Patents can be powerful revenue generators. Revenues from patent licensing have increased dramatically over the last 10 years. Many companies have realized that their most important asset is their intellectual property portfolio. The most notable example is IBM. In 2009, IBM was issued 4,914 patents from the U.S. Patent & Trademark Office. To put the number in perspective, IBM was awarded approximately 20 patents each business day in 2009. In 2009, IBM collected approximately $1.1 billion in revenue from patent licensing agreements. One caveat, it is really not a volume game; in order to generate revenue, you must have patents that have value to others or can be used in cross-licensing agreements to give your company access to technology you don’t have in-house.
Patent license revenues are nearly pure free cash flow. The typical profit margins from successful patent licensing/enforcement can be over 90%. Where can you sell products with that kind of margins? Depending on your cost structure and margins, for every $1 in patent licensing revenue, you would have to capture approximately $5-20 in product sales to generate an equivalent net income stream. It pays to dust off your old patents and do a serious evaluation of their licensing potential.
That’s nice, but let’ be real. Not everybody has the resources of IBM. How could a smaller firm leverage patents? In the early 1990’s Jim Howard and Greg Lucas at Zycon (then Hadco, then Sanmina, now Sanmina-SCI) developed an embedded capacitance technology that provided an effective approach for decoupling high performance printed circuit board components and reducing electromagnetic interference. The company secured four key patents (1-4). Zycon had two options. In one case, they could use their patents to form a proprietary industry position. In this case, the patent portfolio would prevent competitors from using the patented technology and make it difficult to develop competing offerings (in other words, provide an effective barrier to entry). The second option was to develop a licensing strategy.
In the early 1990’s the team at Zycon realized applications requiring embedded passives would expand in the future. The recent technical sessions on embedded passives at the March 2002 IPC technical conference demonstrated the intense interest and expanding opportunities for embedded capacitance applications. At the time, Zycon made the business decision to develop a licensing program for printed circuit board fabricators and several laminators (Polyclad, Nelco, Isola, etc.) to produce ZBC 2000® (ZBC 2000® is a registered trademark). ZBC 2000® laminate suppliers were required to pass a rigorous three-phase qualification process to ensure quality, reliability, and electrical performance before they were permitted to sell the licensed product. In the case of licensed laminators, Sanmina-SCI collects a license fee for each square foot of laminate sold to licensed printed circuit board fabricators. The license agreements provide an effective “passive” revenue stream for Sanmina-SCI. The decision to license both laminators and fabricators facilitated widespread technology adoption, which in turn increases licensing revenues.
How do you know when to license or maintain a proprietary position? The decision requires careful business analysis. Will you have a more attractive financial return by garnering an exclusive position enabled by your patent portfolio? Or will revenues be larger if you license your competitors and promote widespread technology adoption? Each case must be evaluated early in the business development cycle in order to select the appropriate strategy.
If you have a patent challenge, the polymer experts at InnoCentrix can help. Give us a call at 1-877-887-6596 or visit our services page.
References:
1. James R. Howard and Gregory L. Lucas; US Patent 5,079,069
2. James R. Howard and Gregory L. Lucas; US Patent 5,155,655
3. James R. Howard and Gregory L. Lucas; US Patent 5,161,086
4. Gregory L. Lucas: US Patent 5,261,153
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