License to Thrive

This story appears in the October 2005 issue of Entrepreneur. Subscribe »

Big companies like IBM and Microsoft spend billions of dollars every year to research and develop new technologies, most of which they will never commercialize. But that doesn't mean you can't. Large corporations are increasingly willing to license their patents, trademarks and other intellectual property to small companies that can profitably bring them to market.

Microsoft Corp.'s IP Ventures division is one of the newest examples of this trend. This unit of the software giant has begun offering licenses for technologies for biometric identity authentication, counterfeit-resistant labels, face detection and tracking, and other intellectual property in its portfolio. "They have a bunch of IP they don't know how to or [don't] intend to commercialize," explains Sam Jadallah, general partner of MDV-Mohr, Davidow Ventures, a Menlo Park, California, VC firm.

IP licensing is new to software, but it's well-established in other technology arenas. IBM, in particular, is a longtime practitioner of IP licensing. It reportedly generates billions of dollars a year in added revenue from licenses for assets, including its 40,000 U.S. patents. Hewlett-Packard, which has 25,000 patents, also has an active IP licensing effort. You can learn more about IP opportunities by checking the licensing websites for Hewlett-Packard, IBMand Microsoft.

Licensing helps holders of large intellectual-property portfolios benefit by generating license revenue from otherwise unused IP. Licensing requires an entrepreneur to split the profits of a successful product with a larger company, but it also allows small companies to tap the ideas resulting from, in the case of Microsoft, $7 billion in annual R&D, without having to pay for the ideas that don't look promising. "When Microsoft starts to open the gates a little bit to let people in," says Jadallah, "it's a good thing."