Buy side and sell side: Commercializing and acquiring patents or IP



Patent monetization on the one hand and the acquisition of patents, companies, or knowledge on the other hand are, in fact, two sides of the same coin. Both address the exchange of patents and knowledge - either buy side or sell side - to support company strategy. This article addresses the following two questions: Regarding patent monetization, which drivers make the commercialization of IP successful? And regarding the acquisition of patents, companies, or knowledge: In which situations is the absorbtion of external assets or know-how beneficial for the company strategy?

Commercializing your own IP: patent monetization

Patent monetization programs are used to actively maximize the economic value of a patent for its owner. The monetization or commercialization of IP can be an interesting option when patented technologies developed in the R&D department are not, or turn out not to be, core to the business. Alternatively, it is possible that the patented technology can be used in industry segments or countries where the owner is not planning to become active. Moreover, patent monetization can be considered in cases for which the patented technology is used by other economic entities without the owner's consent. Instead of filing for an injunction suit, it can be an attractive option to set up license agreements or, in some cases, sell the intellectual property rights.

There are four main drivers that increase the chance of success when monetizing a patent: the legal and technical aspects of the patent; the technological maturity and implementation costs; the evidence of use; and the underlying market.

The legal and technical aspects of patents used in a monetization program need to be of good quality. Basic quality measures for patents are, for example: the geographical coverage of the patent, the remaining term (i.e. remaining lifespan) of the patent, and the formulation of the patent claims itself. While geographical coverage often depends on the market covered by the patent owner and is restricted to financial resources, the quality of the claims depend on the skill of the patent lawyer who formulated these claims during the patent application process and the extent to which the inventor was involved in this course. Some heuristics as basic criteria: A patent application is worth less than a granted patent. A single country patent has a lower value than a European or US patent. A patent's value often unfolds between 5 to 12 years after its filing date.

The second driver is technological maturity and implementation costs. An idea that exists solely on paper is very hard to sell. Companies are more willing to acquire technology if there are existing prototypes or even a product that is ready for the market. In the best case scenario, there is evidence of the technology's established use in the market, signaling proven market demand. Moreover, technology gravitating toward industry standards indicate robustness and a low risk of circumventing. Technologies that can be integrated into existing products in a modular way are often preferred over those that require radical design changes. From a patent buyer's point of view, technologies are interesting when they require minimal additional investments after acquiring them.

Evidence of use is the third major driver for the success of a monetization program, and is closely related to infringement scenarios. In this case, by mapping elements of the product to the patent claims, the owner can potentially convince an infringer to buy the patent or take a license before going the next step -- legal action.

The last, though arguably the most important driver for a monetization program is the underlying market. The estimated value of patents needs to reflect the generated revenue streams by the technology in the market. Revenue projections given a technology are difficult to get right, but in any case must be of a reasonable size relative to the revenue streams generated by the products that embody the patented technology.

Tapping into others' resources: patent acquisition and knowledge sourcing

Patent sourcing is the process of gathering knowledge and acquiring strategic intellectual property to gain or safeguard a competitive advantage. In addition, companies can learn from others through monitoring patents and collaboration. There are three reasons why it is important to track what is happening in the market for technologies.

First, companies that follow an open innovation approach are more successful and efficient in their R&D activities. An organization can foster inputs coming from outside by setting up appropriate processes to collect, evaluate, and select such ideas. Possibilities include acquiring patents, licensing in others' technologies, or collaborating with others. Developments conducted by other high-tech companies are mostly visible through patent filings.

Furthermore, engaging proactively in the IP market has several advantages. By screening and monitoring the market, information on strategically interesting IP portfolios can be collected - worldwide. Moreover, the screening process provides valuable information on technological developments and competitors' roadmaps. In this way, new partnerships and technological collaborations can be formed if matching technological areas are identified and economic interests do not collide.

Finally, publicly available patent publications can ideally be used to search for other companies that have interesting R&D activities. Acquiring such high-tech companies is a known strategy for Chinese multi-billion companies purchasing small, world-class German manufacturers. Also, the acquisition of patents can be considered as a strategy to build a strong defensive legal position for the market (e.g. risk mitigation or potential future application). Not to mention that the acquisition of patents or obtaining a license for patented technologies can work as a catalyst for R&D, spurring further development by combining technologies. The price for acquiring or licensing patents is often significantly lower if an agent on behalf of the acquirer is involved so that the acquirer remains anonymous.

The "market for technologies" is still far from being transparent. However, publicly available patent documents are a great source for business and competitive intelligence, and also present excellent opportunities to screen the market proactively for companies that might be interested in licensing technologies or to find companies that have interesting intellectual property rights. Patent monetization, patent sourcing and patent-based company acquisitions are a highly complex task that can yield significant returns, but require deep knowledge in technology, law and business. Therefore, it can be beneficial to collaborate with IP experts such as those at the Munich Innovation Group.


About the authors:

Dr. Philipp Sandner is a founding partner of the Munich Innovation Group. The Munich Innovation Group is a leading service provider for intellectual property monetization and research on a global scale.

*This article was written together with Mr. Jonas Eder, an IP Manager at the firm, and Mr. Daniƫl Smeding, who is a Manager of IP Analysis at the Munich Innovation Group.

Further information: Munich Innovation Group