As corporate revenues continue to decline as a result of the tightening of the consumer and corporate belts, many businesses are now looking to extract revenue from previously unexploited areas. One such source that is seeing increasing interest is patent monetization, whereby a company licenses or sells its unused or underused patent assets to generate a new revenue stream.

At first glance, patent monetization would appear to be a “no-brainer” for business. That is, if one owns an asset that has little internal value, but to which a third party would attribute considerable value, why would a company not go ahead with the sale of that asset? In reality, however, few organizations possess the knowledge base necessary to successfully execute a patent monetization plan. This failure is not because patent monetization requires a complex set of skills; rather, the difficulty typically lies in the organization’s unfamiliarity with the patent monetization process.

A successful patent monetization process requires gradual progression through the four steps outlined below.

Step 1: conduct an objective internal patent audit to identify potentially salable assets

The first step to the successful execution of a patent monetization plan requires the organization to understand whether its patent portfolio includes assets that would be of interest to a third party acquisition. This patent monetization audit objectively compares the organization’s current and future business strategy to the topic covered by its patent portfolio. In summary, the audit should reveal those patent assets that are not aligned with the organization’s business strategy. The audit will also identify patent assets that the organization may be using, but for which it does not consider it commercially necessary to retain exclusive rights. These identified assets will include potential candidates for patent monetization.

A patent monetization audit differs from the standard internal inventory of patent assets conducted by most organizations (which may also be referred to as an “audit”). Significantly, to accurately identify the assets suitable for monetization, the audit must be performed without regard to the history surrounding the generation of the patent asset. Often, however, the auditors are the same people who were involved in generating the patent assets and / or may have valuable relationships with those who generated the assets. As a result, an internally conducted patent audit often tends to be quite shortsighted, which can reduce the likelihood that the organization will objectively identify patent assets that should be offered to third parties for sale or license.

When done with an objective approach (that is, by someone who has no interest in the audit outcome), a patent monetization audit is fairly straightforward. Specifically, patent assets are placed in a “sales pile” when they do not align with the organization’s existing or planned products or technology or that are used but need not be exclusively retained. The sales stack constitutes the candidates for potential monetization and is expected to serve as a new source of income for the organization. However, the patent assets in the sale pile may not have external market value. To find out if these assets included candidates for monetization efforts, a market assessment and preliminary valuation must be performed as described in Step 2 below.

However, an objective monetization audit has the additional valuable benefit of identifying the appropriate patents for abandonment. And, for any organization with fifty or more issued patents, the maintenance fee savings from abandoning effectively worthless patents is likely to far outweigh the cost of conducting the audit. This makes a patent monetization audit a winning proposition, even if it is later discovered that the organization does not own any patent assets that are suitable for monetization.

Step 2: Patent Asset Commercialization Assessment and Preliminary Appraisal

The patent assets placed in the sales stack in Step 1 are then reviewed to determine if the topic covered would likely be of interest to a third party. By doing this, one categorizes each patent’s claim coverage and identifies which companies may find the claimed item valuable to support their business goals.

This assessment of the commercialization of patent assets should be done from a business perspective. That is, it should be done in the same way that a business conducts a consumer marketing study when determining who is a potential buyer of this patent asset product. It is strongly recommended that a business professional manage the marketing evaluation of the patent asset. While an attorney may be peripherally involved, they should not manage the process because they will most likely review third-party analysis with a view to potential patent infringement, not to make a mutually beneficial deal with a third party.

The preliminary valuation of the potentially salable patent asset is done through a combination of commercial and patent legal analysis. The business aspect of the appraisal looks at the potential buyers identified in the appraisal and attempts to determine a range in which those buyers would pay for the patent asset. On the patent legal aspect of valuation, a patent professional reviews the patent record to identify any flaws in obtaining the patent that would significantly lower the price that a willing buyer would pay for the asset.

It is highly likely that the patent asset market assessment and preliminary valuation will reveal that the organization’s unwanted patent assets are not good candidates for monetization efforts, either because there is no likely buyer or because the quality of the patent is low as a result of mistakes made in the patenting process. However, there is value in this “bad news.” An organization that effectively obtains worthless patent assets must recognize that it may be wasting considerable corporate resources. As such, the patent asset commercialization assessment and preliminary valuation present a great opportunity for an organization to enhance its patenting efforts so that better patents can be obtained that allow monetization to become a reality in the future. .

If the marketing assessment and preliminary assessment reveal that the organization has patent assets in which a third party might show interest in acquiring them, a marketing plan can now be executed. This is described in step 3 below.

Step 3: Execute a Patent Monetization Marketing Plan

Once the organization identifies the potential buyers of a patent asset and how much a willing buyer might pay for it, a monetization plan can be developed. There can be as many potential marketing plans as there are potential buyers. In summary, monetization marketing plans will differ based on the organization’s internal expertise level, business bandwidth, and type of technology involved, and due to such variability, they will not be discussed in more detail in this article.

In addition to the monetization marketing plan, the marketing channel must be selected. Even in the fairly nascent market for patent monetization, a number of patent asset trading channels have developed to date, each consisting of a unique business model. Some examples of existing marketing channels include:

– Marketing through an internal patent licensing business (e.g., AT&T intellectual property)

– Hire a consultant who has significant licensing experience (for example, Gnosssis LLC)

– Sale through a patent broker (for example, IP Investments Group and IP Value)

– Sale through a patent auction (for example, Ocean Tomo)

– Online “Matching Services” (eg Yet2.com, Innocentive.com)

Notably, on the list of suitable patent asset marketing channels above is hiring an attorney to assist in the marketing of the patent asset. There is little doubt that if an attorney approaches a third party with an “offer to license” a patent, the offer will likely be viewed as a threat of litigation. As such, if an organization actually plans to monetize its patents, rather than litigate them, an attorney should not execute the marketing plan, nor should it appear to the potential buyer that they are managing the process in any way. Simply put, the organization should treat a patent monetization scheme like a business, where consumption of the deal is the primary goal of the process.

Even if an organization successfully undertakes a business-based patent monetization marketing plan, many third parties will find that the patent owner’s approach with an offer to acquire a patent is similar to the threat of future patent litigation. This is a natural reaction to the existing paradigm where patents are legal rights, as opposed to corporate assets. As the market for patent monetization evolves, expect third parties to view offers to sell or license a patent in a less threatening way. In the meantime, however, any organization seeking to commercialize a patent without intending to litigate must hire a business partner who is more likely to be viewed as non-threatening to the third party. Litigation will always be a possibility for any organization seeking to participate in patent monetization. With a well-developed marketing plan and careful execution, the possibility of litigation can be minimized.

Step 4: Bring in the attorneys to consummate the deal

At the end of Step 3, the patent owner should know if there is likely to be a willing buyer for his patent assets. At this point, each party will bring their respective attorneys to consummate the deal for their respective benefits.

This stage of the patent monetization process requires diligence on the part of the parties to ensure that the deal does not run out of their way. The end of the deal should be win-win: the patent owner successfully generates a new source of income, and the buyer gains exclusive rights to a desirable product or technology on favorable terms. While this may be easier said than done, for patent monetization to become a viable source of income for organizations in the future, it must be.