MONETIZATION OF INTELLECTUAL PROPERTY

Innovative businesses have a lot of intellectual property in their portfolios. Intangible assets—including IP, brand value, and data sets—make up the vast majority of S&P 500 companies’ value. That means tangible assets (cash, real estate, equipment, inventory, etc.) account for only 10% of these companies’ total worth. In today’s competitive, fast-moving business environment, your company needs to effectively protect and monetize its existing IP.

Asset monetization is the process that turns an intangible asset (such as IP) into a tangible asset (like cash). The most straightforward way to do this is by manufacturing and selling a product based on a patented technology. However, this isn’t the only effective IP asset monetization method. Unlike tangible assets, IP can be used by multiple parties simultaneously. This gives your organization unique monetization potential and allows you to go beyond bringing a product or service to market in order to profit further from innovation.

Monetising IP refers to making money from IP, which can happen in different ways. Another word that means roughly the same thing as monetization, and is sometimes seen in European IP transactions, is valorization. The main ways of monetizing or valorizing IP are:

1.?Sell IP: To sell the IP outright (known as the assignment of the IP). News items about companies selling their IP portfolios for millions of dollars may give the impression that this is a popular source of generating revenue from IP. Example:?Kodak sold its digital imaging patent portfolio for $525 million to Apple, Google, and Facebook. AOL sold 800 patents to Microsoft in 2012 for $1.1 billion.

2.?Sue?infringers:?There are two main types of organizations that might use legal actions against infringers as a source of income generation. The first is organizations that are commercializing products or services that are protected by the IP. Their primary source of revenue may be from the sale of products or services. Suing infringers (or, sometimes, an explicit or implicit threat of suing) may be a way of preventing competing products or services from being on the market, and of recovering lost profits or damages from those competitors who do infringe. Of course, most litigation is settled by negotiation before a final court decision is reached. Payments made in the settlement of claims are an alternative to court-awarded damages.

3. License IP: There are many different business models that involve licensing IP to others.?Some IP owners will license the IP because the licensee is better placed than they are to commercialize it – e.g. a small biotech company licensing to a major pharmaceutical organization. In other cases, IP licensing may be a way of finding additional sources of revenue – e.g. the business owner who franchises their business model to multiple, local outlets. Franchise agreements are often a mixture of trademark and know-how licensing. At the heart of all of these licensing transactions is a structure where the IP owner retains ownership of the IP but permits the licensee to use that IP, typically in return for lump sums and/or royalties.

When you give rights to your IP to someone else, it is called out-licensing, and when you license a third party’s IP for your use, it is called in-licensing. In-licensing is a method in which you can gain a license to another's IP and turn it into a commercial product to earn money. You can find out a patent from a different industry and apply for a user license or license copyrights to get an advantage in your industry or market. Example: Toy companies sign licensing agreements with movie studios to manufacture and sell action figures;?Netflix enters into a licensing agreement with entertainment companies or content owners for allowing it to include the shows or movies on its platform for a certain period of time.

4.?Attracting Investors:?Lastly, IP can help your business attract investors or buyers. While this way of monetizing innovation is not as clear-cut as some of the strategies above, it is no less powerful—especially for startups. Valuable IP can also be used as collateral for a loan. Example:?State Bank of India advanced a loan of Rs. 2000 crore keeping the Kingfisher brand as collateral. This deal included nine trademarks from Kingfisher. Dell leveraged its patents as collateral for a $16 billion cross-licensing deal with IBM.

In many cases, the real value is in the product, not the IP that protects it. IP is a tool to help you monetize your products, services, processes, etc. Accurate valuation of an asset depends on there being a ready market for that asset. In the case of IP, the market for the IP may be limited and may fluctuate depending on the commercial success of the underlying products.

Different methods of valuation are used. Some of these relate partly to the market potential of the products that are protected by the IP as much as the IP itself. They include:

1.??Net present value:?Professional investors in high-tech companies will assess the future revenue potential of the business over a period of years, then use a so-called ‘net present value calculation to convert that revenue into a lump sum today. After reducing that lump sum to take account of various risks – that the products will suffer from the competition, that the IP will not protect the products, and so on – a valuation is reached. Some organizations have software that will perform this calculation. Ultimately, this method involves a lot of guesswork, and putting different assumptions into the software may produce radically different results.

2.?Incurred costs:?An IP owner may look at how much the IP has cost (filing fees, advisers’ fees, etc), add a mark-up, and value the IP accordingly. This is usually a poor way of valuing IP. The purchaser or licensee doesn’t care how much the IP cost; they are interested in how much money they can make out of it.

3.??Going rates:?When pricing their IP deals, companies sometimes try to use information about similar deals to establish a ‘going rate’. This mostly depends on the size and profitability of the market opportunity may be different, as may the strength of the IP, the likely competitors and their level of determination, and so on. Information about previous deals is useful but doesn’t always provide a reliable guide.

Intellectual Properties can be innovative, and so can the strategies that can empower you to monetize these IPs. Exploitation comes in many forms, ranging from actual commercialization, licensing, or dressing up for a takeover or buyout.?The ways of monetizing can always be newer.?In the hands of well-informed, astute business people, and in support of a sound business strategy, investment in IP can produce good returns.