How can Intellectual Property Monetisation be an Opportunity During Exiting a Business?

In the past few years, the value of assets has taken a shift. During the industrial economy, mostly tangible assets held the most value. But with the changing times, it is intangible assets too such as knowledge-based, intellectual-capital assets that are considered as the most valuable assets.


Starting a business and maintaining it through the good and bad times is an enormous task in today’s period. With the COVID-19 pandemic storming across the world and shuttering employment nationwide, this stark truth is even more relevant. When a business owner faces the most difficult decision to wind up his company, there are some important choices and strategies that he must consider. This is the most important thing, especially leveraging and protecting assets such as Intellectual Property (IP) that the business has generated after working days and nights. 

Witnessing the current situation, there are challenges galore. The companies are facing organic and persistent hitches like access to talent, performance of staff, trade policies and technologies shifts, revenue, and funding issues. Apart from this, many businesses are grappling with shutdown and the difficulties of working remotely. 

As a result of this ongoing crisis, either companies are getting merged or planning to sell off their businesses. Industries like pharmaceutical, biotechnology and technology are doing this more frequently. More and more smaller companies are looking for options to get acquired by larger, wealthier competitors. But then acquisitions can be a big betting, especially if a company’s true value isn’t properly accounted for. Also, when investors pump in capital into a company, then they eye for a hefty return.

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Value of intellectual property is often disaccredited, with large corporations sometimes overlooking their intellectual property positioning.

Importance of Intellectual Property in Business

This crisis has highlighted new ways for companies with actual or potential intellectual property to generate income. And in some cases, to recapitalise themselves. Apart from tangible assets, they can also generate capital through these intangible assets such as goodwill, brand recognition and intellectual property. 

All enterprises can create economic value by leveraging their assets in order to fund their operations and future needs of capital. In the past 50 years, the value of assets has taken a shift. During the industrial economy, mostly tangible assets held the most value. But with the changing times, this scenario has changed. Now it is intangible assets too such as knowledge-based, intellectual-capital assets that are considered as the most valuable assets. These consist of brands, intellectual property such as trademarks, patents, copyrights, trade secrets, licenses, and trade dress, human capital, databases, contracts and other knowledge-based assets.

Most of the crucial aspects of a business’s worth are often unnoticed. Value of intellectual property is often disaccredited, with large corporations sometimes overlooking their intellectual property positioning. So, how can you make the most from an acquisition as part of your company’s exit strategy? More importantly, how can you use intellectual property data to show your investors that your exit strategy will bring them value?

Understand The Value of IP Portfolio

Intellectual property helps to identify the market valuation of your patent portfolio as well as those of your competitors. This fetches a monetary value to your patents, in comparison with those of other companies in negotiations with investors and potential acquirers.

You could even have proprietary assets you haven’t thought of, like customer databases, which are often overlooked and undervalued. In 2014, the instant messaging service WhatsApp had over a billion users. Facebook paid $19 billion for it, because its database could be monetised. Buyers are looking for the edge, competitive advantage, which sets your business different from your competitors. And at the same time, it provides an opportunity to exploit.

Intellectual property protection rewards innovation by empowering the inventor to reap the rewards of investment in ideas. If there is no protection or reward for innovation, why innovate at all? Intellectual property is often the largest asset portfolio that a company has, with a greater value than offices or factories. It is also playing an increasingly significant role in mergers and acquisitions (M&A). Let’s look at this, Google acquired Motorola for $12.5 billion before selling the company to Lenovo. This was minus the valuable intellectual property in smartphone technology for $2.91 billion.    

Technology can now help companies understand which patents are most valuable to a company, and support growth of revenue from intellectual property licencing. Similarly, technology can even support the future direction of research and development (R&D) activity to help drive more of the most effective innovation.

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Filing a patent before having a global strategy in place is like shooting without aiming first!

You can also show the value of your patents using metrics such as number of citations, patent families, patent renewals and patent litigation history. Analysing these can also help you negotiate a better merger or acquisition deal and reassure investors. Let’s understand some of these metrics in details:

Forward Citations: If many firms are citing your patent, it is usually because they are developing technologies related to your patented invention. Number of citations can be an indicator that people are interested in your technology and could become potential licensees.

Number of Patent Families: If your patent belongs to a large family, this means you have invested time and money in protecting your invention in many countries. This indicates that your patent holds high valuation and could help in negotiating a higher-value acquisition deal in future.

Patent Renewal and Abandon Rates: A patent portfolio with a high abandonment rate could signal a low return on investment (ROI) or value to investors and potential buyers or acquirers. But a portfolio full of renewed patents shows a desire to protect technology still considered valuable. This makes your company appear more attractive and sweetens the deal.

Monetisation Of Intellectual Property

A company needs to develop an intellectual property strategy in order to commercialise and monetise it. The first phase of building an intellectual property strategy is to focus on intellectual property administration. Intellectual property administration also covers the creation of intellectual property assets. It takes innovation from research and product development, and turns it into intellectual property through applications, prosecution and maintenance.

The second phase is intellectual property management. This involves taking a portfolio of intellectual property assets and creating economic benefits through portfolio management, integration of intellectual property into business strategy and maximising the value of intellectual property. A basic consideration of any intellectual property strategy is to balance the short-term gain against the potential long-term pain, along with the company’s business goals.

Since it is typically proprietary technology, intellectual property is worth protecting in the same ways as other valuable corporate assets. It can be used to generate another source of revenue to strengthen overall profits and diversify risks. Intellectual property and other intangible assets are often developed as part of the overall productivity and growth of a company. Although these assets underwrite to the company’s main economic asset, supplementary monetisation means may be implemented to generate other means of revenue.

For instance, it is common for ancillary intangible assets to become by-products of a company’s main business activity. Instead of being pushed to the sideline such assets may be used to generate revenue. In another example, the monetisation of main intangible assets may generate multiple revenue streams instead of the traditional single revenue stream. Earlier, patents were only considered as tools that provide rights for exclusion and prohibition. However, they are now increasingly gaining significance as intangible assets. Intellectual property monetisation means deriving monetary value from intellectual property development. 

Developing Intellectual Property Strategy

The possibilities are endless and the need to think very seriously about having an intellectual property strategy is indeed compelling. This is despite the fact of which sector or stage of growth you belong in. As we all are transitioning to our new reality of living in an intangible economy, all entrepreneurs across the country should consider developing an intellectual property strategy, starting from this year.

There is a huge unexplored intellectual capital (internal information and employees’ brain) that goes to waste in most technology companies. And this is due to the lack of culture or bliss ignorance of the importance of converting intellectual capital into the intellectual property by senior management. This can also be inexistent or bad internal practices to capture intellectual capital and turn it into intellectual property. There can also be a lack of budget devoted to intellectual property or budget exhausted on the wrong intellectual property assets such as non-core patents or all of the above. 

On the other end, some companies believe they have an intellectual property strategy because they filed a few patents during the process. In most cases, those filings were not made as part of a strategic plan and may end up being of little value to its owner.  A renowned author puts it in this way: “Filing a patent before having a global strategy in place is like shooting without aiming first!” According to a report, less than 10 per cent of patents filed around the world are actually used by their owner. It also revealed that half of all patents issued end up being abandoned after 10 years. And this rate goes up to two-third during the life of the patents. 

Advantages of Protecting Intellectual Property

Intellectual property rights don’t protect ideas or concepts. They protect genuine business assets that can be vital to your products or services. They also protect the success and profitability of your business. There are many advantages to securing your intellectual property rights:

Enhance the market value of your business: Intellectual property can generate income for your business through licensing, sale or commercialisation of protected products or services. In turn, this can improve your market share or raise your profits. In case of sale, merger or acquisition, having registered and protected intellectual property assets can raise the value of your business.

Turn ideas into profit-making assets: Ideas on their own have little value. However, intellectual property can help you to turn ideas into commercially successful products and services. Licensing your patents or copyright can lead a company to a steady stream of royalties and additional income. And that can boost your business’ profit or bottom line.

Market your business’ products & services: Intellectual property is essential in creating a clear picture of your business. Trademarks, logos or the design of your products give a new identity to your business. Intellectual property can help you differentiate your products and services in the market and promote them to your customers.

Access or raise finance for your business: You can monetise your intellectual property assets through sale, licensing or using them as collateral for debt financing. As well as this, you can use your intellectual property as an advantage when applying for public or government funding, for example, grants, subsidies or loans.

Enhance export opportunities for your business: Intellectual property can increase your competitiveness in export markets. You can use brands and designs to market goods and services globally, seek franchising agreements with overseas companies, or export your patented products.

Preeti Verma
Preeti Verma
An alumna of IIMC, Preeti writes on global and domestic business, life cycle of a business and its stages. Her fourteen years of stint includes The Economic Times, Business Standard, Financial Express, Tehelka, Businessworld and Times Internet.

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