk. McGrath’s Harvest Organic brand of soya milk will be the first to use such packaging technology in Britain and Ireland. “What we were looking for was a unique selling point,” said McGrath.

Whether licensing in or out, an important message is to get it right from the start.

“A crucial part of the process is to know your own strengths and weaknesses,” said Maureen Daly, the head of information technology and intellectual property at solicitors Beauchamps, authors of a legal guide for the Tech Search site. “Know the intellectual property and its value.”

Licence agreements should be as flexible as possible, Daly says, but confidentiality is a given. “From the outset, there has to be mutual recognition and respect for the value of the information being given.”

From then on it is not unlike any other commercial agreement. The biggest pitfall is not getting paid enough for your technology or paying too much for somebody else’s. Worst of all, is not getting paid at all.

Not surprisingly, licensing deals that are linked to profit are considered most desirable. Where there is a common interest, the licenser of the technology tends to offer most support.

TAX BREAKS MEAN IT PAYS T2O DEVELOP INNOVATIONS

IN the development phase, research expenses are tax-deductible, including the cost of patenting.

The cost of licensing in new technology can also be set off against tax, although licence fees may not, warns Ronan Finn, tax director of Price Waterhouse Cooper’s.

Irish firms also get tax credits equivalent to 20% of total R&D expenditure to offset against corporation tax.

Once the innovation is being exploited, patent royalties paid to the Irish company by a third party are tax-free and any dividends paid by that company are also free of tax.

The sale of intellectual property attracts capital gains tax and is liable for Vat, as it is regarded as a tradeable good or service, but the flipside is that the sale of intellectual property is exempt from stamp duty.

“The situation has improved and government has been keen to see that Irish companies are operating on a level playing field with counterparts in other countries,” said Finn.