The 4-Step Patent Licensing Strategy
Licensing is one of the ways to monetize a patent if the patentee lacks the capital to manufacture or is not interested in doing so. It is different from selling the patent, as the original ownership rights of the patent are retained by the owner. Let’s delve deeper into the licensing process, strategy, and benefits.
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What Is Patent Licensing?
A patent confers the exclusive rights to use and manufacture an invention upon the patent holder. Others are excluded from using their invention without prior permission, which is granted by the patentee through patent licensing. It is a revocable agreement between the patentee and the licensee that allows the latter to use, sell, and profit from the patented invention for a limited period.
Types of Patent Licensing
There are two types of patent licenses:
- Exclusive Licenses – With exclusive licensing, all licensing rights are transferred to a single licensee, to the exclusion of others. This ensures that the licensee enjoys a monopoly for the use and sale of the invention.
- Non-Exclusive Licenses – As the name suggests, the licensee does not secure monopolistic rights over the invention. Products that do not require high investments or can simultaneously be sold profitably by more than one business are usually considered for such licensing.
- Cross Licensing – Sometimes, a license-barter is possible between two organizations that require the support of each other’s tech to create a product. This ‘exchange’ of licenses is referred to as cross–licensing.
Advantages of Licensing
- It helps profit from your invention without the need to invest in manufacturing or undertake the hassle of managing a business.
- Expedites launch of a product through a famed company with the brand name and necessary infrastructure to make and market it.
- Since the licensing agreement is for a limited period, the patent owner retains exclusive rights over their invention.
- Entering foreign markets becomes easier via licensing. By allowing foreign companies to utilize your IP you overcome any taxation hurdles or tariffs that would have been a concern if exporting physical products.
4-Steps to Successful Licensing
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.
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.
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.
The task of patent licensing is as arduous and complicated as obtaining a patent. A thorough and comprehensive analysis is needed to ensure that the licensing agreement is foolproof and meticulous. Hiring a professional patent licensing firm is a sound business decision. It helps take care of every detail from identifying patents, evaluating the value, finding interested firms, and drawing up a licensing agreement. For a small fee, you can avert the massive complexity and confusion entailed in the patent licensing strategy.
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