When Is Licensing a Patent an Excellent Business Move?

In recent years, patent rights have been the subject of major disputes and deals between large technology companies. Companies are creating inventions and filing for patents at astounding rates, which has resulted in a marked increase in the number of patent infringement lawsuits. Some companies have begun to realize that patent licensing can help reduce the threat of lawsuit, by cross-licensing patent rights with competitors. For example, recently Google and LG recently cross-licensed the rights to their respective patents for this very purpose.

Due to the increase in the number of patents and patent stockpiling by major technology companies, many patents go unused by their holders. By some estimates, up to 80% of a large company’s patent holdings are unused. Therefore, some companies are turning to licensing as a way to derive additional revenue from underutilized patent holdings. Others are even licensing unused patents to nonprofits for nominal amounts or donating them as gifts.

Following these trends, it should come as no surprise that patent licensing is on the rise. Any patent-holding company can benefit from licensing unused or even under-used patents. Companies may benefit from patent licensing, especially in the following situations:

One of Your Competitors or Another Company Is Infringing on Your Patent(s)

Technically speaking, a patent right is simply “the right to exclude others from making, using, offering for sale or selling or importing the invention” that is patented, and “A patent licensing agreement is in essence . . . a promise by the licensor not to sue the licensee” for using the patent. But just because owning a patent gives one the right to keep another company from making products or services based on the patent does not mean that enjoining others from using the patent is a good business move.

Instead of bringing a lawsuit, negotiating with an infringer can be a better strategy, especially when the patent being infringed is not used by the company that owns the patent. If the patent is central to the infringing-company’s products or services, the infringer is likely to agree to pay royalties for the use of the patent. Patent licensing allows patent holders to avoid the costs of a lawsuit and reap the benefit of royalty payments. In contentious situations, it may also be advantageous to cross-license patents between the companies, thus increasing the possibility for product and service offerings and removing the possibility of future lawsuits.

Your Company Does Not Have the Resources to Make Use of a Patent

Once a company acquires a patent, making use of it requires capital, time, talent, and other resources. For smaller companies or companies engaged in specific niche markets, a patent that at first was a strategic investment might become impractical to incorporate into existing products or services. Sometimes, companies change strategic directions, rendering some patent holdings unnecessary to their new business models. In other situations, a patent created for use in one industry becomes very useful in another. Medium-sized companies often operate in specific geographic areas, so their patents are under-utilized in the larger, national market. And in technology development companies, sometimes R&D leads to new inventions that are slight improvements on existing inventions and patents.

In any of these situations, patent licensing can be a highly lucrative way to vicariously operate in an industry on a greater scale, in other industries, or in other geographic markets. Companies can find customers for patent licensing by conducting market research about competitors in their industries, considering both product offerings and geographic scopes. Especially when patents are going unused, companies should creatively consider the wide variety of applications for the unused patents and engage in outreach to potential licensees.

If your company is looking to engage in patent licensing, you should work with an attorney to structure the license in accordance your specific needs. This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.


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