According to a recent study in the UK, 30% of small businesses own some form of IP, and it accounts for over 75% of their sales revenue. While they indicated their IP investment was worth the money, their biggest challenge is getting a return on that investment.
There are many ways to use intellectual property to get a big return on your investment. Producing and selling products is one option. Licensing rights to generate revenues from non-competitive products is a second option. But these aren’t the only options. Here are four ways to use licensing as part of your business strategy to get the biggest ROI on your IP investment.
1. Find New Uses or Applications
This is a strategy often overlooked by most businesses. Some of the biggest opportunities for your IP are sometimes outside your core markets. It requires stepping back and thinking about your IP assets and how to apply them to new industries, new products or services, or combining them with other types of IP.
One example is Boeing, who recently announced it is licensing its IP portfolio to the automotive industry. A number of their patents have applications to the auto industry, especially in the areas of saving weight, collision avoidance, and networking and communication technologies.
You exploit other markets by allowing the licensee to use your IP in a different market. If your IP is useful to several industries, you can license it to companies in each of these industries.
Charles Goodyear invented the process for vulcanized rubber (1839), but he never manufactured or sold rubber products. Instead, he focused on inventing new uses and applications for it and licensed it to companies in various industries from tires to dental products.
This is a quick and lucrative strategy to add revenue. In today’s global economy, even if your IP is nearing the end of its life-cycle for your company, it can have significant value to other companies in different markets or industries.
2. Licensing Out to Competitors
At some point, you’ll run up against bigger competitors in the market. Rather than going head to head, use licensing to turn your competitor into a partner. One example is Procter & Gamble, who licenses out their packaging designs to competitors. This levels of the competitive playing field by reducing the number of “packaging” features on competing products, and enables P&G to focus on product quality.
Another strategy is to license your technology to competitors in the same industry to accelerate its adoption by the market. That’s exactly what Tesla and Toyota are doing. Tesla opened its patents to competitive companies to help build the electric vehicle industry. And Toyota offers royalty free licenses for its hydrogen fuel cell patents to accelerate development of hydrogen-powered cars.
3. Reduce Risks
You can expand internationally without the direct investment risk by licensing rights to companies in different foreign markets. One of my clients invented a new tie-down flexible cord for the marine, construction and home markets. (i.e. a better bungee cord). When they introduced it at an international trade show, they got immediate interest and we negotiated a licensing deal with a large manufacturer for several countries in Europe.
The same holds true for launching a new product or technology. Instead of risking the time and money developing the product and building all the internal resources, you focus on proving your technology in the market, then license it to one or more companies with the resources already in place. One example is a small pharmaceutical company, who invented a turnkey R&D platform for developing certain types of drugs using its antibody technology. Rather than making and selling those drugs, they license out the R&D platform to other drug companies. In addition to fees for using the R&D platform, licensees also pay royalties on sales from each product containing its antibody technology.
You can cut your infringement litigation cost risk by allowing an exclusive license to take legal action against an infringer on your behalf. Another variation is turning an infringer into a licensing partner by cross-licensing (sharing) IP rights to avoid a costly litigation action. It’s a strategy used by high-tech industries such as computers and smartphones, where lots of patent overlap and infringement suits are frequent. Enforcing IP rights is often an overlooked strategy, yet it’s one of the most important since it directly impacts all other licensing strategies.
4. Attract Investors
A 2005 survey by the European patent office found that 40% of the small and midsize businesses applied for patent protection because it’s an important factor in attracting investors. A 2010 report by the OECD found quality IP prompts investors to invest faster and in larger amounts.
Strategically using your IP attracts investors to place their money at risk. It increases the value or worth of your business in the eyes of investors and financing institutions. IP provides a sustainable competitive advantage and your business is more likely to succeed in the marketplace. Some of my clients used their licensing deals in this way to attract investors. In one case, it shortened the time to revenue by using popular kids TV characters to gain quick entry into retail and build credibility with investors.
If you are a startup, your IP is your business. Using a licensing strategy reduces your time to market and generates revenue sooner. Plus you can carve out markets where you focus your limited resources to get the best return for your investors. Your IP also offers investors, to a certain degree, a way to protect their investment in the event your startup goes south, either by selling or licensing it.
Summarizing the Key Points
Licensing is one of the best strategies to get the biggest return on your IP investment. Licensing uses your IP value to generate ongoing revenue from new markets or applications. It turns competitors into partners, reduces litigation risks and expands your market without the financial risk. Licensing others to use your IP helps sustain your competitive advantage and makes your business more attractive to investors.