How Indian Companies Can Unlock Value of Their Patents: Licensing Vs. Selling Before diving headfirst into monetizing your assets with this knowledge, one must first evaluate the options and then decide whether to choose licensing or selling their patents
By Tarun Kumar Bansal •
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Businesses run on profits and what better way to do so than by monetizing what you already have. Though there are numerous assets under the intellectual property umbrella that can be considered for monetization, however patents are the most sought after. Before diving headfirst into monetizing your assets with this knowledge, one must first evaluate the options and then decide whether to choose licensing or selling their patents.
Let us begin by identifying why it is the right time for Indian companies to think about portfolio monetization.
Patent monetization scenario in India
Chart below shows the average royalty payment trend of Indian companies (2006-2016). Earnings through IP is rising in all sectors, with the highest in automobiles, at an average royalty payment of INR 3,090.49 crore followed by the IT sector with INR 1,924.71 crore.
Next, let us also look at the number of litigation cases filed by top Indian companies. Our study found that Tata group and Sun Pharma have filed patent litigation cases in US, especially in the last few years.
Top Indian Companies Owing Most Patents
The table below shows the top 10 Indian companies with the total number of patents globally and more specifically in the US:
Table – Top 10 Patent Applicants
The above data concludes that Indian companies have a lot of US patents that can be effectively utilized for patent monetization.
Now, let us have a look at the overall licensing scenario in the US. The bar chart below represents the IP Licensing market size in the US over the last 10 years, around $45.9 billion. Thereby affirming that the licensing scenario in US can be a great opportunity for Indian companies, especially those who have US patents.
Intellectual Property Licensing in the US
Now the next step is to understand how to choose between licensing or selling.
Patent Licensing or Patent Selling: Which One to Choose?
Patents can be monetized via two popular methods: selling or licensing. Choosing between the two options is a dilemma often faced by Indian companies. Listed here are the top five factors that will help you decide which one to opt for:
Royalties vs. lump sum: How the money rolls is a crucial factor in determining whether you opt for licensing or selling. If your company has debt in the balance sheet, then lump sum should be your choice and you should opt for selling. Opting for patent licensing is recommended if you are seeking royalties.
Dealing with litigation costs: Your company's bandwidth to bear the cost associated with a litigation also decides if you should go for selling or licensing. In case the company can bear the litigation costs, you can choose licensing or else opt for selling. In general, licensees have less incentive when entering into a licensing negotiation with patentees who have no means to enforce their patents.
Patents under consideration: It is best to check if the patents that you plan to monetize are core to your business. If they are, then you should choose licensing over selling. This is because patents that are core to your business cover features of your products and/or features of your competitor's products.
Competitive or similar products: You must perform due diligence to identify patents which offer a competitive edge over others. Patents that are core to your business consist of product-protecting patents as well as competition covering patents. Such patents that give you an edge over your competitors should ideally not be sold.
Invention novelty: Cross-licensing deals can derive value from patents as they grant mutual IP rights to the parties. For instance, semiconductor chip manufacturers use multiple technologies and collaborate with several players to come up with a chip. Due to this interdependent nature of business, these companies often enter into cross-licensing deals to utilize related patents.
Final Thoughts
Licensing and selling are two prevalent patent monetization methods that can be chosen based on your requirements. By analyzing the right data, you will be able to build a framework for making the right business decisions.
