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When Patenting Pays-off?

Idea protection with invention patenting sometimes gets really expensive, especially if protection is sought in 5 or more countries. Later every year the patent owner has to pay ever increasing annuity fees. So when does it pay off? And will it pay off some day? Of course, the question too complex to have just a single answer.

Different patent value assesments

Patents do not allways generate money directly. Actually it is rather rare that patents are monetized through licensing or transfer of rights. More occasionally they are maintained to be a part of a patent pool, thus strengthening company's position of IPRs. Or they are accuired to increse company's market value with intention to sell the company later. Also very occasional is cross-licensing - as a market entrance strategy.

Direct monetization through sales an licensing

Sale of patents is sometimes a good alternative against maintaining patent registrations in countries while having poor market monitoring there. In case an applicant is lacking resources to monitor and enforce his patents in countries, where he is not having business units or active trading, it is wise to offer competing companies to buy the patent registration in that country. It is much better to get some cash instantly by sales of a patent than remain with uncertain knowledge about that market and continuous doubt about possible infringements. However, before selling a patent, one has to make sure, that in the future the company is not going to extend the business to that country. Of course, a safe way is getting a back licence even if you transfer the rights to the competitor.

Licencing is very popular these days. It is also quite universal approach of patent monetization, because companies, academic institutions and individual inventors - they all can use it successfully, independently of size. It is quite often that R&D focussed companies are not so strong in production, therefore it is more beneficial in economical sense that licensing generates the biggest percentage of revenue, in addition to company's own production capabilities.

Cross-licencing as market entrance strategy

A well known exampke of TomTom shows how a wise licencing and IP management strategy can lead the way to a highly competitive markets. TomTom has paved its way to the GPS navigation business in early 2002. As a market newby, they understood well that big competitors, such as Garmin or Magellan will certainly use their patent right in order to stop their entry to the market. Therefore, from the very beginning TomTom  developed its IP strategy so as to patent novel features of a GPS navigation system. Their flagship devices have the capability of sharing traffic information in realtime with others - this and related features were seen as key development of GPS devices in general. So, TomTom filed patent applications for said functionality. Before going into the market with their devices, TomTom's negotiators went to the competitors and negotiated cross-licenses, meaning that they exchanged licenses for patents that compnies have owned all together and agreede to allow the newcommer to enter the market without having to pay huge royalties. The strategy was really successful and confirmed one thing - those, who have briliant ideas and know, how to protect them can make their way to the most competitive markets.

Patent trolls

The term 'patent troll' reffers to legal or natural persons who manage to collect big pools of patents and forcing big companies to pay royalties, otherwise expensive patent trials will be started. As an average patent trial costs more than 1 million of US dollars, companies tend to avoid them, if possible. Patent trolls often take half the cost of a regular litigation as a license fee and leave the companies alone. It is a kind of legal blackmailing.

Summary

Patents rarelly are directly monetized, rather they are used as tools to implement complex business strategies. Patent portfolio management can be made very efficient if patent rights are transfered or licensed to the market players, who are potentially getting most value from them. Keeping patents unexploited and paying anuity fees might strongly affect the botom line of a company.