How companies can monetize and secure their IP assets
Intellectual property monetization is about using a company’s intellectual property assets to create revenue. It is an important consideration for a business in creating an intellectual property strategy. Indeed, it is very common for a company to become intent on creating intellectual property assets, without knowing how to effectively monetize it to generate revenue for the company.
The innovation life cycle of intellectual property assets, such as patent applications and patents, goes through many stages from initial research and development, patent application preparation and prosecution, and finally to patent maintenance and management. Monetization can occur at any stage during this life cycle.
During the pandemic, multiple vaccines were developed within 12 months from the first known cases of COVID-19, an extraordinary feat. The protection and monetization of intellectual property rights was a crucial factor in that process, allowing companies to recoup the enormous investment they made developing new products and bringing them to market as quickly as possible. There was a renewed focus on protection and monetization of intellectual property during this time, as governments and communities continued to develop their responses to the pandemic. We are seeing this interest continue, as more investment is made into research and development initiatives to ward off a resurgence in COVID-19, and looking towards other potential health crises that may occur in the future.
Common strategies for monetization in the life sciences sector include direct sales, licensing agreements, litigation, start-up formation and co-development with partner businesses, amongst others. There are advantages and disadvantages to pursuing any of these strategies.
Direct sales involve the commercialization of a product within the business. Whether a company has capacity to independently pursue commercialization depends on the resources available within the company. By commercializing within the company, it is important to monitor the activities of competitors, who may seek to increase their market share by incorporating a patented technology into their competing products.
Given the significant investment required to bring life sciences products to market, many companies look to license their intellectual property to other entities that have the resources to commercialize the product, or to enter co-development agreements with other companies. There are many opportunities for companies with patent portfolios, whether granted as patents or pending as applications, to approach other businesses or potential partners and offer licensing opportunities. Whether a company should enter into various licensing agreements depends on the short-term and long-term goals of the company.
For example, a short-term licensing agreement may yield more immediate revenue than independently commercializing a patented invention due to the high initial investment and lack of economies of scale within the business. However, such a deal may saturate the market by the time the company is prepared to begin selling its own products, thereby diluting the long-term profits from the patent. Longer-term licenses also secure a royalty stream for a company, but licensees may not prioritize promotion and exploitation of the licensed intellectual property, preventing the company from moving forward. This latter situation may be avoided by including certain performance clauses in the licensing agreement.
Likewise with negotiating co-development agreements with potential partners, care should be taken in ensuring the agreement is clear with respect to what intellectual property each party is bringing to the agreement. As well, which party or parties own any joint developments and improvements to the existing intellectual property or new intellectual property, including how responsibility for patent filing and prosecution will be handled, should also be addressed. Lastly, some companies may consider spinning off new businesses that are focused on improving the market infrastructure for products based on the intellectual property assets.
If a company becomes aware of any potential infringers of a patent, the company may either approach the potential infringer regarding a licensing agreement, or pursue litigation. Successful enforcement of a patent can result in substantial rewards. Monetization can be realized from judgments, settlements, license royalties and/or injunctions. However, companies must be aware of the significant costs, both anticipated and unanticipated, which occur during patent litigation. Furthermore, litigation can require the direction of significant employee resources to support and assist in the litigation.
As a result, a company should carefully assess the strength of its patent(s), and the resources available, before pursuing this form of monetization. In situations where the strength of the patent is uncertain, and/or where the potential recovery does not outweigh the costs of litigation, a company may wish to pursue a license with the potential infringer.
There are advantages and disadvantages to each of these monetization strategies that need to be evaluated carefully, taking into consideration the core goals of the business.
The development of intellectual property assets in the life sciences sector involves significant investment in terms of time developing new technologies and generating data, and in terms of costs. Furthermore, patent prosecution for biotechnology inventions can take longer than prosecution in other fields. A company’s intellectual property may also include assets in addition to patents and patent applications, such as goodwill, trade secrets, and inventions for which patent protection has not yet been sought. Further non-monetary considerations for a well-developed patent portfolio that are not directly related to revenue and profit are that patents and patent applications show a company is serious about entering the market. Also, a well thought-out intellectual property strategy may be a draw for hiring, not to mention having a well-known patent portfolio may allow access to various research and development networks.
These additional benefits, together with the expertise associated with them, can take very significant time to develop. Thus, in addition to the potential monetization of the patents of a company, these additional considerations can result in a smaller company being a positive acquisition target for a larger company, allowing the larger company to expand and/or diversify its patent portfolio and products.
This diversification can mitigate risk across the larger company by providing different revenue streams. The smaller company that is acquired may also work in a similar technology field to the larger company, allowing the larger company to strengthen its overall position by having a broader scope of patent protection within a field. However, one of the drawbacks to purchasing smaller companies is that the purchaser has not been involved in the initial development of the intellectual property strategy relating to the technology, in terms of deciding what patent applications to file and where, and over the direction of the early stages of prosecution.
These issues can be mitigated by a careful due diligence review of the intellectual property assets of the company. Smaller companies can develop their intellectual property with a goal of being acquired by a larger company, provided that steps are taken early on to ensure that the chosen patent prosecution strategies are in line with this goal. For example, this may include reviewing patent applications early on to ensure as broad of scope as possible is being protected, as well as looking to determine whether any improvements to the technology are patentable in and of themselves.