India: Patent Monetization

A patent is an intangible asset. It reflects owner's right to profit from his creation, an invention. However, merely owning the rights in a patent does not amount to actual cash flow unless the patent owner takes additional steps to monetize those rights. Patent monetization has emerged as a promising cash-generator for many businesses to generate a significant amount of revenue.

Monetizing changes an intangible asset i.e. the patent -- into a stream of revenue. Patent monetization defines an assortment of approaches for extracting value from and otherwise financially leveraging patents. Heightened awareness about the value of patents has led to an increased focus on ways to patent monetization beyond the standard techniques of direct patent licensing and enforcement by patent owners.

Traditionally business houses across the world invested huge funds to generate intellectual property by R&D activities. The major motivation for these intellectual property rights was to leverage the first mover advantage and to keep the competition at bay. However, with changing business landscape these incentives may no longer be sufficient to justify the R&D cost. Companies, across the world, have started considering their R&D centres as profit centres rather than cost centre. In light of this, society coupled with the financial industry empowered with the evolving legal regime and the IPR regime, has come up with various IP monetization mechanisms, which help IP owners augment their revenues and thereby recover their R&D investment.

IP-novice, IP-wise and IP-progressive companies

The mettle of companies lies not in simply filing for patents to protect their innovation, but that in their understanding of the importance of IP monetization and in devising ingenious ways for monetizing their IP.

The fundamental difference in the approach of "IP novice" CEO with their a "IP-wise" or a IP sagacious counterparts is in the way the two view their Intellectual Properties; for the "IP-wise" CEO IP also denotes 'intellectual pride' – to proudly showcase the patents filed as a measure of the firm's innovativeness, whereas, "IP novice" CEOs' notion of IP is to consider it as 'Intellectual Profit' only.

For example, in patents, being at the brim of innovation in your field of technology does not only result in commanding high prices for your products/services, it does much more than that. More importantly, it confers the honour on the innovating Company of being a Leader in its field on whom the consumers and the industry look upon to bring in the next "big change". The reputation in itself is a huge advantage not to forget the privilege of defining the standards in their field of technology.

Therefore, a CEO or the decision maker should never limit his vision for IP as simply a 'cost advantage' in rapidly transforming patented inventions into profit-making assets in the marketplace. The "IP-wise" companies, as seen in regions like USA and Europe, tend to comprehensively compile their patented inventions, even those that turn out to be commercial flops, to form "IP-Portfolios". Such "IP-Portfolios" can be termed as team comprising of few superstar players and few non-performing ones, but on whole, associating a huge reputation to the owner company by means of their IP ownership landscape.

On the other hand, lets also talk about "IP-progressive" companies, which tend to acquire or use an IP by 'intellectual partnering'. Rather than reinventing the technology wheel in-house, these "IP-progressive" companies rely on researchers, universities, innovator firms, etc. to meet their innovation needs.

Be it an "IP-wise" company or an "IP-progressive" one, the monetization and maintaining the overall healthy IP-portfolio (team) to best suit the needs and checks of a company is the call of the hour a CEO.

MECHANISMS OF IP MONETIZATION

  1. OUTRIGHT SALE: Selling the patent is one of the easiest and quickest ways to monetize the IPR. Many patents which have huge potential to gain financial leverage remain unutilised/underutilised as the patent owner may not have proper resources to put the patent in actual manufacturing/operation. Lack of infrastructure and funding to create manufacturing/operation facility may lead to situation where a patent with high operational value lies wasted. There are many platforms where patent owners can sell their patents. The recently set-up IPR exchange is one of the initiatives to develop and facilitate an online platform for sale and purchase of patents in India. This platform provides various other kinds of services too.
  2. SALE AND LEASE BACK MODEL: In this model, the IPR owner sells the patent with complete transfer of ownership for a consideration. The purchaser can buy a single patent or a number of patents from the pool of patents. The buyer of IPR will have complete ownership of all the patent rights of the sold patent. The new owner of the patent will then lease back the patent to the erstwhile patent holder through licensing, so that he too can continue commercial operation of the patent. This kind of IPR monetization helps the initial patent holder gain a lump sum of amount which can further be used in R&D activities and build IP portfolio to expand operation.
  3. COLLATERALIZATION OF IP RIGHTS: IP rights can be used as a collateral guarantee and can be used to secure bank loans. World-wide, many financial institutions now recognize IP assets as collaterals and offer loans to patent owners based on the evaluation of the worth of the patent. This model of patent monetization is very useful to owners who have less funding to leverage the financial benefit of the patent. This collateralization can be used by the patent owners not only to establish the commercial operation of the patent but also to generate funds to expand business. For example: New Delhi based LT foods used its famous rice brand "Dawat" as collateral to raise 200 crores to acquire a US based rice company.
  4. SECURITIZATION OF IP RIGHTS: With structured finance gaining popularity securitization transactions have become more popular. Securitization is similar to collateralization of IP rights, as in both the transactions the amount of funding provided, depends on the quality and nature of the IP asset. However, securitization differs from collateralization on the matter of deployment of funds. While the royalty pay is used to pay back the interest and principal in debt scheme, in securities it is used to support one or more securities, whose credit rating could be of a quality higher than the company's secured debt. The asset backing which is required for the issuance of securities would be sufficiently fulfilled by the IP assets, provided it is protected from bankruptcy.

These mechanisms give a broad perspective and there are more specific demarcations and academic segregations of monetization of IP. The crux is that while monetization surely is the core of IP assets and the same must be perused aggressively, however, the asset's value should not be limited to monetary means only. An impressive IP portfolio, just like financial portfolios, of course adds to your (company's) repute.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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