Patent Monetization: How To Choose Between Licensing And Selling
Patents are intangible assets with the potential for profits if utilized correctly. Merely holding a patent is no guarantee of cash flow unless the right steps are taken to monetize it. Patent monetization is a common practice adopted by companies with sizeable portfolios to benefit from owning the patents.
Selling, licensing, enforcing against infringers, and forming patent pools are some of the ways in which companies can make patents profitable. Here, we discuss the two most common patent monetization practices, i.e., selling and licensing, and how to select the approach best suited for your business.
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Patent Selling and Patent Licensing
Patent Selling: Selling a patent means permanently transferring all exclusive rights of ownership to the buyer. It is one of the easiest means to gain from patents that have the possibility for financial leverage. Patent brokerage firms can help companies adopt a systematic approach that assesses the market applicability of the patent and reach the right buyers.
Patent Licensing: With patent licensing, companies temporarily assign the rights to use and manufacture their patent to the licensee, in return for a royalty. The patent ownership rights are retained by the licensor. Exclusive licensing, non-exclusive licensing, and cross-licensing are the types of licensing agreements that can be drawn up.
Importance of Patent Monetization
Revenue generation from available resources is among the prime objectives of a company, and patent monetization plays a pivotal role in achieving this. It can open up avenues for an income source through royalties or a one-time sale. There are different types of patent monetization available to a company. Firms specializing in patent monetization can offer strategic guidance to companies to take the approach best suited for their business model.
Considerations for IP Monetization
- Research The Technology Landscape
Like with any product, IP commercialization too demands a thorough study of the patent landscape. Understanding your competitor’s inventions can impact your innovation cycle as well as help gauge the possibility of patent monetization.
- Prioritize Promising Innovations
The R&D involved in inventing a new tech/process entails significant investment. It is therefore important to direct your resources to innovations that have the potential for commercialization. Various tools are available to help you pick ideas that hold potential for commercialization in the future.
- Patent Valuation
Evaluating your patent on criteria such as novelty, scope, potential profit, and litigation will help arrive at its potential ROI. This exercise is important before you decide to monetize your patent.
- Selecting The Monetization Strategy
As discussed above, a business can choose between selling, licensing, or enforcing the patent to gain profits. The chosen strategy will depend on the overall business goals as well as the best fit for the invented tech.
- Holistic Approach
Selecting patents for monetization should not be considered an isolated exercise. Rather, it is part of the more comprehensive patent portfolio management. By considering the IP portfolio as a whole, one can figure out ways to streamline the portfolio and keep it robust.
To Sell or License?
Both selling and licensing are attractive options for patent monetization. Given below are the differences between the two weighed on various parameters:
- Royalties v/s Lump Sum
Licensing is usually based on continued payments as royalties. The licensor receives a regular payment for a pre-defined time from the licensee. It thus becomes a reliable source of income. However, if a company is looking for immediate gains, then selling is a better option. Upon selling, the patentee receives a fixed one-time amount.
- Transfer of Rights
Licensing entails a limited transfer of patent rights to the licensee for a temporary period. But if a patent is sold then all the exclusive rights associated with the patent are transferred to the buyer permanently. Keeping in mind the company’s objectives and the prospects of the patent, the company can choose between licensing and selling.
- Presumed Risk
Patent selling is seen as risk-free by the buyer, unlike licensing where they may feel threatened by impending litigation if they do not accept the terms. But this can be overcome by selling business packages and not patents. Companies today are more interested in purchasing businesses than patents. By rolling your patent into a business strategy it becomes smoother to both sell or license a patent.
- Core v/s Non-core Patents
Core patents include product-protecting patents as well as patents that have a high possibility of infringement by competitors. The licensing strategy is recommended in the case of core patents. On the other hand, are fringe patents and future patents. Fringe patents are those which are easily monetizable and have the least value generation capacity. Such patents can either be licensed or sold as they will not result in a loss of the company’s competitive edge.
The process of identifying core and non-core patents involves considerable time and effort. Using CPC analysis, macro analysis, and other tools and techniques, one can systematically perform this exercise.
Patent monetization is a reliable means of revenue generation. Consider the case of IMB which has been earning significant profits through patent licensing. The monetization process itself is not cheap. The entire transaction involves significant costs but those can be easily recovered to create a profitable scenario. It is always a good idea to sell/license a business rather than just a patent. This makes the deal more attractive to the buyer and increases the prospects.
It is best to hire the services of specialized patent monetization firms to ensure the transaction is smooth and profitable. Experts can help you decide the type of monetization best suited for your company using sophisticated tools and analysis. They also oversee the legal requirements and thus offer end-to-end solutions to make patent monetization a success.
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