New Sources of Revenue for Your Nonprofit

If you’re like many in the nonprofit sector, you’re looking for new ways to generate revenue. An important source to consider is your organization’s existing intellectual property. Do you have materials that you developed for one purpose, which might have new life if they were adapted or redirected to a new purpose? If so, repurposing them may have the benefit not only of generating much-needed revenue, but also of extending the reach and impact of your organization’s ideas. This article focuses on opportunities for nonprofit “501(c)(3)” organizations to generate revenue by repurposing their intellectual property and the key factors they should consider before proceeding.

What Kinds of Intellectual Property are We Talking About?

Intellectual property refers to the original creations of authors, designers, software developers and artists, and the original discoveries and inventions of scientists, which are protected in the United States by copyright, trademark, patent law and trade secret law. In contrast to tangible property such as buildings or cars, which have physical substance, intellectual property is intangible. It takes the form of rights granted by the government to the creators and inventors.

For example, copyright law grants the creator of works such as books and software programs the exclusive right for a time period to control copying, distribution, sale and use of the books or programs. A company that develops a brand name and logo that identify and give value to the company’s product relies on trademark law to control copying and use of the brand and logo. Patent law grants the inventor of a new technology the exclusive right for a time period to manufacture and sell the technology. Trade secret law provides protection to the owners of formulas, practices, processes, designs, instruments and compilations of information that have economic value because they are kept secret. In each case, intellectual property laws empower the owner of the intellectual property to permit or exclude others from using the intellectual property.

Although this article will focus on copyrightable materials, the recommendations and caveats may be applied to other types of intellectual property.

Are We Allowed to Repurpose the Materials and Make a Profit?

Assumptions abound as to what can and cannot be done by nonprofits when it comes to generating revenue. “We’re not allowed to make a profit.” “The funder won’t let us.” “Doesn’t the government own the materials?”

Nonprofits are allowed to earn income, although it is commonly referred to as “revenue” rather than “profit.” Although nonprofits need to treat their income differently from the way businesses treat their income, organizations can legally generate income to advance their mission.

Many funders permit nonprofits to generate revenue from materials created through the use of grant funds, particularly if doing so has the possibility of extending the reach of the originally-funded activities or establishing a self-sufficient model. Assumptions as to what is and is not permitted should be tested, as there is significant variation in the funding world and funders may be open to new ideas.

The government does not always own materials created through the use of government funding, and whether or not it does, additional use of the materials and the generation of revenue may be permitted depending on the terms of the funding agreement. Again, assumptions should be questioned.

Where Do We Start if We’d Like to Repurpose Our Materials?

If your nonprofit has copyrightable materials that may be good candidates for repurposing, these are questions you should ask:

  • Does the new purpose you are considering advance your overall mission?
  • Do you have sufficient rights to the materials to be able to repurpose them?
  • Will repurposing the materials be feasible from a financial perspective?
  • Will repurposing the materials have any negative impact on your current and planned activities?

Looking at each of these in turn:

Does the new purpose you are considering advance your overall mission?

If repurposing the materials is likely to highlight your ideas to new audiences, attract new funders, result in greater impact for your work and/or otherwise advance your mission, then repurposing may make great sense.

If this is not the case and you are focused on simply generating revenue or on other objectives, there are several things to watch out for. First, as a tax-exempt organization you are required by law to engage primarily in activities that accomplish your exempt purposes. Veering too far off track can jeopardize your exempt status. Second, even if you are legally able to veer off track, expansion of your objectives without careful planning—“mission creep”—may be risky from a donor-relations perspective. Third, if the new purpose you are considering is not substantially related to your mission and is essentially a trade or business, the revenues you receive may be deemed “unrelated business income.” Unrelated business income may be taxable, and if the revenues exceed a certain percentage of your total revenues, may jeopardize your exempt status. In any or all of these situations, you may still want to move forward with your repurposing plan—possibly through the use of a related for-profit organization—but you should consider doing so only after carefully evaluating the legal implications with counsel.

Do you have sufficient rights to the materials to be able to repurpose them?

For copyrightable materials—e.g. written materials, films, photos, software, designs—you’ll need the right to adapt the materials into different formats or media, and to reproduce and disseminate the adapted materials. If you are confident that you have adequate rights, you’ll be ready to proceed; but if you’re unsure, you should seek legal advice to determinate who owns which rights. It may not be difficult or expensive to secure the rights you need, but if you proceed without the necessary rights, any revenues you may generate could be quickly depleted by the cost of an infringement action.

If you do not own the rights you need to the materials, you will need to ask the copyright owner for a license (permission) before you take any action. The license should be in writing and signed by both parties and should specify, at minimum:

  • The materials to be repurposed and any modifications you’ll need to make to the materials.
  • The amount of the materials to be modified and repurposed.
  • The uses you wish to make of the repurposed materials (e.g. make additional copies, distribute and sell in a new format or to a new audience; display or broadcast a film version).
  • The time frame for your use.
  • If relevant, the geographic territory in which you plan to distribute, sell, display or broadcast the repurposed materials.
  • Whether you can allow others to exercise any of the rights granted by the license.
  • Whether any acknowledgments or disclaimers are required in the repurposed materials. 

Will repurposing the materials be feasible from a financial perspective?

This is a calculation you’ll need to do just as you would for any other new undertaking. You’ll need to gather the relevant data and the staff who will be involved and explore whether there is a market for the new materials; whether there will be development costs; whether your organization will be restricted in its use of the revenue; and whether the new undertaking will expose your organization to any new liabilities.

There will likely be additional important questions to ask depending on the nature of your organization and your repurposing plan. It may be difficult to answer these questions definitively, but you should ask them nonetheless and bring in business and legal expertise to assist you in assessing the pros and cons of moving forward.

Will Repurposing the Materials Have any Negative Impact on Your Current and Planned Activities?

Again, this is a calculation you’ll need to do just as you would for any other new proposed project that has the potential to enhance or detract from your current and planned activities. Will the repurposing effort drain financial, staffing or other resources from your current activities, or does it have the prospect of bringing in resources from new partners? Does your organization have the administrative capacity to support the repurposing project, or might economies of scale now be achieved by spreading certain fixed costs over a larger number of projects? Will the public perception of your current and planned activities be negatively affected by the addition of a fee-bearing activity?

How Can We Increase the Options for Repurposing Opportunities in the Future?

If your repurposing project is not feasible from a financial perspective or seems likely to interfere with your current and planned activities, you may not have any choice but to wait or give it up. If repurposing opportunities have been lost, however, due to a lack of clarity on the ownership or permitted uses of the intellectual property you planned to use or due to a loss of rights to the intellectual property, this should trigger a closer look at how you manage the intellectual property that is created by, and flows in and out of, your organization.

In either case, good management practices should be put in place for copyrightable material going forward, including:

  • Keeping an inventory of the types of materials your organization creates and updating the inventory periodically.
  • Assuring everyone in your workplace understands the importance of appropriate maintenance, use and dissemination of copyrightable materials, whether created inside or outside your organization.
  • Requiring employees to sign confidentiality and “work for hire” agreements to assure that all rights to the materials created by your employees are owned by your organization.
  • Familiarizing yourself with your funders’ policies relating to ownership and use of materials created through the use of grant funds.
  • Checking all consultant, vendor and subcontractor agreements you use or sign to assure that the rights to materials that are generated by your consultants, vendors, and subcontractors are owned by your organization.
  • Assuring that consultant, vendor and subcontractor agreements reflect any relevant funder requirements regarding ownership and use of materials created through the use of grant funds.
  • Securing copyright permissions and releases when your organization takes photos, produces audio/video recordings, or otherwise makes use of third-party materials.

These are complex issues. An astute legal advisor can help to set up your organization for successful repurposing projects.

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