Intellectual Property and Monetizing It

This is the second in a continuing series of my articles aimed at increasing the awareness of the value of intellectual property.

Intellectual property (patents, trademarks, knowhow, trade secrets and copyrights) is the product of valuable resources spent by an organization. While IP generation consumes company resources, monetizing IP recoups the value for the organization.

Consider a company that builds a new manufacturing plant. If the plant doesn’t generate revenue, one would conclude that company resources have been wasted.

Similarly, generating IP for its own sake could be considered a waste of company resources. That said, any new innovative “non-obvious” improvement in product or process is Intellectual Property and has value. In my opinion, if the IP is not used internally to grow earnings, licensed externally, sold or otherwise used to generate value, it is a lost opportunity to contribute to the business.

There are several ways to monetize intellectual property. In this article, we will discuss licensing of IP, a common method, and describe a few general considerations useful in drafting license agreements.

Patents, knowhow, trade secrets and trademarks can be licensed individually or collectively as a package and in general, with and without any restrictions on their use. Broadly speaking, the more innovative and more completely developed and ready to use (“shelf ready technology”) it is, the greater its value to a prospective licensee.

In the simplest scenario, Company A (the licensor) grants a license to use its IP to Company B (the licensee) on some negotiated financial and other terms and a legal document formalizes the arrangement.

• Specifics of the IP being licensed and handling of “Confidential Information”.
• Duration or term of the agreement and renewal clauses.
• The “field of use” and geographic restrictions for the IP.
• Payment calculation methods — royalties based on production or sales.
• Payment frequency, record keeping, and auditing provisions.
• Upfront payments for technology transfer or proprietary documentation.
• Exclusive vs non-exclusive license grants and associated conditions.
• Grant-back clauses for improvements made by the licensee.
• Procedures for transferability or assignment in case of company sale.
• Termination clauses and dispute resolution processes.

These points are offered only as a guide. In future articles, we will discuss several other creative options to monetize intellectual property while the business continues executing its core business strategy.