Commercialization and monetization of intellectual property (IP)

Startups need to develop an intellectual property (IP) strategy in order to commercialize and monetize it.

The first phase of developing an IP strategy is to focus on IP administration. IP administration covers the creation of IP assets. It takes innovation from research and product development, and turns it into IP through applications, prosecution and maintenance.

The second phase is IP management. This involves taking a portfolio of IP assets and creating economic benefits through portfolio management, integration of IP into business strategy and maximizing the value of IP.

A fundamental consideration of any IP strategy is to always balance any short-term gain against any potential long-term pain with regard to the company business goals.

Commercialization and monetization through exclusive licensing agreements: Pros and cons

A common strategy for commercialization and monetization is to sign an exclusive licensing agreement to the company’s core patents in order to secure a royalty stream.

At the same time, startups needs to realize that a licensee who does not prioritize promoting and exploiting the licensed IP could become a liability. This could in turn prevent the company from moving forward with other more productive partnerships.

An alternative solution might be a licensing agreement that clearly accounts for the above situation.

IP strategies for commercialization and monetization used by large corporations

Large multinational corporations have developed many of the existing IP portfolio strategies. However, it is important to understand how those strategies function in order to begin applying them in your own IP strategy.

For example, licensing and sale of IP were strategies developed and initially used by large companies.

According to IP expert James E. Malackowski in From Assets to Profits: Competing for IP Value & Return, current efficient IP portfolio management strategies will:

  1. Limit internal prosecution to innovation that can be most cost-effective and deployed rapidly internally
  2. Acquire those assets that are most efficiently deployed by others
  3. Sell or otherwise eliminate IP not relevant to current management strategies, reallocating these resources and rebalancing the portfolio

What’s a startup to do?

Using the basic portfolio management strategies mentioned above, a startup should focus on the innovation and research that is central to the company’s core business goals.

Next, they should understand what other technologies complement their offering, and look to form partnerships in order to create higher value solutions. Lastly, they should ensure that their resources are directed towards the core IP that supports the business goals.

The IP strategy should be tailored to support those goals by maximizing the legal protections available and minimizing risk and liability.

Strategies and tactics

The following table shows how specific tactics can accomplish certain strategic goals. (Note, this article explores only one strategic goal: monetization.)

Strategic goal or value leveraged from patent portfolio Tactic
Freedom to operate
  • Licensing-in
  • Cross-licensing
  • Purchase
Reducing R&D costs and reducing time to market
  • Licensing-in
  • Cross-licensing
  • Purchase
Cost advantage and reduction of competitors’ freedom to operate
  • Patent thicket
  • Structural cost differential
  • Licensing-out (that is, using a stick versus giving a carrot)
  • Sale
Market share and market influence (with monetization potential)
  • Patent pooling
  • Joint venture standards

Reaching the goal of monetization and commercialization

Monetizing and commercializing by licensing out IP

Licensing out IP can generate a stream of licensing royalties. Bear in mind, however, that the terms of a licensing agreement are very important.

It is possible that a potentially useful licensing agreement can result in very poor results for a startup. Such a situation could occur, for example, if you sign an exclusive licence with a partner who doesn’t expend a proper effort in marketing or developing the technology.

Incentive given for licensing

In this case, using “a stick” would mean threatening others with potential patent infringement and demanding a licensing fee. This amounts to imposing a cost disadvantage on a competitor or extracting a rent. Offering or giving “a carrot” would involve looking for win-win licensing solutions.

One variation is technology licensing, which is a non-exclusive license coupled with the transfer of know-how and technical support. Technology licensing is used by companies such as Qualcomm and ARM.

Sale of IP

One of the simplest means of monetizing an IP asset is commercial sale. Increasingly, new markets exist for the sale of IP assets, such as patent auctions, online sales and deals with licence enforcement companies.