IP company

The two are different questions. The first is about how and where a group holds its IP. The second is about whether the owner makes products. One label does not tell you the other. The sources describe the arrangements by what the entity does, and this page follows them.

WIPO describes the structure as separate legal entities that own IP assets and license them to operating companies, and says it is used for tax efficiency and asset protection strategies³. This page does not evaluate any particular structure.

The OECD Guidelines say multinational groups may have sound business reasons to centralize ownership of intangibles. Their example is a group that specializes its manufacturing sites. It moves locally owned patents to a central location, which in turn gives contractual rights, through licenses or manufacturing agreements, to the group's manufacturing sites to use them¹.

The link between the holder and an operating company is a license. WIPO explains that a license lets the owner authorize someone else to use its IP while the owner keeps ownership, in exchange for something of value such as a lump sum, recurrent royalties or a combination. An assignment, by contrast, is a sale that transfers ownership⁴. See Patent licensing.

Payments between related companies attract tax attention. The OECD Transfer Pricing Guidelines say that under Article 9 of the OECD Model Tax Convention, where the conditions of the use or transfer of intangibles between two associated enterprises differ from those that independent enterprises would make, profits that would otherwise have accrued to one of them may be included in its profits and taxed accordingly⁵.

The OECD Guidelines state that, for transfer pricing purposes, legal ownership of intangibles by itself does not confer any right ultimately to retain the returns the multinational group derives from exploiting the intangible. The return depends on the functions performed, assets used and risks assumed by the owner and by the other group members that contributed⁵.

They illustrate the point with an internally developed intangible whose legal owner performs no relevant functions, uses no relevant assets and assumes no relevant risks, but acts solely as a title holding entity. That owner is not ultimately entitled to any part of the return other than arm's length compensation, if any, for holding title⁵. The Guidelines add, in the context of restructurings, that a change in the legal ownership of an intangible may not affect which party is entitled to returns from it¹.

These are OECD guidelines for multinational groups and tax administrations. This page does not describe any country's tax rules, which differ and change.

WIPO notes that an owner of a patent or know-how who cannot or does not want to be involved in all commercialization activities, such as technology development, manufacturing and market expansion, can benefit from licensing by relying on the capacity, know-how and management expertise of a partner⁴. In that sense an owner can earn from IP without making the product itself.

GAO's description of entities that own patents but do not make products includes companies focused on licensing patents they developed and companies that buy patents from others to assert them for profit². See Non-practicing entity for how government studies define these entities and what they found, and Patent litigation for the dispute side.