Reading time: 3 minutes

It’s not unusual for large multinationals to structure their business with a holding company and an operating company. A holding company typically controls any assets and subsidiaries and limits liability. On the other hand, an operating company enters into deals with clients, suppliers and employees.

Holding companies usually control and own an intellectual property portfolio of a common company group including trademarks, patents, copyrights, designs and unpatented technology. But how does this arrangement work in reality? The parent or holding company (licensor) will own the IP and license it to the subsidiaries ensuring valuable IP assets are shielded from the day-to-day commercial activities of the operating company and licensee. This article will explore the advantages and disadvantages of an IP holding company.

What are the Major Advantages to an IP Holding Company?

There are a number of advantages in separating your IP from your holding company and operating company. These include:

  • Protecting valuable assets from insolvency: Intellectual property is a valuable asset for all companies. Placing your business’ IP in a non-trading holding company limits liability by protecting it from third parties, employees, clients, creditors, and suppliers.
  • IP held separately from other assets can more easily be used as security or sold.
  • Centralising your business’ IP assists with administrative efficiency.
  • Minimising tax by delegating IP license revenue between the company group.
  • Attracting investment through a sophisticated structure.

What are the Disadvantages of an IP Holding Company?

Despite the obvious benefits of having an IP holding company, it may be a hindrance when trying to recover damages for patent infringement.  Under Australian and American law, an operating company or subsidiary of a company group that is a licensee that seeks damages for lost profit would likely be unsuccessful if they are a non-exclusive licensee (Poly-America, L.P. v GSE Lining Technology, Inc. (2004) and Section 122 of the Australian Patents Act 1990).  Only the holder, exclusive licensee or an assignee of rights would be able to claim damages for Patent infringement.

What Should I Think About When Setting up an IP Holding Company?

If you are considering separating your IP in your company, an intellectual property lawyer can assist you in identifying the key issues and the process to be taken. Factors to take into mind include:

  • What royalties or fees to charge to the subsidiaries for the use of the IP;
  • Ensuring the IP holding company holds no other assets;
  • Draft, sign and implement license agreements between the IP holding company (licensor) and subsidiaries (licensee);
  • Future intellectual property created should be included in agreements;
  • Stamp duty; and
  • Tax implications.

***

A final important consideration is when is the ideal time to set up an IP holding company. Should it be before or after the intellectual property is created?  This will need to be discussed with your IP lawyer. To discuss setting up an IP holding company with a lawyer call 1300 544 755 to speak to our IP specialists. We have experience not only with registering and enforcing IP in Australia but also in foreign jurisdictions.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards