Big Companies are Changing Course on IP Licensing
Businesses are finding a new way to get value from their intellectual property. For the last 15 years, companies have monetized their IP portfolios by licensing or selling patents to other companies that needed to defend against patent infringement lawsuits. Companies like Erikkson, Qualcomm, and even GE built business around IP licensing that brought in hundreds of millions of dollars at their peak.
However, licensing strategies are shifting from pure patent transactions (monetization) to actual technology development (commercialization). Commenting on this shift, the head of a large corporate licensing operation revealed their revenue mix had shifted 80% monetization and 20% commercialization to 60/40 in favor of technology development. The transition is clearly visible in the brokered patent market, a leading indicator of demand for monetization deals. Average prices for assets on the brokered market have fallen 40% from 2012 to 2017.
So why are companies just now recognizing the strategic value of commercialization? Since 2011, a series of regulatory, legislative, and business model changes have fundamentally changed the IP marketplace. Companies are finally beginning to feel the impact of these tectonic shifts and are scrambling to develop new strategies to keep pace with innovation.
Changing Regulatory Framework
In 2011, Congress passed the passage of America Invents Act (AIA) In short, AIA made it easier to challenge the validity of a patent outside of court, making it easier and less expensive for companies to defend against patent infringement claims. While I won’t wade into the ongoing debate about the implication of this, it is clear this has made monetization less attractive for some companies and increased their willingness to deploy IP for other purposes like commercialization.
New Protection Models
In a similar vein, the emergence of IP protection cooperatives has made companies less risk averse. Frequent targets of IP infringement lawsuits like Apple, Microsoft, and Facebook recognized a shared interest in defending against lawsuits, driving the creation of organizations like RPX and AST, which aggregate patent licenses and share them between members to protect against patent lawsuits.
I’ve written in earlier articles about large companies embracing outsourced R&D and innovation. While Universities and startups are the key beneficiaries of this trend, large companies have also realized the potential to get value from their own underutilized assets. It is increasingly common for companies to license technologies into adjacent markets as a way to fund new R&D and drive higher margins.
Why it Matters
Most companies have built IP licensing operations that are laser focused on minimizing legal risk and identifying potential infringers. The reemergence of commercialization as a primary value driver requires a major update to this licensing approach.
First, companies need to change the way they patent to emphasize quality, not quantity. The tendency to patent every idea that gets written on a whiteboard works well for monetization when a company is trying to maximize the likelihood another company is infringing its IP.
When commercialization is the core focus though, unnecessary patenting leads to high IP costs and makes it harder to identify high-value technologies.
Companies also need to adopt market-driven IP strategies. In the past, licensing organizations relied on complex claims charts and networks of lawyers and brokers to find infringement. Licensees took a reactive approach, often waiting until there was a threat of a lawsuit to engage in licensing. Going forward, it will be critical to use market data to prioritize high-value IP and identify commercialization partners.
To do this, companies should consider moving their licensing operations from the general counsel to corporate development. Integrating licensing with corporate development brings together all of a company’s external technology acquisition functions under one roof. Companies can then decide whether to access a technology through licensing, venture investment, co-development, or M&A. Corporate development is also better plugged into the needs of the business units and can work with R&D to make comprehensive, data-driven technology investment decisions.