An enterprise adopts several models to create value from intellectual property. In today’s business world, economic advantage of an enterprise depends on how they are creating value out of their intellectual property. Major economic advantages those, an enterprise can obtain from the intellectual property rights are;
Exclusivity: It is the basic model for creating value from Intellectual Property. This prohibits others from the use of a technology of a patent or a trademark. Value created under this model has got a higher market sales, profit and larger market share. This model is also known as practicing intellectual property.
Licensing and Cross-licensing: Licensing or assigning the intellectual property rights is another method of creating value from IP. The economic value of intellectual property right is realized through licensing when the licensee pays royalties to the licensor. Thus, value is created through royalties on the sales of any products that embody any of the IP rights. In this model an enterprise may benefit by getting access to Research & Development facilities owned by their partners or to distribution channels and sales networks.
Litigation: The economic advantage of patent trolling or litigation is mostly only applicable to patents. The scope and requirements for the protection of the different intellectual property rights differ. An entity that does not practice or license a patent can sometimes receive value by leveraging the special legal status of patents. Recently, some patent holders (often referred to as “patent trolls”) use patents as an asset in a threatened or real patent infringement suit. In this case, the patent holder does not intend to practice the patent, but seeks value primarily through settlements and court awarded damages.
Deterring: Deterring value is just the opposite of litigation value. As patent infringement litigation becomes more common, companies increasingly file defensive patents to serve as a deterrent that they own the territory and that the litigation value would be high for the infringer.
Use of intellectual property as collateral: As discussed in our earlier post, intellectual properties are becoming the assets of the enterprises in today’s business world. As a result, large investment banks and boutique private equity firms alike are targeting the traditional venture capital space, looking for promising early stage innovation and inventions to invest in intellectual property and intellectual asset for development and commercialization purposes, even before start up.