Your intellectual property goes through a life cycle. You create it, then develop it, and finally commercialize it. The ideal time to license it is somewhere between the development and full commercialization, when it’s proven itself in the market and is ready to grow and expand.
Your IP progresses through 4 stages of the IP value curve – concept, research & development, commercialization and decline. The value of your IP changes as it moves through this life cycle. In the beginning, your IP has little value. It starts as an idea scribbled on the back of a napkin. As time goes on, your IP gains in value as it moves into the marketplace. Finally, as the products, services or technology created from your IP become old, its value declines.
One of the keys to successfully licensing your IP is understanding what stage it’s at and how that impacts your licensing opportunities. For example, if your IP is still in the testing or development state, the amount a licensing partner will pay to license it will be lower. A licensing deal will most likely include contingencies, such as payment upon market testing. If it’s ready to commercialize, the risk level is lower and it’s more attractive to licensing partners. In this case, the royalty rate is likely higher and negotiated on firm terms, with a minimum guarantee against sales.
The concept stage is the process of creating your IP. This includes prototypes, drawings, formulas, scripts, processes, animation models and various other formats that moves it from your head into some tangible form. At this point, your IP is at the potential value stage.
Next is capturing and securing your IP rights to make sure you can monetize its future value later. At this stage, the value of the IP is secured through a legal and research process. In the case of patents, it includes researching similar patents and prior art, filing a patent application, and in some cases running a freedom-to-operate analysis. For trademarks, it’s researching to make sure your product or service category is available and registering it. Your copyright is established when you create your work, and registering it secures your legal rights. Trade secrets require putting in place information management and controls to insure confidentiality. Once completed, you’re now ready to decide on how to covert your IP value, either making and selling products directly or through licensing.
The third phase is commercialization or bringing it into the marketplace. The closer your IP is to launching the more it gains value. Its value builds quickly once it’s in the market generating revenues. This is the ideal point to license it.
Sometimes this is a long phase, such as with a patented technology or a trade secret formulation. One example is the Listerine formula which is still generating royalties from a licensing agreement signed in 1886. In other cases, it’s a very short stage. When I was licensing the big kids movie properties, initially they weren’t perceived as a viable property. In fact many companies saw them as a big risk, because up to that point of time, they hadn’t been exposed to the consumer market. That changed quickly once the movie or TV show launched. But many of these had very short commercialization stages. In the case of a movie, the peak product sales hit a few weeks before it released and lasted about six months to a year, depending on how popular the movie was in theaters.
Finally, your intellectual property gets old. It begins to lose value as the technology, products, and brands based on it get old. Even trademarks, which tend to stay useful for long periods of time, can get stale and diminish in value. At this stage, the value declines. During decline, the trick is try to balance the remaining value of your IP against the cost of maintaining it. But it doesn’t necessarily mean the end of your IP. In many cases, the IP life span can be extended by re-introducing it in new formats, or re-purposing it for new market applications.
Entertainment content is a good example of IP with multiple life cycles. Many big entertainment franchises are “re-born” after their initial run in the market. They are re-introduced in new formats, such as a movie to TV series, or animation to live action. Other examples include Bubble Wrap, which was originally invented as wall paper; Duct Tape, which was originally used to seal WW2 ammunition cases; a sponge made of construction insulation foam that became the number one selling mop in North America; Olestra, the fat substitute product, which failed in the consumer market and was re-purposed as a cleanser for contaminated soil.
When it comes to licensing, timing matters. Your IP is a sustainable and highly renewable resource and managing it at every stage of its life cycle is the key to getting the greatest financial return on it. Keep in mind the IP life cycle is a guide. What varies is the stage in the life cycle at which it can be licensed. As it moves along the curve, adjust your licensing activities and negotiating points. You may be able to strike an agreement quickly if your IP is already in the market. You may be able to license it with just a prototype if it meets a clear market need in a convincing way. In some cases, you may even be able to license it in the concept stage if the IP is a potential breakthrough technology in a major market.