Patent Monetization: Busting the Myth | Idea = Money

Patent Monetization Busting the Myths

People buy businesses. They don’t buy patents. The news will tell you about the one guy who won the lottery but never about the thousands who bought tickets for nothing. Hollywood will share with you success stories of idea men who sold an idea for millions. Not much is ever said of those whose ideas didn’t convert to big money. Naturally, the notion that most people have is that an idea means money. However, ideas backed by businesses means money. People buy businesses. Thus, patent monetization is synonymous with building a business around it.

Why Patent Monetization?

The most cited example of a company that has aced its patent monetization game is IBM. They make tremendous amounts of money by licensing their patents. In 2019 alone, IBM was estimated to have earned US$367 million in revenue on patent licensing activities. They can do this because they have amassed one of the largest patent portfolios that exist today.

The IBM example is tantalizing as a patent monetization example. But really, how many IBMs can there be? And how many years does it take for a company to get there? 

We know each granted patent costs somewhere between USD 50000 on average and annuities are a further significant expense. As a company, you may choose to monetize your patents by: 

  • Enforcement, or
  • Sale

Is Enforcement Really A Way to Go?

Licensing 

Patent licensing is a form of patent enforcement. Licensing feels like a threat to most companies. This puts companies on the defensive and the instinctive reaction is to countersue. More often than not the licensing approach leads to courts and litigation. Walking down this path means money spent in legal fees, and a possible settlement. And spending money becomes the antithesis to your primary goal of monetization. 

Patent Monetisation: Is Enforcement Really A Way To Go?

A lot of companies shy away from monetization by licensing because of the risk of a countersuit.

Reduce The Risk Of Countersuit While Licensing

Here are a few things you can do to reduce the risk of countersuit while licensing.

  • Use patents from nascent areas within your corporation
  • Roll patents into your Business Sale Package

Use Patents from Nascent Areas Within your Corporation

A nascent area is one where

  • You no longer practice
  • You no longer sell products, or
  • The division is shut down 

but you still have existing patents.

Licensing is a great approach to monetization in nascent areas because it nullifies your risk of litigation. With no products backing your patents, businesses are more likely to invest and less likely to sue. And even if there is a chance of a lawsuit, you have nothing to lose because you no longer sell the products in these areas.

Roll Patents Into Your Business Sale Package

Every business is built for sale; it depends on what’s the price the buyer is willing to pay. Whether your business is booming or you are looking to shut it, roll your patents into the business package when you sell it. This also holds true for a single factory or product line. This will boost the chances of the sale of your business and meet your goals of monetization. 

Investors find it easier to comprehend the purchase of a business that has a potential revenue stream. Patents in the business are a great lure for potential investors. 

Patent Monetization by Sale | Be Strategic, It’s Arduous

Sale is less threatening when compared to licensing a patent or patents. Enforcing a patent comes with its set of challenges – more often than not, lawsuits. Sale, on the other hand, is a clean cut that comes with no risk. 

But where does one sell a patent and for how much? Who buys them and what is its marketplace?

There’s good news and there’s bad news. Let’s give you the bad news first: 

There was a time, not too long ago that patent portfolios were bought and sold with 7 figure transactions. Those times have now changed. Today, these figures have dropped to 5 figure transactions, on a good day.

The good news is patents are for businesses. And people buy businesses. Patents can still be bought and sold today, just not how they used to be earlier. Today, patents and businesses are a package deal. And you can sell these anywhere you like, but the legal department is not the best place to go.

There are circumstances where you will be able to sell a patent without a business. However, these circumstances are rare. In 2012, Yahoo sued Facebook for infringing a bunch of their patents relating advertising, privacy, customization, messaging and social networking. Facebook countersued Yahoo with specific patents, most of which they acquired, almost overnight. It usually is only circumstances such as these where businesses are willing to buy just patents. And waiting for these chances to come by is like waiting for a month of Sundays. 

The best and probably the only effective way to monetize a patent is to build a business around it. When you are selling just a patent, you are selling a right around an idea for a business. People aren’t used to buying that. When you back your patent with a product and a business though, everything changes. 

Patents are easier to monetize when bundled with a business

Selling To A Business

As a thumb rule, unless circumstances are exceptional, selling a single patent is impossible. Patents are best sold as families. So, who do you approach when you are looking to sell a patent portfolio? It’s best to take a patent portfolio to a business development team in an organisation. Our advice would be to prefer the businessmen over the lawyers. Lawyers are wired to deflect risk. Businessmen, they enjoy risk and innovation. 

Patent Brokerage

There are a bunch of patent brokerage firms. These work through patent brokers who represent patent buyers and sellers by serving as intermediaries to facilitate patent sales. They help throughout the process of patent transactions including the initial identification of suitable patent assets to sell, selection of sellers, screening of patents and identification of important patents and claims.

However, the brokers do not show any interest in single patent deals. They prefer selling patent portfolios altogether so that they can make a decent amount of money in the brokerage.

Let’s Sum It Up

Patent monetization is a tantalizing prospect. Reading stories of companies that have made millions from patent sales is exciting, hopeful and tempting. But like most things, there’s a lot more to those big numbers than meets the eye. As someone who is looking to monetize their patents, it is important to be fully aware of the challenges that you may face. Here are some pointers and reminders for you.

  1. In the traditional sense, patent monetization requires you to have a large patent portfolio. This may take years to build and a considerable amount of resources to maintain. As a large company with resources, this may be an option. Be reminded though, that you are looking at a long timeline here. 
  2. You can choose to go down the enforcement route when monetizing. This means you can license your patents to businesses in the marketplace. Licensing can backfire with a countersuit as a consequence. Be mindful when going down this route. Choose strategically – patents from nascent areas or inactive areas in your business. 
  3. When looking to sell, remember – patents without businesses have little to no value. If you are looking to monetize your patents, build a business around them. You can choose to sell them at any stage this way. Either as a fledgling business or as a spin out. 
  4. The business development teams in organizations are your go-to people for sales. Avoid sales through the legal team because they will be more likely to avert risk rather than take it. 
  5. When looking to sell patents, look to sell in bulk. Sell your patents as a family. As a general rule, patents don’t sell in isolation. You can choose to make sales to business directly or through patent brokers or marketplaces. 

In summary, monetizing patents is not an easy task. There are costs involved through the process of monetization as well. However, if you have a good strategy in place, transactions can be very fruitful. Thumb rule: Selling patents with businesses will be a win-win situation for all concerned. 

Note: The preceding is general business advice and not to be construed as legal advice. IP laws vary by country and retaining licensed legal counsel is advised to confirm this information. Any expressed or implied opinions are of the author and do not necessarily reflect the views of Triangle IP or any other entity who might be associated with the presenter. We hope this content is helpful to you, but should not be relied upon without confirming the advice and accuracy with local legal counsel. Any comments or inquiries are not confidential so please discuss your issues directly with counsel.

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How To Seek Investment Using Patents?

Seeking Investment using Patents Triangle IP

Seeking investment using patents? Is a patent enough?

Seeking Investment Using Patent, Look for Strategic Partner

Myth: Having a patent is enough to seek investment!

The Hard Truth: Sorry to break this to you but a patent alone cannot get you an investment. In the absence of a proven business, it does not make sense for the investor to risk his money.

When you seek investment the most common questions asked by a probable investor are:

  • What are your sales?
  • How much does it cost you to make that product?
  • What are your margins?
  • Is your product unique? Do you have a patent?
  • Why do you need the money?

The purpose of all these questions is to find out if their investment can earn them good returns or not.

If you have a revenue stream that can show sales, it’s really easy for investors to value a business. It’s just a function of some sort of multiple on earnings or some sort of anticipated growth in the market. Most investors are very well equipped to understand something like that.

But, when you don’t have a prototype, sales or anything like that and you simply have a patent seeking investment, it is a much more difficult task. Because a patent is only the right to exclude somebody from doing what’s covered in the patent. You have to convince somebody that doing it perhaps exclusively has value and because the patent has so much value that even licensing the patent shall fetch them a good amount of money.

Seeking Investment Using Patents | Look for Strategic Partner

Seeking Investment Using Patents | Look For A Strategic Partner

When you only have a patent, what you need is a strategic partner not an investor. Your strategic partner is a business which gets into an agreement with you where they are as much a partner to you as they are an investor. The usual investor is only interested in profits whereas a strategic partner will help manufacture products based on your patent.

Seeking Investment Using Patents | Look for Strategic Partner

Side Note | Investment Using Patents

In this article, we have only covered the strategic partnership for seeking investment using patents. There are other ways of monetizing a patent like selling the complete patent or mortgaging it with the bank etc. We shall be covering these and more such ways for seeking investments using patents in the series of articles about patent monetization. Shall you be interested in learning more about patent monetization, kindly fill the form below!

Steps To Find The Strategic Partner

  1. List down the companies that manufacture products in the space you have the patent in.
  2. Study these companies to find out:
    1. Which of these would be interested in having the next new feature in their product?
    2. Which of these companies is looking to differentiate itself from the competitors?
    3. Is there any company that is in the tight position that hasn’t had a good technology in a while?
    4. Which of these companies is an established player that always wants to stay on the top?
    5. There also is a possibility to find a supplier to the company that manufactures these products and might be interested in your idea.
  3. Select 2-3 companies from this list and propose the partnership to them to progress further.

Finding the information mentioned above is a difficult task and IP research firms shall be your best choice to help here.

IP Research Firm To Your Rescue

Curating the list of probable strategic partners shall require IP expertise. Best would be to hire an IP research firm

Here’s what IP firms shall do: 

  1. The IP research firm will try to understand your motivations behind creating the patent to familiarize themselves with your invention.
  2. The IP research firm shall then study the market players in the domain of your patent. By study we mean their product lines, patent portfolios, competitors, financial standing etc.
  3. Not just curating the list of strategic partners, the IP firm will be able to position your patent in such a way that prospective partners can identify its value. 

Impediment for Strategic Partner

“To invest into something that doesn’t exist is expensive.”

However, there is a way to justify this expense – ‘Exclusivity’.

Let’s take a look at the timeline below to understand this better.

Seeking Investment Using Patents | Offer Exclusivity To Strategic Partner

Once you get into a strategic partnership the partner shall help you with the development of the product. The average time for a patent to be developed into a product is around 18 months. That’s a conservative estimate. After the product is ready, the strategic partner should have unbridled access or exclusivity rights to sell the product for at least 2 years. Once the 2-year period is over, it is expected for the product to have broader demand and more competitors wanting a piece of it. 

After the period of exclusivity rights for the strategic partner is over, you can increase the exclusivity period by taking a fee. Or you can license the product and earn royalty. 

Reduce The Risk For The Strategic Partner

Having a patent is good, gradually you should progress on a path that minimizes the risk for probable partner or investor to venture in your idea. By progressing through each step from patent, to prototype, to beta-testing, to product, to sales you are minimizing the investment risk. Once you manage to get good sales, you shall need the investment to scale. And that shall be comparatively easier to get.

Conclusion:

If you have a patent and not a proven market for your product; seeking investment using patents becomes a herculean task. The best option is to look for a strategic partner. A partner who is in the same product line and can help you manufacture your product. At the same time, you need to convince that strategic partner that it shall also benefit hugely in this venture.

For finding and convincing a strategic partner, you shall need help from an IP research firm. The research firm shall create a report showing the unique value proposition of your patent. The firm shall also curate a list of probable strategic partners. You can select 2-3 from the list to work out the strategic partnership.  Offer exclusivity to convince for partnership.

While looking for a partner, keep progressing to minimize the investment risk; patent -> prototype -> beta-testing -> product-to-market -> sales.

With this we wish you all the very best to find the right partner!

Want to know more about IP Strategy?

Note: The preceding is general business advice and not to be construed as legal advice. IP laws vary by country and retaining licensed legal counsel is advised to confirm this information. Any expressed or implied opinions are of the author and do not necessarily reflect the views of Triangle IP or any other entity who might be associated with the presenter. We hope this content is helpful to you, but should not be relied upon without confirming the advice and accuracy with local legal counsel. Any comments or inquiries are not confidential so please discuss your issues directly with counsel.

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