Your businesses’ intellectual property (“IP”) is a valuable asset. Similar to real property, IP is valuable. However, unlike real property, IP is intangible. After spending money in developing and securing the intellectual property, including design patents, utility patents, trademarks, and copyrights, how should your business monetize the value in its IP? In general, there are 5 ways to realize the value of IP:
- sell products or offer services using the IP;
- license the IP to others;
- sell the IP;
- enforce the IP against infringers; and
- use the IP as collateral.
Each has different issues and considerations that are briefly discussed below:
- Sell a Product or Offer a Service
The most obvious way to monetize an IP right is to make a product or offer a service utilizing the IP. A design patent or a utility patent requires making a product that embodies the claim of the invention or utilizes a method or process of manufacture that follows the claim of the invention or offers a service that follows the method claim of the invention. Apply a trademark to a product or offer services under a service mark. Distribute copies of the copyrighted work or perform the copyrighted work and charge a fee.
One of the challenges in bringing to market a product or offering a service utilizing the IP is the need for additional resources to turn the concept of intangible IP into reality. Additional research and development may be required. It may be necessary to create a production line or locate a trusted vendor or supplier. Once the product or service is ready to be launched, there is the need to advertise, market, promote and distribute.
- License to Others
With limited resources, making and selling a product or offering a service can be challenging. It would be better to sit back and let someone else do the work. License the IP to others who may have the resources or capability to efficiently and effectively bring a product or offer a service utilizing the IP to the marketplace. A licensee may be interested in further developing the IP or using the IP to further develop something else in a different industry or for a different technology.
A license allows a third party to utilize the IP in exchange for a royalty payment. A license can have different terms – exclusive or non-exclusive; territorially limited; royalty based on a percentage of sales or per unit; minimum guarantee royalty; sliding scale royalty; royalty due upon payment or invoicing; monthly or quarterly or yearly payment; etc. Some of these terms will vary according to industry or industry standards.
- Sell the Intellectual Property
Instead of licensing the IP to others, the IP can be sold outright. A seller and a buyer can come to an agreement on a price. A buyer may be looking to utilize the IP to offer a product or a service. Or a buyer may be buying up different IP to build a portfolio around its business as a defensive or an offensive strategy.
- Enforcing the Intellectual Property
The monopoly granted to an IP owner allows the owner to pursue infringers. Depending on the IP rights, different types of damages may be awarded1. Design and utility patents are eligible for lost profits or reasonable royalty. In addition, design patent damages include the infringer’s profits. Trademark and copyright owners can collect its lost profits (actual damages) and the infringer’s profit. If a copyright is timely registered, a copyright owner may alternatively seek statutory damages ($750-$30,000) and be entitled to attorney’s fees as the prevailing party. In exceptional cases, a patent, trademark or copyright owner is entitled to increased damages (up to three times).
IP is considered “general intangible” personal properties under U.C.C. Article 9. An IP owner can use the IP as collateral and give a security interest to a creditor in exchange for a loan. The most valuable asset of a business may be its IP, especially for a start-up. Apple, one of the world’s most valuable brands, is valued at over 250 billion dollars (just for the brand, not the entire business).
While there are different ways to monetize IP, the value of the IP is only as high as the strength of the monopoly provides. A narrow patent or weak trademark may be less valuable than a broader or stronger one. When securing any IP rights, it is important to use available resources to secure the applicable and broadest protection available to maximize its value. Businesses should routinely audit for any protectable IP to ensure all available IP protection is timely secured. This is especially applicable to patents that may be timed barred. In the case of trademarks, waiting may result in a crowded field or weaker protection than originally desired due to non-action in registration. Utilizing these minimum steps can aid in effectively leveraging the value of the intellectual property.
1 See, 35 U.S.C. §§284 & 289, 15 U.S.C. §1117, 17 U.S.C. §504.