Why Sell?*
The following excerpt offers an explanation why a patent owner may wish to sell his patents rather than seek to exploit it himself.
"I am often asked why any company with a promising patent would sell it. Why not exploit the patent yourself and keep all profits, runs the usual reasoning?
One of the most compelling motives is an inability for a small entity to muster all the people, factories, raw materials, scientists, managers, and salesmen to do so. Quite simply, it is a considerable undertaking for any company to manage the explosive growth required to fully exploit a patent. As an entity expands, it invariably faces constraints and shortages that will challenge its ability to satisfy customer demand, and do so in a timely manner.
There can be no assurance that anyone can anticipate all of the changing demands that expansion may place on the patentee's operational, manufacturing, shipping, marketing, labor, managerial and financial systems and controls or that the patentee will be able to continue to increase the capacity of such systems and controls.
Additionally, there can be no assurance that the patentee will not encounter impossibilities in meeting increased production needs, maintaining quality control, and recruiting and retaining qualified people. If the patentee is not able to meet its growth and at the same time offer a quality product, its business and finances could suffer, possibly beyond the benefits from the increased sales arising from its patent monopoly.
Similarly, being a talented inventor does not necessarily translate into the talents required to exploit a patent. Scientists do not always make good salesman, nor do inventors routinely make good managers. Combining the best of both worlds by matching responsibilities with abilities is the key to lucrative licensing."
* Excerpted from Patent Licensing: Strategy, Negotiation & Forms, by Mark S. Holmes © 2000-9 Practising Law Institute, New York (2000 annual supplement).
A Word About Valuations
Every patentee and company with a patent portfolio is first and foremost interested in the sales price or royalties they will receive from their patents.
The methodology used to calculate a proposed sales price or royalty rate for a proposed deal is important; it can also vary by type of invention.
There are several approaches that can be used, the most appropriate one often dependent upon the purchaser or licensee. In the case of licensing, the royalty rates for comparable products are often persuasive. For example, if the invention is a medical device, the market royalty rates for a medical device performing similar functions may be the most useful benchmark. If the client’s patent offers better features than the device being compared to, a higher price or royalty may be justified.
If the license scheme is to license numerous users under a mass licensing approach, then a set or published royalty schedule will normally suffice. If the potential license fees are substantial, then flexibility is key to tailoring a license deal for large customers. PatentBridge frequently uses the following factors in negotiating patent royalty rates:
· Strength of the patent (ability to withstand declaratory judgment)
· Size of the potential market
· Scope of the claims (narrow or broad)
· Exclusive or non-exclusive
· Territorial extent
· Degree of innovation (disruptive or slight improvement)
· Susceptibility to design around
· Competing technologies
· Royalty rates of comparable or competing products or services
· Risks to licensee (ramp up costs, legacy issues)
· Strategic fit (new product line)
· Licensee finances
· Motivation (e.g., profitability, maintaining competitive position)
· Deal structure flexibility (cash, equity, mixture)
· Royalty stacking
"The Bridge Between Patents and Revenue"®
© Copyright 2003 - 9 PatentBridge LLC All Rights Reserved
The following excerpt offers an explanation why a patent owner may wish to sell his patents rather than seek to exploit it himself.
"I am often asked why any company with a promising patent would sell it. Why not exploit the patent yourself and keep all profits, runs the usual reasoning?
One of the most compelling motives is an inability for a small entity to muster all the people, factories, raw materials, scientists, managers, and salesmen to do so. Quite simply, it is a considerable undertaking for any company to manage the explosive growth required to fully exploit a patent. As an entity expands, it invariably faces constraints and shortages that will challenge its ability to satisfy customer demand, and do so in a timely manner.
There can be no assurance that anyone can anticipate all of the changing demands that expansion may place on the patentee's operational, manufacturing, shipping, marketing, labor, managerial and financial systems and controls or that the patentee will be able to continue to increase the capacity of such systems and controls.
Additionally, there can be no assurance that the patentee will not encounter impossibilities in meeting increased production needs, maintaining quality control, and recruiting and retaining qualified people. If the patentee is not able to meet its growth and at the same time offer a quality product, its business and finances could suffer, possibly beyond the benefits from the increased sales arising from its patent monopoly.
Similarly, being a talented inventor does not necessarily translate into the talents required to exploit a patent. Scientists do not always make good salesman, nor do inventors routinely make good managers. Combining the best of both worlds by matching responsibilities with abilities is the key to lucrative licensing."
* Excerpted from Patent Licensing: Strategy, Negotiation & Forms, by Mark S. Holmes © 2000-9 Practising Law Institute, New York (2000 annual supplement).
A Word About Valuations
Every patentee and company with a patent portfolio is first and foremost interested in the sales price or royalties they will receive from their patents.
The methodology used to calculate a proposed sales price or royalty rate for a proposed deal is important; it can also vary by type of invention.
There are several approaches that can be used, the most appropriate one often dependent upon the purchaser or licensee. In the case of licensing, the royalty rates for comparable products are often persuasive. For example, if the invention is a medical device, the market royalty rates for a medical device performing similar functions may be the most useful benchmark. If the client’s patent offers better features than the device being compared to, a higher price or royalty may be justified.
If the license scheme is to license numerous users under a mass licensing approach, then a set or published royalty schedule will normally suffice. If the potential license fees are substantial, then flexibility is key to tailoring a license deal for large customers. PatentBridge frequently uses the following factors in negotiating patent royalty rates:
· Strength of the patent (ability to withstand declaratory judgment)
· Size of the potential market
· Scope of the claims (narrow or broad)
· Exclusive or non-exclusive
· Territorial extent
· Degree of innovation (disruptive or slight improvement)
· Susceptibility to design around
· Competing technologies
· Royalty rates of comparable or competing products or services
· Risks to licensee (ramp up costs, legacy issues)
· Strategic fit (new product line)
· Licensee finances
· Motivation (e.g., profitability, maintaining competitive position)
· Deal structure flexibility (cash, equity, mixture)
· Royalty stacking
"The Bridge Between Patents and Revenue"®
© Copyright 2003 - 9 PatentBridge LLC All Rights Reserved
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