Patent Licensing and Selling – Top 3 Mistakes People Make

Most often, businesses with robust patent portfolio face difficulties in choosing the right strategy when it comes to monetizing patents. The high-stake deals pertaining to selling or licensing these patents leave a little margin for mistakes, as issues that arise at this point can cost a fortune. The following article lists the top 3 mistakes that organizations should avoid to derive maximum value from their patents while licensing or selling them. Let’s begin by understanding the need for patent licensing and selling.

Why Patent Licensing/Selling is an Important Part of Business Strategy?

Some organizations may consider patents as an ad-hoc revenue stream rather than a part-and-parcel of the greater business strategy. Instead, they should view patents as a regular alternative revenue stream that can complement their core business activities. For example, when an organization develops patents, they have a few choices: they can either practice those patents by incorporating them into their products and services; or sell them off at a hefty price.

Similarly, businesses can also choose to license their patents and make a profit out of royalties. However, the catch is that sometimes patent licensing/selling deals can be extremely complex. They often leave room for pricey mistakes. The idea is to foresee such issues and avoid them completely.

Prevent Making these 3 Mistakes While Patent Licensing/Selling

The figure below highlights the top 3 mistakes that organizations are likely to make while selling or licensing their patents. Thereafter, each point is explained in the paragraphs following the figure.

Patent Licensing
Figure: Mistakes to avoid while licensing or selling patents

1. Selling Fundamental Patents

Without a proper portfolio evaluation, organizations may end up selling their fundamental patents, which are associated with their core activities. Therefore, it’s advisable to always license such patents instead of selling them. Otherwise, the company might lose its competitive edge in the market. Organizations must evaluate their patent portfolio on a regular basis to identify patents that are core and non-core to their business.

Moreover, they can also perform dynamic competitive analysis to identify the core and non-core domains of their competitors. For example, if an organization’s non-core activity is core for its competitor, then that patent should not be sold as it is fundamental for them – those patents can be used for defensive purposes.

2. Incorrect Patent Valuation

Another major mistake made by people while selling or licensing their patents is inaccurate valuation. Since there are no industry standard procedures for patent valuation, businesses may wrongly estimate the value of the patent family or even the entire patent portfolio. Patent valuation approaches based on the market, cost, or income factors can help to a great extent in accurately judging the value of a patent.

Adept in carrying out such processes, external patent valuation experts have the required experience and domain-specific knowledge to evaluate patents and accurately estimate their value. Such experts analyze the existing prices of similar patented products in the market; the level of advancement of the technology being used in the patent, as well as the chances of it being infringed by existing products. With the help of such external patent valuation experts, one can refrain from undervaluing patents in a sale or licensing deal.

3. Wrongly Structured Pitch Deck

Lastly, businesses may make mistakes while structuring a pitch deck for their patent or patent portfolio while selling or licensing it. In simple terms, a patent pitch deck is a PowerPoint deck describing the patents available for sale/license along with market and seller/licensor information.

As several IP-intensive companies have hundreds of patents in their patent portfolio, a common mistake made by them is that they often club 70 to 80 patents into a single pitch deck. This not only reduces the per-patent price of each asset within that pitch deck, but also the appeal of the entire pitch deck from a buyer’s perspective.

An effective way to structure a pitch deck is to accommodate 20 to 30 patents within a single deck. Moreover, there should be a combination of deal drivers as well as enabler patents within the pitch deck. To get a much better per-patent valuation, it is advisable to have a proportionate mix of primary patents that act as deal drivers and as supportive enabler patents. The latter enhances the technological features of either deal drivers or technologies relevant for the buyer or licensee.

Similarly, enabler patents help the licensee or buyer to enhance their patent portfolio value. They are not directly infringed by products in the market but they enhance the value of the prevailing technology. So, create a pitch by putting potential enabler patents along with deal drivers in the pitch deck.

Make the Most of Patents

Since patent licensing deals are fairly complex, businesses should not hesitate to seek assistance from external strategic partners who can accurately guide them through the deals. They help organizations leverage the full potential of their patents or patent portfolio by avoiding costly mistakes.

Sagacious IP’s patent licensing and monetization services help businesses to generate new streams of revenue by valuing the portfolio accurately. Our experts offer end-to-end and cost-effective solutions to help organizations adopt effective patent monetization services.

-Aman Goyal (ICT Licensing) and the Editorial Team

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