Plus: the altruistic bonus of select licenses
Troy, Mich.—October 6, 2020—The pandemic has sent many businesses scrambling for new markets and revenue streams. Dickinson Wright PLLC intellectual property attorney Andrea Arndt notes that some companies need look no further than their patent portfolio for inspiration.
“Innovation, research and development, and patent procurement can be expensive and time- consuming endeavors. Licensing patents presents an immediate opportunity for companies to create a new revenue stream from dollars that have already been spent,” Arndt said.
Patent holders have exclusive rights to a patent for 20 years, after which time the public can freely use the technology disclosed by the patent. While the value of a patent can grow in those two decades, it may also shrink or even become worthless, depending on the technology and the market it serves. Licensing can mitigate this loss by presenting a more immediate return.
“Each patent is unique, but many patents have optimal value early in their lives – and that’s when licensing can be an ideal business strategy. Some patents have minimal licensing potential as they age and should be licensed immediately,” Arndt said.
Two widely used types of patent licenses include: exclusive and non-exclusive, but within those two categories, there are multiple scenarios that can be employed to maximize the value of licensing, according to Arndt.
“Exclusive licenses transfer all of the patent rights to one party (e.g., to a company, to an individual, to the government, etc.), while non-exclusive licenses may transfer the patent rights to numerous parties. The decision to extend exclusive or non-exclusive rights depends on a variety of factors, including the type of technology; the value and importance of the patent; the royalty rate; the number of interested parties; and the cost and risk associated with R & D, manufacturing, marketing, and selling the product.”
For example, Unilens Vision, Inc. granted Bausch & Lomb an exclusive license to use its patented technology to develop, manufacture and sell a multi-focal soft contact lens. Bausch & Lomb pays Unilens a royalty rate of between 3% and 5% of Bausch & Lomb’s sales. On the other hand, some patent owners have licensed their patents to numerous medical companies to develop and market their diagnostic and prognostic technologies. The term for the licenses may also vary from a few years to 20 years.
Royalty fees vary depending on the profit margin expectations, the capital investment required to manufacture the product, the risk of expected profits, and the timing of the expected profits. In other words, a higher royalty rate may be obtained for a technology that can be commercialized without a large capital investment. For example, a patent owner granting a license for a software patent may obtain a royalty rate of 15%–20%, while a patent owner granting a license for a pharmaceutical patent may obtain a royalty rate of 2%–10%. Beyond the benefits of receiving the royalty fees, the additional incentive to licensing is that the licensor can structure the license to benefit from any changes made to the patent that make it more valuable.
“Depending on the initial agreement, if the licensee makes changes or improvements to the underlying technology of the licensed patent, the licensor may be able to freely use such improvements while still receiving royalty fees based on the patented technology,” Arndt explained. “The financial benefits of a well-developed licensing strategy are potentially quite lucrative and should not be overlooked. Plus, the additional branding that may come with licensing can translate into increased market share and industry clout.”
Beyond enhanced revenue, licensing is surprisingly also used for altruistic purposes.
“Licensing can be a mechanism for bettering society, especially when it comes to healthcare, where patent holders release their rights for widescale use to serve the common good. For example, patent holders of biological patents may grant an open patent license on the condition that the any improvements made to the patented technology are provided under the same licensing terms,” Arndt said. “Some licensors share their technologies for the sole purpose of improving the technologies more quickly, simply because they see the value this can bring to society. The intersection of licensing and society is actually quite fascinating. It’s an example of how intellectual property protection spawns innovation, creativity and even good will.”
About Dickinson Wright PLLC
Dickinson Wright PLLC is a general practice business law firm with more than 475 attorneys among more than 40 practice areas and 16 industry groups. Founded in 1878, the firm has 18 offices, including six in Michigan (Detroit, Troy, Ann Arbor, Lansing, Grand Rapids, and Saginaw) and 11 other domestic offices in Austin and El Paso, Texas; Columbus, Ohio; Ft. Lauderdale, Fla.; Lexington, Ky.; Nashville, Tenn.; Las Vegas and Reno, Nev.; Phoenix, Ariz.; Silicon Valley, Calif.; and Washington, D.C. The firm’s Canadian office is located in Toronto.
Dickinson Wright offers our clients a distinctive combination of superb client service, exceptional quality, value for fees, industry expertise, and business acumen. As one of the few law firms with ISO/IEC 27001:2013 certification and one of the only firms with ISO/IEC 27701:2019 certification, Dickinson Wright has built state-of-the-art, independently-verified risk management procedures, security controls and privacy processes for our commercial transactions. Dickinson Wright lawyers are known for delivering commercially oriented advice on sophisticated transactions and have a remarkable record of wins in high-stakes litigation. Dickinson Wright lawyers are regularly cited for their expertise and experience by Chambers, Best Lawyers, Super Lawyers, and other leading independent law firm evaluating organizations.