The First Step to Generating Revenue from "Patent Monetization" is Understanding What the Term Means

Patent monetization success requires knowing what the term means

Patent monetization success requires knowing what the term means

Smart corporate leaders continually seek new methods to capture firm asset value and improve cash flow. And, with estimates of more than 70 % of corporate value being in the form of intangible assets, it is not surprising that many organization are searching for ways to generate revenue from this all-to-often untapped asset class. IP monetization has therefore become an increasing focus of corporate managers and even seems to be an emerging “business model du jour” for innovative corporate managers. Moreover, since patents comprise the most “tangible” form of intangible assets at most companies, many corporate leaders view patent monetization as “low hanging fruit” in the search for additional methods to generate cash income.

Indisputably, there is much money to be made from patent monetization. However, in counseling business professionals as an IP Business Strategist (more info here: The Hutter Group), I frequently find that many otherwise sophisticated high-level corporate managers do not possess a fundamental understanding of what the term “patent monetization” really means. That is, they do appreciate that patent monetization can operate as a significant source of firm asset generation. However, they do not also recognize that there are 2 essential models of patent monetization, each of which lead to markedly different results and require vastly different corporate commitment and infrastructure development for successful execution.

These 2 models of patent monetization are:

  1. Sale of Non-Core Patent Assets Model: generation of short term revenue gains through the periodic licensing or sale of patent assets that no longer support core business objectives. These patents likely supported core business when the decision was made to pursue patent rights, but are no longer relevant.; and
  2. Patent Creation Model: ongoing revenue generation resulting from invention development and protection in the form of patents, followed by licensing or sale. These patent assets likely emanated from inventive activity that did not support core business functions.

A common thread between the 2 models is the need for an organization to develop a patent valuation and licensing infrastructure because each relies on IP transactional expertise for successful revenue generation to occur. The similarities essentially end there. Indeed, successful infrastructure creation is necessary for the Patent Creation Model to achieve success. In short, the Patent Creation Model is not an option for organizations that do not have corporate management who can stomach years-long investment prior to seeing the first influx of cash from their monetization program.

Specifically, the Patent Creation Model requires a substantially more resource commitment to achieve successful revenue generation. As a foundational matter, the organization must develop internal patent expertise that will require bulking-up of internal patent legal expertise, often at high year-over-year headcount cost. Business management will also need to obtain training in patents and patent strategy development because execution on asset generation strategies falls within the rubric of business, regardless of whether patents comprise the revenue source. Execution of the Patent Creation Model also requires training and commitment of the entire organization to develop an IP culture that is focused on value creation-directed invention. Lastly, even assuming flawless execution on all of the elements necessary in the Patent Creation Model, due to the time needed to obtain issuance of a patent, it will likely take many years before success is achieved.

Neither patent monetization model will result in an improvement in corporate cash flow overnight. As such, prior to officially embarking on a patent monetization program, corporate leaders must understand the distinctions between these two models and they must be willing and able to commit the corporate resources and infrastructure development necessary to successfully execute on their plans. Patent monetization is not easy money; rather, it is smart money for an organization that understands and can execute on the model that it selects.

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