The 4-Step Patent Licensing Strategy

The four steps involved in successfully licensing your invention are: 
         1. Identifying Patents
 For companies that have more than one patent in their portfolio the decision to choose the one to license is crucial. Categorize patents based on their importance to the current and future business strategy. This will help identify patents that are not related to your products and can be licensed to competitors or closely related industries. You will also be able to spot patents that use a technology that is old for you but is still being used actively in some companies. 

Undervalued patents or those that are no longer of use to the business make excellent candidates for licensing as they help you achieve commercial gains from unused assets. 

         2. Scouting for Buyers 

Once the patents are identified, the next step is to find companies to offer the license to. This requires time, patience, and the ability to find the right target for your patent. So, who can you sell to? 

• Companies that have cited your patent for reference in the forward citations. They may have an active use for your patent. 
• Small companies make for great potential licensees as they are more accessible and have the means to innovate/change quickly.  
• Some technologies/processes find usage outside the traditional intent of their design. Your research must also take such companies into account by exploring companies outside of your industry to whom the tech may be advantageous. 

   

  3. Valuation of Patent 
  The cost of obtaining a patent is a set amount, but the licensing fee depends on various factors. Patent valuation is the approach to evaluate all these factors to calculate the market value of a patent. Three approaches are used in patent valuation: 

• Market Approach – This assesses the patent based on the current market prices and is an analogous method. It relies on the condition that comparable objects are available against which the value of an intangible asset (like a tech) can be calculated. 
• Income Approach – Using this approach, the value of the patent is generated based on the estimation of the future cash flow that the asset might bring. Within the income method, there are four approaches namely, the Direct Cash Flow Prognosis Method, Relief-from-Royalty Method, Incremental Cash Flow Method, and Multi-Period Excess Earnings Method.  
• Cost Approach – In this method, the cost required to replicate the product (reproduction Cost Method) or the manufacturing/acquisition cost (Replacement Cost Method) of a similar product is considered to arrive at the licensing/selling fee. 

   

  4. Setting Licensing Criteria 
  The last step is to determine the type of licensing that a firm should pursue. Each licensing type has its own pros and cons that can be discussed with an attorney to select the approach best suited to the interests of the organization and in line with its future goals and objectives.