Patent Monetization: How to Choose Between Selling, Licensing and Manufacturing

Patent monetization is one of the most useful strategies to add new streams of revenue to businesses. It also reduces the strain on the resources and budget of an organization. However, the potentially viable monetization strategies such as selling, licensing, and manufacturing – must be deployed strategically. The method must be chosen and planned in a way that ensures the best possible Return On Investment (ROI).

The following article discusses the methods of patent monetization and how one can make a wise choice among them. But first, let’s understand the importance of the process.

Why Patent Monetization

A patent allows an owner to turn his/her idea into a monetizable asset by awarding certain enforceable rights. However, merely owning these rights does not result in revenue generation. It requires the patent owners to actively take additional steps to make a profit from them. Therefore, monetization is a promising revenue-generating method for many businesses eyeing enhanced profit.

Manufacturing, Licensing & Selling Products – Which One To Choose?

1. Manufacturing Products

Most inventors prefer to patent their invention or idea before starting with the manufacturing process. The factors mentioned in the figure below can help businesses decide whether to opt for manufacturing or not.

  • Selecting Manufacturer: Most individual inventors and start-ups do not have their own manufacturing facilities and hence they need to rely on external manufacturers. This involves additional complexities like the signing of non-disclosure agreements. Similarly, start-ups and individual inventors may not have the budget or risk-taking ability to manufacture a product, unlike large corporates. If a business decides to opt for manufacturing, it should hire a company that manufactures products based on its technology.
  • Quality Control: Using an external or outsourced manufacturer leads to concerns like maintenance of product quality while manufacturing. The inventor or start-up needs to ensure that the quality is being maintained in order to retain its competitive edge.
  • Marketing and Promotion: Since many individual patent owners may not have the required manpower or infrastructural capabilities to invest in marketing and promotion, they often choose to outsource their marketing activities to external agencies.
  • Capital and Cash Flow: To engage in product manufacturing as a means of monetization, the individual inventor or start-up needs to have sufficient working capital and cash flow due to cost-intensive inventory and logistics.

Therefore, if one is willing to manage all the factors mentioned above, along with the risk of the product being successful or not, then, one can opt for manufacturing the product based on the patented technology.

2. Licensing Patent

With manufacturing involving higher risks, businesses, especially start-ups, prefer to license their patents. It is a cheaper way of generating revenue and is comparatively less risky. This is because one doesn’t have to look after the manufacturing process or marketing of the technology. It’s generally taken care of by the licensee. Licensing factors mentioned in the figure below can help businesses to make an informed choice.

  • Royalties: When patent owners out-license their patent to a third party (licensee), they are entitled to royalties – a percentage of the profits made by the licensee from the sale of products that use the patented technology. Therefore, licensing reduces all the hassles related to product manufacturing and the patent owner can simply enjoy the benefits of royalty without making additional investments.
  • Limited Transfer of Rights: One of the biggest advantages of non-exclusive license is that patent owners transfer their patent rights only in a limited manner. The licensee then uses those partial rights to manufacture products that incorporate the patented technology. This allows the patent owner a risk-free means of monetizing their patent.
  • Transfer of Risk: Methods like manufacturing come with the additional responsibility of manufacturing and marketing the product, which involves certain risks. However, while licensing, one does not need to look after these aspects. Consequently, the risk pertaining to manufacturing and marketing is transferred to the licensee.
  • Cross-licensing: This process involves exchanging certain patented technologies among companies to generate a particular product without infringing on each other’s technology. For example, the semiconductor domain is characterized by such cross-licensing collaborations wherein companies exchange their patented technologies to create their unique products.
  • Patent Pools: Licensing can also be beneficial when it comes to patent pools wherein different organizations share their patented technologies pertaining to a certain standard or a popular technological area. This reduces the probability of infringement and therefore allows all the participating companies to monetize their patents. Further, it also reduces the transaction cost which goes into taking licenses from different parties separately.

3. Selling Patent

This is the final option that some patent owners might choose to generate one-time revenue out of their patents. Selling off a patent to a third party causes the original patent owner to lose all rights to that particular patent. Therefore, such an action requires extensive due-diligence to understand whether the sale will be profitable, both in the short and the long term. We recommend to bear in mind the factors mentioned in the figure below before you start selling patents.

  • Pivoting to a New Technological Domain: Oftentimes, a patent-owning firm may move on to newer forms of technology and the older patented technology is no more economically valuable to them. Such cases call for selling off the older patent at the right value.
  • Competitive Edge: However, not all older patents should be sold since some of them could still hold value for a competitor. Even if some patents do not add value, they require proper diligence before being sold. For instance, it is vital to understand whether they have any defensive value for the owner against competitors.
  • Patent Valuation: Nevertheless, if a patent still needs to be sold, then proper methods of patent valuation need to be used to determine its right market value. There are different patent valuation methods that can be used to accurately determine the value of a patent that is to be sold.

Conclusion

Since the process of patent grant is cost-intensive, ROI becomes critical. Therefore, individual inventors, startups, as well as large corporates need to consider one of the aforementioned methods of monetizing their patents to generate revenue. However, the choice should be made diligently and with guidance from experts.

Sagacious IP offers consultation on patent monetization strategies and provides end-to-end support with the licensing and selling of patents/patent portfolios. Our patent practitioners are committed to offering the most cost-effective solutions to monetize patents.

  • Aman Goyal (ICT Licensing) and the Editorial Team

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