Types of Monetization in the World of Intellectual Property

Intellectual property (IP) can have commercial value. In order to properly commercial value of IP, one must understand the options to do so. Maximizing monetization hinges on developing, protecting, and leveraging your IP. We explore each of these facets in turn:

Developing Intellectual Property

Ideas can’t be protected. Partially completed works usually cannot be either. Instead, and subject to certain limitations, the U.S. government recognizes and rewards “progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries” (U.S. Constitution, Art. I, §8). In some states, like California, they recognize rights to a companies’ valuable confidential information (called trade secrets) that cover a “formula, pattern, compilation, program, device, method, technique, or process[es].” Cal. Civ. §3426.1

Types of Monetization

In other words, the first step in monetizing your intellectual property is to develop it. A minimum threshold of completion of your invention, brand, art, or know-how is a necessary first step to maximizing the value of that intellectual property (intellectual property is an intangible asset). For example, a new technology has to be shown to actually work. A brand must at least be in the advertised in the marketplace. An artwork requires a minimum level of creativity and should be considered finished to the artist, at least for that particular round of presentation. These rules apply irrespective of whether you are a business or an individual.

Once you meet that minimum threshold of completion, there are various types of legal protection available (as further described in copyright, trademark, patent, and trade secret law). Determining which protection is available, practical, and necessary, depends on your business and entrepreneurial goals and this varies for each individual client.

Acquiring a Presumption of Rights

While not a strict requirement for obtaining intellectual property rights (except patents which require registration), the most expedient way to have a court recognize those rights is to register them with the government. A registration creates a presumption of rights. A presumption of rights basically means a court must assume you have rights, unless shown otherwise.

A registration is often looked upon by most business people - except perhaps those with litigation experience - as an absolute right. And most investors and other market participants tend to look very favorably upon registered intellectual property.

Why? Because in order to obtain a registration, one must pass the government’s fairly rigorous tests. It’s important to remember when a government tests a piece of intellectual property, this means it has been examined by the government’s scientists and/or attorneys. In other words, the intellectual property has already been under a round of scrutiny and has been proved it is worthy of the presumption of rights.

Monetizing Strategies

Successful monetization allows you to leverage your intangible assets to generate additional streams of revenue. But the monetization of intellectual property is not a static, uniform process. Developing a successful monetization strategy requires considering various factors including:

  • Type of intellectual property held
  • Legal requirements of monetizing specific intellectual property
  • Industry norms
  • Developing a proper valuation of the IP
  • Consistency, or lack thereof, of revenue that may be generated
  • Term and geographic limitations
  • Auditing rights
  • Exclusivity
  • Limiting risk in special circumstances
  • Other factors unique to your situation

Common Types of Monetizing (Commercializing)

Below is are the most common monetizing strategies:

  • Asset sales (assignments). As its name implies, an asset sale is simply the purchase/sale of all rights to a piece of intellectual property. This usually results in a single lump-sum cash payment and/or a stream of payments.
  • Licensing. This is a fancy term for “renting” your intellectual property to another. The difference is that many people can “rent” your IP rights at the same time.
  • Litigation and enforcement. This was originally intended to prevent unauthorized use of intellectual property. But some IP holders use litigation and enforcement to “recoup” lost licensing fees from third parties, who would have otherwise had to pay to use the IP. It is effectively a way to collect royalties from involuntary customers that may not have known they were using your IP.

Special Types of Monetizing (Commercializing)

Below is a short (non-comprehensive) list of specialized monetizing strategies:

  • Acquisitions. This is a strategy more commonly used to purchase complimentary IP to make products and/or sell services that competitors would not be able to produce or market. There are other, less favorable, reasons to do so as well. (e.g., see aggregation below).
  • Aggregation. This is the act of pooling your IP with others to create more effective offensive or defensive litigation and enforcement strategies.
  • Financing IP. Most people don’t realize that IP can be financed. Here are two examples:  You can use IP as collateral for a loan, just like taking a real estate loan against a building. Another example is a sale and lease-back, where a company “sells” its IP for a large sum of money and then “rents” it back for a monthly payment. There are other forms of IP financing as well.
  • Holding Companies and NPEs. Entities created to “hold” IP. These entities are used to limit risk when pursuing litigation against third parties. For example, a manufacturing company may not wish to risk its building, equipment, and operations when enforcing intellectual property (especially if fearful of a counter lawsuit). So, these companies “send” their IP to a holding company that does the enforcing. Sometimes there are tax benefits as well.
  • Spin outs: joint ventures and special purpose entities. At certain times, IP has such strong potential value, keeping it with the original owner creates an artificial limitation. In such cases, a whole new business (or business unit) may be created by taking the IP and placing it into a new entity to grow on its own accord. It’s also possible the IP market potential could benefit by joining that specific IP with effective partners. For example, a company that specializes in developing IP might “partner” with company that specializes in marketing and distribution.

We’re Here to Help

The attorneys at Nexio Law Firm are committed to helping our clients achieve their business objectives and maximize return on their talent and inventions. If you decide to create and implement an IP monetizing strategy, it’s important to do all the necessary preparation to ensure your intellectual property—and your business—are well protected under the law. We’re here to help you every step of the way. We can be reached at (949) 478-6830 or complete the contact form below and we’ll be in touch soon.