Did you know that 19 out of every 20 patents are never licensed or commercialised? While many of these are held as part of an IP moat, countless others fail to generate the value they could. Billions of pounds in underutilised intellectual property are effectively going to waste as companies struggle to monetise their patents. To make sure you fully capitalise on the time, money, and effort invested in your IP, here are five practical ways to make money from your patents/turn your patents into revenue.
- Commercialise & Sell Your Invention
- License Your Patent Rights
- Sell Your Patent Rights
- Enforce via Infringement Claims
- Use patents as loan collateral
Commercialise & sell your invention
Many inventors find the simplest and potentially profitable route is to commercialise their invention themselves. This means transforming your patented idea into a marketable product and taking it directly to consumers.
This option makes most sense when you want full control over your product or services quality, branding and long-term vision. Because you prevent others from using your idea, you can set your own prices with no need to undercut competitors. They can’t replicate your product therefore you have an advantage required to become a market leader. Products marked as patent protected are often seen as more innovative and exclusive, helping them to stand out in the market.
However, this method requires significant investment and proper legal consultation is recommended before manufacturing and commercialising your invention.
License your patent rights
If you are looking to retain ownership but generate revenue through a licensee, this option is well worth considering. An agreement between yourself and another party allows them to use the patented invention in exchange for monetary reward. Exclusive license means only one company is granted the right to use the patent. While there is a potential for higher royalties, this option will give you less flexibility over your license. Alternatively, you could consider a non-exclusive license which grants multiple companies the right to use the patent. This allows you to achieve broader market reach, and more oncome streams. However, you will not be able to gain as much revenue through royalties (lower individual royalties).
Another option is field-of-use license which restricts the patent user to a specific industry or geographical area. For example, a piece of software might be limited to medical devices but can’t be used for gaming.
Sell Your patent rights
Also known as patent assignment, this is a method whereby you sell ownership of your patent. Like selling a house, once the sale is complete, you no longer have the rights or control over the property. The process includes a signed agreement, legal registration and full transfer of rights.
A key part of selling your patent is determining the value. There are three main methods for patent valuation:
- Income approach – the most common approach to patent valuation is to factor in the projected future income it is expected to generate. This involves, forecasting cash flows and discounting them to their present value.
- Market approach – this compares your patent to prices paid in recent transactions. As patent sale prices are rarely made public, this can be a challenging method to use.
- Cost approach – The method is often used for patents with unclear future market. It aims to calculate the value based on the cost it would take to reproduce or the replace the invention.
The immediate advantage of selling your patent is receiving a lump sum payment, providing immediate capital. You also have the chance to focus on new products with no ongoing responsibility for your sold patent. However, relinquishing ownership of your invention might mean it didn’t reach it’s full commercial value, especially if you sold it too soon.
Enforce via infringement claims
You may discover that a competitor has stolen your idea and brought it to market without requesting permission establishing a licensing agreement. If this is the case, you have the right to enforce your patent by filing an infringement suit. If the court concludes an infringement has been made, the culprit will be instructed to stop manufacturing and selling the product and may be asked to pay any damages.
Damages is the monetary award to compensate for any harm the infringer has caused and can be calculated in a few ways. For instance, you can claim the profits you lost out on due to the competing product. The court may also award a ‘reasonable royalty’, an amount that the infringer would have paid in if they had fairly agreed on a licensing agreement.
There are risks which include, costly court proceedings and a chance the infringing party may seek to invalidate your patent in response to the lawsuit. However, they would need grounds for such a challenge to succeed.
Use patents as loan collateral
In some cases, you can use your patent as collateral when seeking a bank loan. Major brands like General Motors and Kodak have used patent backed loans to secure funding. The bank will conduct a thorough process to establish the patent’s value. If the bank determines that the patent is valuable and you have good risk, you’ll be able to get a loan. If you decide to default, the bank can sell the patent to recoup any losses. There’s a chance it could be acquired by a large company as they often want to add to their portfolio without litigation or maintain a competitive edge. This option leverages the value of their resource, rather than licensing it.
Choosing the Right Path for You
Securing a patent requires a significant investment of time and money, so you’ll want to make sure your hard work pays off financially. Whether you license it for royalties or sell it outright, it’s up to you to decide which strategy will best align with your business goals. By outlining these options, the right direction for your business should be clear. Ultimately, ensure that you capitalise on your invention instead of letting your IP go to waste.
