Patent Monetization – Making the Most of Your Portfolio

While several companies have amassed significant patent portfolios, very few actually end up making money from them. This is despite the possibility that some of these assets might have the potential to generate massive revenue for the company. Nevertheless, they sit on the shelf mostly unutilized monetarily. In such cases, organizations often require strategic guidance in understanding how to monetize their patents to maximize their income. Patent monetization is the ideal process here, through which they can achieve this objective through licensing or selling.

This article is a comprehensive discussion on patent monetization and how it has become a valuable resource for companies trying to increase their revenue. It also explores popular patent monetization strategies and how one can properly choose one of these.

What is Patent Monetization?

A patent serves as a declaration of a patent holder’s ability to benefit from their invention. However, the mere possession of patent rights does not guarantee a steady flow of income. The process of monetizing a patent generates income from an intangible asset – the patent.

Patent monetization is when an inventor or company sells or licenses patents to generate income. IP monetization looks different for each patent and industry. Only market pre-emption and transactions can make a patent valuable.

For certain businesses, patent monetization has emerged as a lucrative revenue stream with the potential to generate large amounts of money in the short or long term. For companies with an extensive portfolio, patent monetization is a standard activity.

After understanding the meaning of patent monetization, let us now take a look at its importance for any inventor or business.

Why is Patent Monetization Important?

A patent enables its owner to convert the invention into a marketable asset by conferring certain legal rights. Businesses frequently re-evaluate and modify their business strategies to continue making money and avoid losses because it creates new revenue sources for the company. Patent monetization is essential in this situation. Moreover, without expert guidance, organizations frequently struggle to select the best monetization approach. Strategic advice from patent practitioners can help these entities choose the best strategy to achieve their business goals. Additionally, the right patent monetization approach can help a business generate income from an idle patent without losing the patent rights (through licensing, enforcement, etc.).

Patent monetization may sound like a straightforward concept, but its practical application can be tricky. The next section delves into the various steps involved in patent monetization.

Process of Patent Monetization

There are numerous ways to monetize patents, but the following are the most common steps involved in the process:

process-of-patent-monetization
Figure 1: Process of Patent Monetization

1. Identifying Patents for Monetization: It is not easy for organizations with extensive patent portfolios to choose the patents that can be sold, licensed, etc., without any complications. Patent monetization begins with identifying the valuable patent assets by studying the market and determining the most significant IP assets as per the business strategy. This is one of the key steps in monetizing patents since it helps the business decide which technologies within a patent portfolio are most likely to have commercial value.

2. Patent Valuation: It is the method to determine a patent or patent portfolio’s actual market worth. Before monetizing any patent, businesses and inventors must perform patent valuation as it helps them decide whether to proceed with monetization or not. 

3. Planning: Once the patent(s) for monetization are selected and their approximate market value is ascertained, a team of experts assimilates the information. Afterward, the team works on one or more strategic plans until it selects the best one.

4. Execution/Finalization: After selecting a strategy, it is time to implement initiatives. This step can also include government representatives carrying out necessary legal tasks to complete the deal.

The following section will go through some of the most popular monetization strategies available for businesses and individual inventors.

Best Patent Monetization Strategies

Implementing the right patent monetization strategies can open a new gateway for generating cashflows directly from the patent. The four most successful strategies for monetizing patents are as follows:

popular-patent-monetization-strategies
Figure 2: Popular Patent Monetization Strategies

1. Manufacturing

Before beginning the manufacturing phase, the majority of innovators choose to patent their innovation or concept. Businesses can determine whether to pursue manufacturing by using the aspects mentioned below.

  • Choosing a Manufacturer: Most start-ups and individual innovators lack manufacturing facilities. Hence, they rely on third parties to produce their products. The signing of non-disclosure agreements is one of the additional complications involved with this. Similarly, unlike giant corporations, start-ups and individual inventors usually do not have the resources or capacity to take calculated risks to build a product. If the patent holder chooses to go into manufacturing through a third party, they should employ a business with proven expertise in manufacturing products in the industry.
  • Quality Assurance: Using an outside or external manufacturer raises issues with maintaining product quality during manufacturing. To keep its competitive advantage, the patent holder must ensure the maintenance of quality standards.
  • Marketing and Advertising: Many individual patent owners outsource their marketing efforts to other companies since they might not have the necessary resources or infrastructure to invest in marketing and promotion.
  • Money and Cash Flow: Due to expensive inventory and logistics, an individual inventor or start-up needs to have enough operating capital and cash flow to engage in product manufacturing as a form of monetization.

2. Licensing

Due to the higher risks associated with production, businesses, particularly start-ups, prefer to license their patents. It is less risky and more affordable than other ways of generating revenue through patents since the patent holder does not need to worry about marketing or manufacturing. The licensee is usually in control of these business aspects. The following is a list of the factors to take into consideration while licensing a patent:

  • Restricted Transfer of Rights: The fact that patent owners can transfer their patent rights in a limited manner is one of the most important benefits of non-exclusive licenses. The licensee then uses these limited rights to produce goods with the proprietary technology, giving the patent owner a risk-free way to make money.
  • Cross-licensing: This method entails the exchange of certain patented technologies between businesses to create a specific product without infringing on each other’s IP. Such cross-licensing partnerships are typical in the semiconductor industry, where businesses trade patented technologies to produce their original goods.
  • Patent Pools: Licensing can also be advantageous in patent pools, where several organizations share their patented technologies related to a specific standard or a well-liked technological field. Due to the decreased likelihood of infringement, all involved companies can earn income off their patents. Additionally, it lowers the transaction costs associated with obtaining licenses from various parties independently.
  • Royalties: Whenever patent owners grant an exclusive license to a third party, they are entitled to royalties, representing a portion of the licensee’s sales revenue from goods utilizing the patented technology. As a result, licensing eliminates all the difficulties associated with manufacturing, allowing the patent owner to reap the rewards of royalty payments without making extra investments.

3. Selling Patents

This is another option available to patent owners who wish to monetize their innovations. It helps them make a one-time profit from their IP. The original patent owner forfeits all rights to a patent when they sell it to a third party. Therefore, thorough due diligence is vital before taking such a step to determine whether the transaction will be advantageous in the short and long term. Before beginning the patent sale, we advise you to consider the factors listed below:

  • Changing to a New Technological Domain: A company that holds a patent may adopt newer technology, making a previous patent obsolete in terms of its economic value. In those circumstances, the company needs to sell the older patent at an appropriate price.
  • Competitive Advantage Over a Rival: Certain older patents can still remain valuable to a competitor, so it is advisable not to sell every old patent. Even if a patent does not bring value to the owner, selling it might cause harm to the business. Therefore, it is essential to know if the patent provides any protective function for the owner against competing enterprises.
  • Patent Valuation: Before selling any patent, it is necessary to do a patent evaluation to determine the genuine value of the invention. The value of a patent to be sold can be precisely determined using various patent valuation techniques.

4. Enforcement

The patent’s claims that specify the scope of the invention, must be carefully examined to ascertain whether there has been a patent infringement in the market. If the infringement exists, then the patent owner can enforce his/her patent rights to generate additional revenue. When infringement is established, the court orders the infringing party to pay royalties based on past use of the patented technology along with other damages to the patent holder. One of the most powerful options for patent monetization, enforcement also comes at a huge cost. If not strong enough, the patent is likely to be overthrown or invalidated, causing the patent owner more harm than good. Therefore, this option should only be considered when you are sure that you have a strong patent that would easily pass the invalidation test.

Before deciding on any patent monetization method, it is advisable to develop the right mindset and understanding since each strategy has its perks and drawbacks. The appropriate strategy can increase the revenue streams needed to grow the company. The section that follows next will go over the practices essential for effective patent monetization.

Best Practices for Patent Monetization

Developing a thorough, doable, and practical patent monetization plan is critical. Following are a few best practices that you can adopt when opting for patent monetization:

  • Defining Goals: The first and most crucial step in ensuring effective patent monetization is setting goals. Businesses can have a variety of objectives for monetizing patents, including generating income by selling, licensing or enforcing, or organizing and recovering R&D expenditure to sustain a competitive edge. Without clear goals in mind, it can be tremendously challenging for the in-house or outside counsel to achieve the desired result from patent monetization.
  • Discovering the Right Patents (Core vs Non-Core) to Monetize: The patent monetization process begins with thoroughly analyzing a company’s patent portfolio. It is one of the most significant aspects of the entire patent monetization process as it helps discover which technologies in a patent portfolio are likely to be economically useful. This involves distinguishing non-core patents from core patents and using the former to establish additional cashflow.
  • Using the Right Criteria for Picking Patents to Monetize: Several factors must be taken into consideration before deciding which patents should be monetized. Each patent monetization service provider may have different standards to satisfy its unique objectives. A business may employ the following standards:
  1. How much is the patent worth?
  2. How solid are the claims made in the relevant patents?
  3. Is there any patent infringement happening in the market?
  4. Does the relevant patent cover the client’s core or non-core technology?
  5. What are the market-based pricing mechanisms for IP?
  • Formulating Strategies for Patent Monetization: Since there are many strategies for monetizing patents, including direct licensing, enforcement, etc., a business should strive to pick the most suitable strategy. The right choice can help the business maximize revenue generation while sustaining a competitive advantage over other players in the market.

The next section highlights some of the best patent monetization techniques that businesses can utilize to generate revenue.

Techniques for Patent Monetization

  • Reducing Maintenance Costs of Patents: It can be challenging for businesses to maintain a sizable patent portfolio since some patents may be outdated or no longer have the same competitive edge over other technologies today. It is preferable to let such IP lapse to avoid the unnecessary strain of paying yearly maintenance costs. Many intellectual property experts recommend companies or inventors revoke any patent that would not increase revenue today or in the near future.
  • Third-party Licensing: Another successful technique now being employed by businesses to monetize patents is third-party licensing. Here, companies grant licenses to third parties in exchange for the agreed-upon monetary compensation. The license holder has permission to utilize the inventions that the patent holder owns to produce, sell, import, or otherwise use the relevant technology. Apple, IBM, Microsoft, Qualcomm, Nokia, Kodak, Hewlett-Packard, Intellectual Ventures, Acacia, Texas Instruments, Conversant, NTP, and other companies generate billions of dollars every year just by licensing their patent rights to third parties.
  • In-licensing & Out-licensing: The terms “in-licensing” and “out-licensing” are commonly used in the marketing of drugs. Even though a company might conduct clinical trials to develop a medicine, it might not find it beneficial or feasible to produce and market the drug globally. Therefore, corporations typically out-license these pharmaceuticals to other businesses in a particular region. Usually, the licensees pay the inventor an in-licensing fee in exchange for the commercialization rights.
  • Patent Securitization: Even in developed countries, borrowing/lending partially or entirely against IP assets is a relatively new practice. However, it is becoming more common to use IP as collateral for commercial loans and bank funding, particularly in the music industry, Internet-based SMEs, and high-tech industries.
  • Acquisitions and Mergers: Two businesses with complementary patents and technology can pursue acquisitions and mergers to increase their market penetration. This method has also become one of the most effective ways for businesses to monetize patents. For instance, a beer company might decide to acquire a smaller rival brewery, allowing the smaller business to increase production and increase sales to its brand-loyal customers.
  • Donating Patents: Another significant method of monetizing patents for businesses with sizable patent portfolios is to donate them to universities, research organizations, and other public entities. Donations can result in significant tax benefits and may also allow businesses to improve their connections in early-stage research in universities. 

Let us now examine a few common mistakes that occur while monetizing patents.

Common Mistakes During Patent Monetization

For many people, organizations, and corporations, monetizing patents has proven to be the most effective method for generating vast or regular sources of income. However, several errors frequently occur in one way or another and result in a significant loss. Some of the most common mistakes in patent monetization are mentioned below:

  • Wrong Strategy Selection: There are numerous patent monetization strategies available for inventors and businesses. The patent’s technological background and the inventor’s expertise play a key role in selecting the right strategy. The decision to use a particular monetization technique, such as licensing, litigation, acquisition, etc. is entirely up to the inventor or owner. Even choosing a monetization strategy needs some form of financial commitment. Many inventors/businesses pick the wrong monetization strategy and end up losing more than they gain.
  • Not Understanding the Right Worth of the Patent: Before engaging in a license negotiation or legal action, one common mistake is failing to comprehend the value of your patent. If this happens, you could end up licensing a key piece of intellectual property for much less than its market value.
  • Incomplete or Ineffective Analysis of the Market and Industry: A patent analysis considers comparable patents based on similar market transactions to assess the patent’s utility and technological specificity. However, such analysis is not always reliable as all technologies are different, and it is immensely difficult to gauge the impact of technology with certainty. An expert IP professional can provide correct advice at this juncture.
  • Not Consulting an Expert: It is preferable to seek advice from a competent, experienced, and efficient IP consultant who can assist with complicated procedures like IP valuation, patent litigation, revenue strategies, buyer identification, patent codes, technological knowledge, and patent laws, as well as studying international databases to increase the inventor’s work’s value and quality simultaneously. Without in-depth market knowledge and technical expertise, monetization cannot proceed profitably.
  • Impatience: This is quite common while monetizing patents. The monetization process is highly sluggish and must be done carefully. Otherwise, this error could cost the patent holder a lot of money. Therefore, by avoiding these typical errors, patent owners can increase their income significantly and enable their property to realize its full financial potential.
  • Systematic IP Valuation: Patent owners frequently skip performing an IP valuation, which can be greatly helpful in determining the worth of your patent. When calculating a patent’s current value, the nature of the innovation and competition analysis must be considered. IP valuation can be used to determine the best price for your patent. You can get paid less if you do not know how much your patent is now worth. It includes extensive market knowledge, which is essential for the patent’s fundamental operation in relation to the market.
  • Partnering with the Right Company: It is not easy to traverse the path of patent monetization on your own because it encompasses many technical and non-technical components and calls for idea brainstorming. To monetize your patents, the proper firm must have a comprehensive understanding and practical experience. Choosing the correct organization to partner with can assist you in achieving the highest ROI.

Sagacious IP has proven expertise in helping businesses monetize their patents. In the following section, we will go over several reasons why Sagacious IP is a great partner for you.

Why Choose Sagacious IP for Patent Monetization Service?

Below are some reasons for selecting Sagacious IP as your patent monetization partner:

  • Flexible method for valuing patents in any technology field.
  • Proven track record of identifying the correct patent value using relevant technologies and tools.
  • Quick, precise, and cost-efficient results to optimize your R&D efforts, improve your intellectual property rights, and increase your income, stock market performance, and reputation.
  • Years of experience in supporting industry leaders in patent monetization.
  • Ability to comprehend the claims from an infringement standpoint and to recommend changes based on our expertise.
  • Adept in advising claim adjustments, including the addition, removal, or rephrasing of elements to better reflect market products.

All these reasons and many more make Sagacious IP the first choice for many large and small businesses seeking to monetize their patents.

Final Thoughts

Creating a successful patent monetization plan is essential for businesses with a sizable portfolio of patents. In addition, organizations with a handful of patents can also benefit from it. Companies who wish to increase their revenue can utilize patent monetization, even though it is challenging and time-consuming. Individual inventors, start-ups, and major corporations should consider one of the aforementioned strategies for generating income from their patents. The decision should made carefully, and preferably with the help of experts.

Sagacious IP provides end-to-end assistance with the licensing and selling of patents and patent portfolios and advice on patent monetization strategies. Our patent attorneys are dedicated to providing the most affordable ways to monetize patents. Click on the Link for additional details on Patent Monetization.

– Honey Mago (ICT Licensing) and the Editorial team

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