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.