Sell, Make or License: Which Option is Right for your IP?

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Commercializing an intellectual property transforms it from an intangible asset into a tangible product or service. There are three options for commercialization your IP: Sell, Make or License. In this article, we’ll discuss some key points to consider when deciding which option to use.

Sell the IP

Selling your intellectual property is transferring ownership to another person or company for a set price. The challenge is often in the setting of a fair price. If your not using or generating revenues with your IP, it’s difficult to determine it’s value.

Once a sale is made, there is no going back. There are no refunds in the world of intellectual property. And this is risky for both you and the IP buyer. The IP owner risk is giving up an IP that later turns out to be very valuable. The IP buyer risk is acquiring and IP that’s less valuable than the purchase price.

If your IP isn’t spectacular or generating significant revenue, then selling is a good option if its fairly valued or even over-valued by the buyer.

Commercialize the IP Directly

The second option is to develop your (intangible) IP into a tangible product or service. Commercializing your IP involves developing it into a market ready format. That requires taking the risk and investing the money, manpower and time to bring it to the marketplace.

Out sourcing may be an option if you do not have the capability to personally manufacture, market or sell your product. Out sourcing involves contracting one or more people or companies to undertake a specific task/s. For example, you might contract a company to physically produce your product and then promote and sell it yourself.

Commercializing your IP can be difficult, expensive, and often requires specialized knowledge. Before going this route, evaluate the financial and legal aspects versus licensing.

License the IP

Your third option is to license your IP in return for a royalty. For most IP owners, this is a far easier and less risky option than to commercialize it directly. It’s an ideal option if you lack the resources to commercialize your IP or you’re not interested in starting and running a company. Licensing a well-established company already making and selling products similar to your IP also increases your chances for success in the market.

Licensing lets you control your IP rights. You rent out (i.e license out) the rights to make, use, and sell it to other companies. Licensing is flexible and let’s you leverage your IP income opportunities. You can divide rights geographically or by distribution channel. You can also retain some or all the rights for specific markets or product formats. Licensing requires no upfront cost. It minimizes your downside risk, but your upside is limited by the royalty rate.

When deciding which option to use, consider using licensing to test the commercial potential of your IP. You avoid the time and unknown risks of starting a new business or product development. Licensing also helps establish the value of your IP value and a selling price if you decide to sell it at a later date.

 

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