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A Quick Guide To The Ways Of Patent Monetization
What are patents for, if not monetization? That’s a common belief, especially among small and medium businesses (SMBs). Acquiring assets, building a robust patent portfolio, brand building, etc., follow closely after the primary objective of making money from patents. And why not? Patent prosecution and maintenance are expensive, as is the investment in the R&D for inventing a tech/product. Retrieving these costs is imperative to run a successful business. So, it makes perfect business sense to seek ways that can help you profit from your hard-earned patent.
There are several ways in which you can monetize a patent. Selecting the right way will depend on the nature of your invention, market conditions, business goals, as well as other factors. Below, we explore the various means of patent monetization in detail.
Table of Contents
Methods of Effective Patent Monetization
The best practices in patent monetization are:
- IP Bank
Licensing a patent entails giving another entity the right to use patented technology for commercial purposes. The original rights of ownership are retained by the license owner, while the licensee can use the tech for a designated period. There are various categorizations of licensing, as explained:
- Exclusive Licensing: This form of licensing involves the transfer of rights exclusively to one licensee and cannot thereafter be shared with others for the contract period. In this type of licensing, all the involved parties must agree to proceed with the terms. It benefits the patent owner because they are assured of a fixed sum of money regardless of the product’s performance in the market.
For the licensee, it is an assurance that they have a monopoly over the product in the market. Sometimes, the licensor may place certain restrictions on the licensee if they wish to use the residual rights to commercialize in-house or distribute related rights to others. They may take the form of:
Product restrictions, which may limit the manufacturer to a particular category of products
Field restrictions, to keep the licensee confined to a specific field
Geographical restrictions, that limit the territory the licensee may operate in.
- Non-exclusive Licenses
As the name suggests, no exclusive rights are given to this type of licensing. The patent owner is free to allow any number of licensees the rights to commercialize the product. This leaves the market open to competition. Non-exclusive licensing provides a lucrative source of income for the owner from multiple sources. For the licensee, it is beneficial because of the reduced licensing fee as compared to the hefty amounts payable for an exclusive license.
- Sole Licensing
In sole licensing, the licensor retains the right to pursue the technology themselves. It works the same way as an exclusive license, with the single exception that the patent owner reserves the rights to exploit the Intellectual Property, but cannot grant any other sublicenses. The terms ‘sole’ and ‘exclusive’ must always be explicitly mentioned in the agreement, along with the intended meaning, to avoid disagreements later.
- Co-Exclusive Licensing
Considered a middle ground between exclusive and non-exclusive licensing, co-exclusive licensing means that the licensor is free to grant the license to a limited group of licensees. There are several ways to define this group: by name, description (granted only to those who meet a set of eligibility criteria), or number (a pre-decided number of licenses will be handed out).
- Carrot Licensing
When a business is not using a patented tech and is under no obligation to take a license, the carrot approach is used to pursue such a business to voluntarily seek the license. It involves marketing the advantages of using the tech to increase the efficiency of the business. The idea is to make patented tech seem valuable to the business and project the benefits it can bring to their processes.
- Stick Licensing
The stick licensing approach is appropriate when the licensor is already infringing on the patented technology. It offers a chance for the infringer to take a license in order to avoid facing an expensive litigation battle in court.
- Cross Licensing
Cross-licensing is like a license barter wherein each party voluntarily allows the other to use their tech without the risk of infringement. This exchange of licenses allows both to borrow the necessary elements from each other’s tech and bring the product into the market. There is no licensing fee involved in this type of licensing.
Advantages of Patent Licensing
Patent licensing offers various benefits, like:
- The opportunity to bring the product into the market without spending the time or resources in manufacturing.
- Reducing the risk of vagaries of the market. The licensor gets paid regardless of the product’s performance.
- You can gain royalties from infringers without getting involved in a costly litigation battle.
- The Licensor retains the ownership of the patent.
- The product gets a faster launch with better market penetration courtesy of the licensee’s marketing and distribution network.
Patent enforcement is one of the most powerful options available at the patent owner’s disposal. If a business is found infringing on patented technology, the patent owner can issue a notice to the infringer. If negotiations to buy or license the patent do not pan out, the patentee can approach the federal district courts which hold jurisdiction over the matter.
Before filing a case, it is important to scrutinize the claim carefully to prove infringement. A doctrine of equivalents is also applied by courts in such matters which states that the invention and the infringing product must be found similar in what they do and how they do it, in order to prove infringement. There is a huge monetary compensation if a litigation case is won but the road is not easy. Be prepared to spend copious amounts of money and time in the legal battle without any assurance of emerging victorious at the end.
Patent pools are consortiums of two or more companies to license their products to others. Businesses aggregate their patents which are then made available for licensing to members as well as non-members. Such pools are especially found in industries where interoperability is a concern to ensure the consumer’s comfort. Patent pools are an excellent mechanism for both implementers and innovators to increase efficiencies and reduce transaction and litigation costs. Licensing to patent pools is a hassle-free way to ensure steady royalty income.
Selling a patent is the most common way of monetization. Selling directly or through a broker are the two options available to a patent owner. Various patent marketplaces can be found online for selling patents directly. Once the patent assessment and evaluation are completed, the next step is to find potential buyers who would be interested in buying the patent.
The entire journey from assessment to negotiations can become cumbersome without the help of professionals. This is why hiring a team of professional brokers is recommended to ensure a smooth transaction. Brokers help match buyers with sellers and assist in closing the deal. They also take care of other pre- and post-sale aspects like initial due diligence, value analysis, technology assessment, market analysis, competitive analysis, lead development, introductions, lead management, contract negotiations, and relationship management.
There is another selling option available to patent owners, that of an IP Bank. They offer a viable solution for both startups and big companies. It is a substitute selling route that offers small companies an avenue to sell to bigger businesses looking to outsource/buy new technology. It also helps enhance the IP portfolios of pioneering firms looking to build a robust portfolio.
Patent monetization is a rewarding proposition if utilized correctly. It is important to spend time and effort in designing a monetization strategy, conducting IP valuation, analyzing the market, as well as defining the goals of monetization. Some firms make the mistake of proceeding without taking into account one or any of the considerations listed above. This can be a grave mistake that can significantly reduce the profitability margins.
The optimum solution is to hire a knowledgeable IP consulting firm that can take care of all your patent monetization needs. Each patent portfolio is unique and monetization experts can help you design a plan customized to the needs of the specific patent. In short, a patent monetization team combines the technical skills, business skills, and legal skills required to make a successful deal.
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- Patentability Search
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- Patent Portfolio Management
- Patent Monitoring
- Patent Infringement Search
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