Earn by Generating Value from Your IP
Learn how to make strategic business decisions at the beginning of your company’s lifecycle, when getting your business started. This section breaks down and analyzes critical IP strategy considerations that your company will face at this stage of the business lifecycle.
Key takeaways
As you are setting up your business, remember many of its aspects can be protected with IP
Your business context should drive your IP strategy
IP rights are an investment in your business. If you don’t act now, you may lose out.
When working with others, get agreements in writing that lay out key terms
Choose your brand wisely and protect it.
Understand the value of your assets and how to generate revenue from IP in the value-generating phase of your business lifecycle.
Key takeaways
When your business changes, revisit your IP strategy to make sure it still supports your commercial objectives.
Think about potential disruptions as you build your IP portfolio. Shifts in the business models may render your IP more or less valuable.
As your business changes, consider if you can create new IP that delivers competitive advantages or drives value.
Review your IP assets regularly. Stop paying for assets that are no longer valuable to you or someone else.
Your IP may be valuable to others and can be a source of revenue. Consider if you can sell or license it.
If someone claims you’re using their IP without permission, take it seriously. Analyze the claim and get legal help to figure out the next steps.
Understanding the value of your IP
IP can serve a twofold objective: on one hand it helps your business protect its intangible assets. On the other, IP can also serve your business to generate revenue, by monetizing the protection you obtained.
In order to understand the value of your business, make sure you cover the following considerations:
What IP do you own and how is it protected?
Does your IP protect your competitive advantage?
Do your competitors have similar IP?
Does your IP have value to others outside your business?
Is your IP strong enough to prevent competitors from doing something similar?
The value of your IP depends on your business context.
Generating revenue from your IP
To monetize your IP and generate revenue and profit, you can let others use your IP in exchange for some benefit, for example money, access to technology, sales and distribution chains, etc.
The three classical ways to generate revenue from your IP are the following:
a. License your IP
When licensing your IP, you keep ownership of the asset and grant the right of using this right in exchange for a compensation (e.g. a lump sum, a royalty based on sales, or a combination of both). The license can be limited by market and/or purpose.
If related to technology, you may need to transfer some know-how to make the deal successful. For example you can add a number of consulting hours which will be compensated in addition to the base license.
Remember your reputation: consider licensees carefully and include terms to keep your brand intact.
b. Sell your IP
When you sell your IP you give up control of the asset or, in some cases, you may be able to get some rights back. Before taking a decision, consider if you use the IP in any way in your business and need to maintain some rights.
If related to technology, you may need to transfer some know-how to make the deal successful.
c. Franchise your business
When franchising your business, you let third parties use your business model and IP for a defined period of time in exchange for payment of initial and ongoing fees. In this case you keep control of the way the business is run and managed by the franchisee.
In general, licensing your IP or franchising your business brings a number of benefits:
Creates new revenue streams
Reduces costs when expanding into new markets
Provides access to new industry applications for your technology
Provides an opportunity to share risk
Resolves disputes by converting competitors into partners.
What to include in an IP licensing agreement
Before licensing your IP, there are a number of conditions you need to consider in the agreement. A license agreement typically comprises of the following sections:
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What IP are you licensing
You can include one individual IP, a list, or a description of the IP assets being licensed.
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How your IP can be used
Choose which rights, in what area and in what markets the IP can be used.
Field: the IP can be used only in certain products or technical area.
Market: the IP can be used globally or in particular countries only.
Duration: for how long can the IP be used (e.g. limited and/or renewable)
Rights: the IP can be used for specific rights only (e.g. sell, manufacture, sublicense, etc.)
payments
What you get in return from IP licensing
In exchange for the IP rights granted, you can request different types of compensation:
Lump sum: could be an entry fee to be more selective with licensees.
Royalties: could be percentage of sales or profits.
Other benefits: from access to distribution to manufacturing, or other.
Combination of these.
security
Protecting your company from misuse of your IP
In order to ensure your business is protected you can include a number of conditions, such as:
Audit rights
Quality guidelines
A way to resolve disputes
Ways to limit damage to your business.
Exclusive or non-exclusive license
Before licensing your IP, remember there are two key types of licenses:
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Exclusive or sole IP license
IP can be used by a single licensed party. The IP owner may retain some rights.
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Non-exclusive IP license
IP owner can grant multiple IP licenses.
Exclusivity can be for an entire IP portfolio, markets or field.
In case you are considering an exclusive or sole license, remember the following considerations:
Determine which license style is most lucrative for you
Include terms that incentivize the other party to maximize the use of your IP (e.g. minimum payments or a loss of exclusivity if not used enough)
Retain rights you might need to continue to operate your business
Don’t give away more than you have to (e.g. restrict the field, markets, length of time, or rights to what’s interesting for the other party and keep options open for other licenses)
Using your IP to access finance
You may be able to get access to finance using your IP assets.
Lenders and investors will want to understand your IP and the market context. This process takes time. If there is a clear market for your IP or it is linked to a broader transaction, it may be easier to find lenders or investors.
IP-based lending may be an alternative to funding options that dilute your equity.
a. Which IP assets should you leverage?
Usually registered IP that you own and is important to your business or has established revenue streams.
b. What is the value of my IP?
Before deciding on the financing terms, determine the value of the IP.
You may need to work with a specialist and provide details about how your business uses the IP (this may include some upfront costs to you).
The value the lender considers is what it could recover if you don’t pay back the loan. This value will probably be less than the value the IP has within your business today.
A loan will probably be for less than the total value determined.
c. What happens next?
The lender may take a security interest in your IP, giving them rights to it if you default.
Usually, you can continue to use the IP in your business. Certain uses may require permission.
Read more about using your IP as a source of finance.
Key takeaways
As you are setting up your business, remember many of its aspects can be protected with IP
Your business context should drive your IP strategy
IP rights are an investment in your business. If you don’t act now, you may lose out.
When working with others, get agreements in writing that lay out key terms
Choose your brand wisely and protect it.