Companies invest significant time and money into researching and developing new technologies. For many companies, the commercialization of that technology becomes a significant source of revenue. It is therefore critical for these companies to secure their developed technologies through patents and otherwise prevent use—or misuse—of that technology by third parties.
It is, however, a misconception that the only value of patents is as tools of enforcement in the confines of court rooms (i.e., against infringing parties). In fact, patents have tremendous value outside of the courtroom.
This article explores – in brief – some value propositions for patents outside the courtroom and, more particularly, as licensable assets that provide mutual benefits to all parties involved.
1. Licensing to Third Parties as a Revenue Stream
Patents can be licensed to third parties in return for monetary compensation. Depending on how the patent license is structured, a company may allow third parties to do anything protected by the patent monopoly in return for payment. For instance, licenses may permit another party to make, construct, use or sell the patented technology.
There are numerous ways of structing licensing agreements. The patent holder may choose to grant an exclusive license to one party. Alternatively, the patent holder may offer non-exclusive licenses to multiple third parties. Licenses can be subdivided in a variety of ways—by geography, by industry, and more. Compensation for the licenses can also be structured in different ways, such as one-time payments, periodic payments, or royalty fees calculated based on a percentage of the sales made by a third-party for all products incorporating the licensed patented technology.
Licenses offer companies the benefit of retaining ownership of their patented technology, while profiting from use of that technology by other parties. Many licensors choose to re-invest revenue generated from patent licensing into further research and development, creating the next generation of patent licensing opportunities in a virtuous cycle.
2. Monetizing on Your Competitor's Success Through Licenses
Market competition does not have to be a zero-sum game. Strategic licenses also allow companies to benefit from their competitors' successes.
Competitors may require access to your proprietary technology to enable their own technology. A strategic patent license may permit your company to obtain revenue from competitors for the use of the technology. A refusal to license could incentivize those competitors to develop their own, non-infringing technology. Therefore, to prevent these competitors from developing (or pursuing) their own competing technology, companies may choose to license their technology to competitors and ensure a continued source of revenue. Of course, these licenses can be strategically framed to permit limited and/or defined use of that technology by the licensee and the payments should be at a level that creates a "win-win" scenario.
By allowing competitors to license your technology, you can monetize a patent so that your competitors' successes becomes your successes.
3. Mutually Beneficial Cross-Licensing Opportunities
In the reverse case, your company may need access to third-party technology. These third parties, however, may not wish to license their technology without hefty royalties, or at all. A company with a strong patent portfolio may be in a position to leverage its portfolio in a mutually beneficial cross-licensing arrangement. That is, the companies can develop a strategic arrangement between themselves—and even other parties—allowing access to the other parties' patented technology. This access may be royalty-free, or perhaps at a reduced royalty. This, in turn, may allow each company to benefit from the other company's technology, and save on licensing fees.
To reap the monetary benefits of patents as licensable assets, it is important to build a strong patent portfolio with a coherent and cost-effective strategy. With a robust patent portfolio, a strategic licensing framework that aligns with your company's market and business objectives is the next step. All of these elements require a strong understanding of patent law, the technology itself, and the market. Don't hesitate to talk to your patent practitioner about your own portfolio and licensing goals.
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.