Patents Licensing Basics

Licensing your patents to operating companies can be an effective way to derive monetary value from your inventions. Licensing represents a mutual agreement that provides legal coverage for a third party to implement your invention, while you retain ownership rights to the patents. Achieving patent licensing success is certainly no easy task, but with the right strategy and approach, you can greatly increase your chances of monetizing your IP.

Preparing for a Licensing Campaign

First and foremost, your patent portfolio must be strong candidate for licensing. This means it should be clearly infringed by a revenue-generating feature or product of the companies you plan to solicit. One common misconception is that a company will want to license patents they are not currently using because the inventions will improve their products. While this may happen occasionally, it is rare for patents, particularly in high tech sectors. Successful licensing campaigns require that the patents are already being used by the companies you want to approach.

In addition to infringement, the patents must also be defensible against invalidity challenges of novelty, obviousness, or indefiniteness. Ideally, the portfolio will contain numerous grants in multiple patent families. A high-quality patent portfolio with strong licensing potential is one that that can withstand invalidity challenges and whose claims can be clearly shown to be implemented by high-revenue, major market players.

Approaching Potential Licensees

Successfully engaging with potential licensees requires thoughtful planning and deft execution. Here are some tips to increase your chances of success:

1. Prepare Supporting Documentation

Have comprehensive materials ready to share with the potential licensee, such as claim charts on them and their competitors. You can let the companies know you are in possession of this documentation and are prepared to share it with them. However, unless your goal is litigation, avoid sending these potentially sensitive materials until specifically requested so as to keep discussions as amicable as possible.

2. Engage Carefully with Would-be Licensees

A professional, and persistent approach typically yields better progress than an overly aggressive posture. Think of the companies that you are reaching out to as potential business partners, rather than adversaries.

3. Consider Licensing Aggregators

Two of the best-known defensive aggregators are RPX and Allied Security Trust (AST), who both focus on helping tech companies clear their patent infringement risk through patent rights acquisition. Working with RPX or AST to license your patents may be an effective way to license multiple tech companies in a single, streamlined transaction.

4. Leverage Expert Help

If you lack expertise in licensing approaches and IP negotiations, consider hiring a professional patent broker or licensing expert. They can connect with the right contacts at relevant companies, present your portfolio professionally, and navigate complex negotiations. Vitek IP’s patent transactions team has successfully negotiated hundreds of technology licensing deals over the last two decades.

Negotiating a Deal

If a company signals an openness to license your patents, they’ll inevitably want to understand what terms you’re seeking from them. The financial terms of patent licenses are most often structured in a one of two ways: (1) ongoing royalty rate, or (2) a one-time upfront sum. The decision between royalty-based licensing and upfront compensation often depends on factors like the licensee’s financial goals, your priorities, and the broader market context.

A royalty paid out over the life of the patent portfolio is usually calculated as a percentage of the licensee’s revenue derived from the product implementing the patented technology, or at a fixed per-unit (or per-user) fee. However, an on-going royalty stream is less common for smaller patent portfolios that don’t have hundreds or thousands of patents. Licensors most often prefer a one-and-done upfront payment, providing the patent owner with immediate compensation and saving the implementer from future accounting liabilities and ongoing reporting requirements. This payment is often negotiated based on the perceived value-add of the patents to the product or service and the risks to the licensee related to facing potential patent infringement claims if they were to remain unlicensed.

Patent licenses can be exclusive, granting rights to only one party, or (more typically) non-exclusive, allowing multiple entities to take a license to your technology.

Conclusion

Patent licensing is a powerful tool for monetizing your intellectual property, but it requires careful planning and execution. With a thoughtful approach and, when necessary, the support of experienced brokers or experts, you can maximize the value of your intellectual property while helping others legally benefit from your invention.