Debunking the Stereotype: Turning Ideas into Profit via Patenting
People splurge on businesses, not on patents. It's all about understanding the connection between patents and investment decisions. While the media hypes up the triumphant stories of those who strike it rich from a lottery win, the reality is far from it. There's a stark difference between people who blindly purchase lottery tickets and those who strategically invest in businesses.
To delve deeper, examining the relationship between patents and global investment strategies sheds light on the subject. Case in point: IBM, a company that's successfully mastered the art of patent monetization. By licensing their patents, they raked in an astounding US$367 million in 2019 alone. Their massive patent portfolio is the driving force behind their monetization success.
When you consider how hard it is to emulate IBM's feat, a question arises - just how many IBMs can we expect? And if we're honest, the journey to reaching that level takes a considerable amount of time too.
With each granted patent averaging between $50,000 and yearly annuities adding to the expense, companies have a few options to monetize their patents:
- Enforcement
- Sale
Is Enforcement the Way to Go?
Licensing
Patent licensing is a form of patent enforcement. For many companies, the idea of licensing feels like a threat, with the immediate response being a countersuit. In such situations, companies tend to go on the defensive, escalating the issue to courts and litigation. This approach, however, comes with a hefty price tag - legal fees, and potential settlements. In the end, spending money goes against the primary goal of monetization.
Many companies dread monetization through licensing due to the looming threat of a countersuit.
Reducing the Risk of Countersuit While Licensing
Here are some ways to minimize the chances of a countersuit while licensing:
- Utilize patents from emerging areas within your company
- Incorporate patents into your Business Sale Package
Utilizing Patents from Emerging Areas Within your Company
An emerging area is one where the company no longer practices, no longer sells products, or the division has been shut down, but still possesses existing patents.
Licensing is an excellent approach to monetization in emerging areas because the risk of litigation is significantly reduced. With no products backing the patents, businesses are more likely to invest and less likely to sue. Even if there's a remote chance of a lawsuit, there's nothing left to lose since the company no longer sells products in these areas.
Must Read: Patent-Based Lending - The Leading U.S. Banks Considering Patents as Collateral
Rolling Patents into your Business Sale Package
Every business is set up with one goal: sale. Securing intellectual property early on and preserving its value will greatly benefit you when selling or monetizing. Regardless of whether your business is flourishing or on the verge of closure, weave your patents into the business package during the sale. This applies not just to the entire business but to individual factories and product lines as well.
Investors find it much easier to comprehend the purchase of a business with a potential revenue stream. Patents included in the business are a powerful draw for potential investors.
Patent Monetization by Sale - Stay Strategic, It's Arduous
Selling a patent may seem less threatening compared to licensing, but it too has its hurdles.
- Where can one sell a patent and at what price?
- Who buys them, and what's the marketplace like?
There's good news and bad news. First, the bad news:
In the not-so-distant past, patent portfolios were bought and sold for 7-figure transactions. Regrettably, those times have passed. Today, these figures have dwindled to 5-figure transactions on a good day.
Now, the good news: patents are for businesses, and people do buy businesses. Yes, patents are still up for grabs today, but not in the same manner as before. Now, patents and businesses typically go hand-in-hand. You can sell these wherever you like, but the legal department isn't your best bet.
There are instances where a single patent can be sold without a business. However, these situations are quite rare. One example is the 2012 lawsuit between Yahoo and Facebook. Yahoo sued Facebook for infringing on a series of their patents related to advertising, privacy, customization, messaging, and social networking. In response, Facebook counter-sued Yahoo with specific patents, most of which they acquired in a swift move. Such instances are few and far between, making waiting for them equivalent to waiting for a month of Sundays.
The most effective method to monetize a patent is to create a business around it. When selling patents, remember that you're essentially selling an idea for a business. People aren't accustomed to buying that. However, when you back your patent with a product and a business, everything changes.
Selling to a Business
A general rule of thumb is to avoid selling a single patent unless circumstances are exceptional. Patents are best sold as families. So, who should you approach when trying to sell a patent portfolio? Your best bet is to talk to a business development team within a company. Our advice would be to favor businessmen over lawyers. Lawyers tend to be risk-averse, while businesspeople thrive on risk and innovation.
Patent Brokerage
Patent brokerage firms exist, and they function through patent brokers who act as intermediaries to facilitate patent sales. They aid at various stages of patent transactions, such as identifying suitable patent assets for sale, selecting sellers, screening patents, and identifying essential patents and claims.
However, brokers tend to show little interest in single patent deals. They prefer dealing with patent portfolio sales to make a considerable profit from brokerage.
- The connection between patents and investment decisions is crucial in understanding the relationship between patents and global investment strategies.
- IBM, a company that's successfully mastered the art of patent monetization, earned $367 million from licensing their patents in 2019 alone.
- Many companies minimize the chances of a countersuit while licensing by utilizing patents from emerging areas within their company and incorporating patents into their Business Sale Package.
- When selling patents, it's essential to create a business around them and approach a business development team within a company.
- People aren't accustomed to buying patents, but everything changes when you back your patent with a product and a business.
