5 Ways To Create Value From Your Intellectual Property
Ever since the emphasis on intangible assets such as IP has increased, organizations with IP portfolios have begun to effectively manage their IP assets to maximize the economic value
By Tarun Kumar Bansal October 25, 2021
In the 21st century, competitive advantage for business organizations depends on several factors. While some organizations seek to undercut their competition with similar but lower-priced products and services, others develop unique products that are protected by intellectual property such as patents. There has been a massive leap in the ownership of intangible assets by modern organizations in recent years and it is evident from the fact that while S&P 500 companies had only about 17 per cent of their total enterprise value in intangible assets in 1975, in 2020 this has increased to around 90 per cent. This depicts the growing emphasis of companies on intangible assets such as intellectual property (IP) in the recent years.
In the following article, we will discuss the five ways in which businesses can create and generate direct economic value from their IP.
Overall Economic Value Creation
Intangible assets such as IP have been known to generate great value for organizations by providing them higher market shares through IP exclusivity as well as with additional licensing-based revenue streams. IP has also had a profound impact on the economy by creating multi-fold employment opportunities. USPTO data from 2014 has shown that IP-intensive companies have generated close to 30 million jobs in the US alone. Given below is a visual to help you understand the positive value IP has created for the economy in terms of boosting employment opportunities.
Number of jobs generated in the US in 2014 (Source: USPTO Data)
Value Creation For Businesses
As companies go down the road of innovation, be it technical, design, or process-based, they begin to develop IP portfolios that they can use to not only to emerge as leaders in a particular market but also open new revenue streams.
To understand what IP means for your business specifically, let’s look at the following five ways in which IP assets can create value for your organization:
Exclusivity: Exclusivity is a familiar concept for all organizations seeking protection for their IP as those who hold IP rights can exclude others from using, manufacturing, or selling similar products/services without their permission. By ensuring exclusivity, organizations can commercialize the enhanced product/servicewithout the fear of copycats in specific jurisdictions where IP was protected. This method of creating value from IP is known as practicing intellectual property rights and it enables your organization to generate a new revenue stream through the exclusive sale of your patented products/ services.
Licensing: Another very common methods in which IP assets can create direct revenue for your organization is licensing. By licensing out your brand names, patented products/designs/services, or even backend technologies, to the appropriate licensees, you can obtain a steady revenue stream in terms of royalties.Note that you can also do a combination of exclusivity and licensing, where you may continue to operate and directly sell IP protected products/services in some geographies but license IP to other players in geographies you do not directly operate in.
Litigation: Litigation may be considered an unethical business practice by some organizations and in some geographies. However, to prevent misuse by competitors, this is a necessary step. A rightful owner of IP has all the legal right to protect the value generated by commercialization of his/her IP by litigating any entities infringing their IP rights. If the infringement is proven, depending on geography, you will get immediate injunction so infringer cannot manufacture/sell infringing products as well as significant monetary damages for lost opportunities due to infringing products.
Selling: IP assets can be treated just like physical assets, so just like you can licence your IP (equivalent to renting your physical asset), if at some point, you think that some of the IPs owned by you do not align with your business interests, you can sell them to others who may benefit from those IPs. Such deals are not uncommon,and, in most countries, you can often find worthy buyers for your valuable IPs. You may engage IP brokers who can help you find right buyers for your IP at the right valuation.
Mortgage: As mentioned above, IP assets can be treated just like physical assets and in accounting practices also you can show your IP as assets. In many countries, now banks also accept IP assets as collaterals for providing business and other loans for added liquidity.
Ever since the emphasis on intangible assets such as IP has increased, organizations with IP portfolios have begun to effectively manage their IP assets to maximize the economic value. Further, overall ecosystem has also evolved significantly to support activities such a licensing, selling, mortgaging, and enforcing IP rights. Thus protecting IP rights has become even more important and such IP assets (just like physical assets) can now help your organization sail though any tough times in the market like the one experienced by many in this ongoing pandemic.