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From Ideas to Profits – A Path to Monetizing Patents

Intellectual property is one of the most important
assets of a technology company. For many companies, it
accounts for approximately 60% of the company’s assets. This
article summarizes how patents are valued, and how companies
can monetize patents, i.e., obtain funds against their
patent or patent portfolio.
To gain a competitive edge in the marketplace, a
company needs to have a well-crafted patent portfolio
strategy in place. An effective strategy encourages
development of ideas into technologies, patenting of such
technologies, and deployment of the patented technology to
meet the company’s business objectives.
A crucial factor in tapping the potential of a patent
is timing. A patent may encompass a useful, breakthrough, or
disruptive technology, but if the sale is ill-timed, the
utility of the patent will decrease over time. Hedy Lamarr,
a Hollywood actress, and George Anthiel, a music composer,
jointly patented their idea on spread spectrum wireless
communication in 1941. During the 20 year life of the
patent, they did not earn a penny from their patent. But,
today spread spectrum technology is widely used in wireless
communications including GPS!
David Kappos, assistant general counsel at IBM who
manages patents, said, “Right now, what you’ve got is a
marketplace where nobody knows what the asset is worth.”
Nevertheless, patents need to be valued to get a
substantiated idea-to-profit conversion. Patent valuation
refers to the estimated market value of a patent. A patent’s
worth is in its utility. A patent’s valuation depends upon
several factors. First, the utility of the patented
technology in addressing a market need is evaluated to
determine the profitability that will accrue from use of the
patented technology and the advantage of deploying the new
patented technology. Second, a patent is evaluated for its
ability to replace existing technology, or, to start a new
technological trend. Third, a patent is valued based on the
scope of a patent’s claims. Many patents sharing a given
technological space with narrow claims are less valuable
than a patent with broad claims. Fourth, valuation of a
patent depends on the $ amount of the market as a whole for
the patented technology, the projected market share that the
patent can capture from the overall market, and the
projection of the market share in $ over the life of the
patent and on any continuation patent applications filed on
the original patent to extend the patent monopoly.
The quickest path to monetizing a patent or patent
portfolio is to sell it to companies that are in the
business of purchasing patents. Outright sale of a patent
eliminates the financial outlays of starting a business or a
company around a patented product. However, the monetary
returns on patents may be low and the inventor forfeits
ownership of the patent.
A second model for monetizing patents is to license the
patent(s) to companies. The patent holder retains ownership
of the patent and earns a royalty of about 5-20% on future
sales of the product over the life of the patent. Licensing
often translates to larger monetary returns compared to sale
of a patent, if the utility of the patented technology is
high, widespread, and significant over time. IBM’s revenues
from the licensing of its patents are in excess of $1
billion, annually. Most of the software giants like
Microsoft, Sun Microsystems, etc., obtain a significant part
of their revenue from licensing of their software patents.
A third model for monetizing patents allows a company
to raise funds from financial institutions against the
patent assets of the company.
A fourth model for monetizing patents is a hybrid model
where the patent holder sells the patent(s) to a purchaser,
with a royalty-free non-exclusive license back to the patent
holder plus a percent of the royalty that the purchaser
earns on the licensing of the patent(s); this allows
companies to monetize their non-core patent assets while
still continuing to build a viable business.
A crown-jewel patent protecting a significant, first
of its kind technology may be used to block competitors and
create a market-niche for the company. A portfolio or even a
solitary crown-jewel patent may form the basis for a start-
up or spin-off companies.
Fence patents are used to surround or picket-fence core
technologies especially those of a competitor, with all
conceivable improvements over the core technology. This
sometimes compels the competitor to cross-license its
patents. Cross-licensing is prevalent amongst companies with
overlapping core technologies. Sony and Samsung Electronics
have entered into a 5 years cross-licensing agreement
covering over 24,000 patents in an effort to reduce cost and
potential friction.
Another method for monetizing patents is proactively
finding products that infringe the patent and thereafter
offering to license the patented technology to the
infringer, or seeking treble damages for willful
infringement.
Infringement damages in the billion dollar range are
not uncommon. Recently Microsoft settled an infringement
action by Alcatel for $1.5 billion for infringement of
Alcatel’s patented MP3 technology.
Although a patent is often classified as an intangible
asset, with prudent choices of monetizing, patents are as
tangible as any other property of a company. Like any
property, a patent can be sold, split, licensed, cross-
licensed, etc.


 
This article was submitted by - Ash Tankha Please Rate/Review this Article - Recommend it to friends

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