Patent licensing vs selling
- Himanshu Dasare
- Updated: Fri, 25th Nov 2016
Patent monetisation is tricky. In this case, we identified target industries & companies. We then conducted an infringement analysis. With this information we created a licensing & outright sale strategy
Our client approached us with his patent for a mechanical device. He had recently filed for protection in the United Kingdom. Now he wished to monetise his invention.
A primer on patents
The grant of a patent does not guarantee the patent is actually valid. The patent owner is not protected from the possibility that her invention may infringe another patent. Nor is the patent owner protected from, e.g. regulatory constraints.
The register of patents often confuses inventors. It requires skill to track which inventions are already registered or established in the jurisdiction of a proposed new patent registration.
Nevertheless, a patent might:
- Deter rivals from infringing the patent;
- Cause rivals to find an alternative non-infringing process or product; and/or
- Prompt rivals to approach the patent owner for a licence.
Why our client instructed us to conduct a patent monetisation exercise
A patent asset monetising exercise requires:
- Market knowledge,
- Commercial awareness,
- Skills to research existing technologies and prior arts that may threaten the validity of the patent.
Our patent monetizing skills enabled us to carefully order and target potential buyers who would most value the asset.
Unless you understand the technology and the marketplace, you’ll probably miscalculate the true value of the patent.
The patent owner’s expectations must be met with a realistic approach to determine the expenditure on developing a patent and its demand in the marketplace which is commercially justifiable compared with expected future earnings.
Results of patent monetisation exercise
We discovered that our client’s patented technology was useful to several industries. Further research, and meetings with experts, pinpointed appropriate applications and named the market leaders within each industry.
After identifying potential applications and checking available prior art, we conducted an infringement analysis. This analysis establishes whether a patent, be it for a product or process, infringes an existing patent.
Infringement analysis is a two step process.
- Claim construction: determines the meaning of each claim term/element and the scope of the claims,
- Claim comparision: of the properly construed claims to the accused patent.
Based on the findings we formulated a bespoke two stage patent monetising process. The process distinguished companies that would be offered a licence:
- To use the patented technology, or
- To purchase the patented technology
To distinguish the companies, we researched and assessed each target companies’:
- Intellectual property portfolio;
- Commitment to research;
- Track record of acquiring patents.
Licensing vs selling a patent
Licensing generates a constant revenue stream. However, it carries a risk of litigation, e.g. over the licence terms, royalty payments, infringement and patent invalidation. Hence patent owners often prefer an outright sale.
License simply means permission, e.g. one person grants permission to another to do something. A licence grants a right to use without transferring ownership of the patent. A patent licence agreement is a formal, preferably written, document recording the circumstances under which a promise shall be legally binding on the person making it.
A patent licence agreement is a partnership between a patent owner and another who is authorised to use the patent under certain conditions. Usually there is monetary compensation either in the form of a flat fee or running royalty. Often the royalty is a share of the revenues gained from using the patented invention.
Our monetising strategy involved a patent licensing programme. Whilst licensing was on offer, we initiated negotiations with selected target companies for the sale of patent assets. We drew up appropriate licensing terms to facilitate a sale of the patented technology.
By adopting this strategy, our client could benefit from royalties until finding a suitable buyer.
Benefits of our patent monetisation strategy
Licensing enabled the patent holder to demonstrate revenue. That the patent generates revenue help sell the patent outright.
Patents, particularly if owned by inventors with limited financial resources, often have a relatively low value. Potential buyers may consider that a poverty stricken patent holder cannot afford to enforce the patent through prolonged licensing negotiations and litigation. Often the same patent increases in value when the owner has resources to licence and enforce the patent.
Our client was an individual inventor. Hence we tailored our monetising strategy to license the patent to entities that would benefit most from using the patent. This generated much needed revenue, until a suitable buyer emerged.
We understand, among other specialist sectors, the mechanical engineering aspects involved in mechanical patents. Our market knowledge and research enables us to advise on monetising new and existing patents.