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 (90%) 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.
What is asset monetization?
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.
Patent Monetization Strategies
These seven strategies are the basis of monetizing intellectual property. They can be utilized in these forms, or modified and combined to better suit the IP your business holds.
1. New Products
Turning IP into commercial products is the most basic monetization method. In IP-focused industries such as pharmaceuticals, companies’ product pipelines are often defined purely by their patent portfolios.
It is also possible to turn others’ IP into commercial products by licensing third-party patents—effectively outsourcing part or all of your R&D efforts. Think of it as managing a fantasy football team, in which the goal is assembling a set of disparate assets into a winning team (that can help you gain new market share).
Potential licensors may offer complementary technology within your existing space. Another option is what one of our clients calls a “lift and shift” approach: identifying patents that serve a completely different industry but can be applied to similar needs in your market.
We’re seeing startups take this approach, commercializing university technology and research by providing capital and management resources to bring new concepts to market.
3. Out-licensing and 4. New Businesses
IP assets may hold commercialization potential that isn’t obvious at first. Using semantic patent search, it’s possible to find opportunities for an existing, patented technology beyond your business’s core competencies. Capitalizing on these white spaces can be accomplished in two ways: out-licensing or starting a new business. Both of these strategies can help monetize underutilized patents in your portfolio.
Licensing patents to third parties has long been a reliable and lucrative revenue stream for research-driven companies, particularly in the technology and communications industries. IBM, which regularly tops the annual list of most US patents granted, generates nearly $1 billion a year in licensing revenues. Finding businesses outside your industry that could benefit from your inventions is an excellent way to leverage your intangible assets beyond your own commercial activity. This method can be thought of as the “lift and shift” approach in reverse.
Rather than finding a non-competing business that could benefit from your existing IP, you could start a new entity to bring your technology to a new market yourself. This is, of course, a more complex IP asset monetization strategy. However, in the right situation, it can be quite lucrative.
Companies also can derive one-time revenue gains from selling patents or entire portfolios outright. Selling patents through an auction or direct sale can provide companies with a much-needed cash infusion or provide a financial return on underused or non-strategic assets.
The key is to find the right fit between the patent portfolio and a potential buyer, based on market needs, competitive positioning, and the buyer’s existing portfolio. Often, a carefully constructed portfolio can capture more value from a buyer than selling individual patents piecemeal.
Your company can also consider a leaseback in order to continue using a specific patent, even after selling it.
Enforcing IP has become a business model in its own right for non-practicing entities, including patent trolls. However, any company with a large portfolio of patents, even ones that it does not plan to commercialize in the near term, should be diligent about protecting those assets against possible infringers.
7. 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 patents and other IP can also be used as collateral for a loan.