Innovative property composes 31.2% of all intangible wealth in Canada, amounting to $47 billion. This number is significantly greater in the U.S. where IP industries account for over 1/3 of the total GDP of the U.S. and for almost ¾ of the U.S.’s exports; the value of America’s intellectual property exceeds $6.6 trillion.
For many companies however, this value lies dormant as a latent potential. Too many companies fail to recognize their IP’s worth and those that may recognize it have often not developed a strategy to harness the value in their intangible assets. To get the best value from a company’s IP, a strategic monetization plan must be carefully crafted and implemented.
This article will introduce some of the methods, which can be used to extract untapped value from a company’s intangible assets. Any one, or combination of these methods may form the basis of an IP monetization strategy an opening the door to unlocking hidden value in your business.
Identifying Your Company’s IP
Intellectual property or intangible assets include:
Trademarks (e.g., brand logos, words, slogans and jingles)
Patents (e.g., technical inventions)
Copyrighted materials (e.g. written materials, drawings, computer code)
Designs (e.g., the visual appearance or industrial design of products)
Domain names (i.e., website domain addresses)
Trade secrets (e.g., know-how or methods of doing something only known to select individuals)
Other (e.g., goodwill associated with a brand)
Unlike tangible assets (i.e., houses and cars), intangible assets do not diminish through use and can usually be used by several parties simultaneously. Before considering a monetization strategy it is crucial to evaluate the type of IP present in a business and its value.
While a myriad of monetization strategies exists, this article will briefly describe commercialising IP though 5 distinct approaches: co-development, licensing, collateralization, securitization, and sale-leaseback.
Companies often invest their time and resources into the creating of their own IP. However, engaging in a co-development IP strategy is a way for companies to partner with like-minded businesses towards a common goal. This approach allows for the open sharing of ideas and resources while simultaneously distributing risk and potential liability. This method can provide huge cost savings to a company that simply cannot achieve the monetization strategy alone.
Co-development agreements are a key ingredient to ensuring the success of this monetization strategy. Within such an agreement it is important to specify the ownership of intellectual property assets generated during the partnership in order to avoid later disputes.
Licensing of intellectual property assets in competing and non-competing industries is becoming an increasingly lucrative and effective method of establishing and retaining market advantage.
An IP license would typically take the form of a grant of legal rights in exchange for some form of monetary compensation or some other form of consideration (like a reciprocal grant of rights).
Depending on each party’s bargaining position and the strength of the intellectual property asset, tremendous revenue may be generated from licensing operations. For example, it is well known that IBM generates over $1 billion in annual licensing revenues from its intellectual property assets.
A licensing strategy can also present a solution for warring competitors. An IP licensing agreement can be a resolution to infringement and provide mutually beneficial outcomes for both parties involved (it is often a better and less expensive solution than litigation).
The scope of ownership of the licensed product, the exclusivity, the field of use, the territorial limitations, the transfer or sublicensing rights, and other limitations are essential aspects that must be outlined meticulously in each licensing agreement.
Intangible assets may be used to generate financing. Copyright, trademark and patent securitization agreements have garnered increased attention from investors due to the relatively stable risk/return characteristics associated with a particular intellectual property asset. In each case, the volatility of the anticipated revenue streams is determined based on due diligence and an asset credit quality analysis.
Like any other forms of property, intellectual property assets may be collateralized to raise capital. Third-party lenders may provide loans while holding intellectual property assets as collateral. Intermediate guarantors may provide further assurance to the third-party lenders of certain rights in the event of a default.
Intellectual property rights may be combined and resold as a pool. Under this arrangement, a share of the proceeds may be returned to each contributor over time, diversifying risk.
Planning a strategy – additional considerations
These 5 forms of monetization only scratch the surface of ways to commercialize a company’s IP. Tax implications, the required due diligence for a deal and cross border issues that may arise in the process of negotiation are all additional considerations when assessing a monetization strategy and are discussed in more detail here.
With an eye on the overarching strategy and a solid understanding of the current business environment, the monetization of intellectual property assets is likely to increase an entity’s overall productivity and growth. There are multitudes of ways to leverage intellectual property assets to generate alternative sources of revenue, strengthen a company’s overall profits and diversify risk. Which one would work best for your company?