Monetization of patents

Primary Options for Monetization
Nelson Mullins Riley & Scarborough LLP
Sale
Licensing
Enforcement
Collateralization

Sale of Patent
Pass ownership to another party. Assign all rights to
the other party.
May be part of a bigger business transaction
 Joint development agreement
 Merger / consolidation.

Sale – Caveats and Advice (1)
Be careful who you sell your patents to, especially if
party is a competitor.
Consider getting a license under the patents for
sale.
You may be obligated to cooperate in their
enforcement activities.

Sale – Caveats and Advice (2)
Consider PR implications.
Consider how loss of the sold patents affects your
overall patent portfolio.
May want to limit transferability of patents.
Consider tax consequences. Do you transfer to a
holding company?

Sale - Auction
How
 Can be via organizations that specialize in auctions,
consulting firms or even law firms
Pricing
 Consider setting a reserve price.
 Understand likely value
- Get comparables
- Understand how much bidders are likely to pay
- Values vary greatly by industry, technology and
particular patent.

Sale - Auction
Observations
 Bidders may want to review file history, so make
available.
 Bidders may want reps and warranties; Our advice is to
avoid if at all possible.
 Bidders may have questions re. technology, products,
enforcement activities, so be prepared to answer.
 Help create interest – identify potentially interested
parties.

Sale - Private Sale
One of the keys to success is identifying viable
targets
How do you determine viable targets?
 Understand scope of patent
 Identify companies that would benefit from owning patent
 Identify companies involved in litigation where patent
could be valuable; Identify who infringes patent
 Identify companies that are interested in growing their
patent portfolio
 Consider non-practicing entities (NPE's)

Sale – Private Sale
Other Factors
 Consider whether patents which are for sale are to be
publicized or not.
 Consider press related issues.

Licensing
Scale
 Large scale – many targets. Like in a sale, you need to
identify targets.
 Small scale – handful of companies.
Key Considerations
 Any lump sum payments? How much?
- One strategy is low cost lump sum.
- Price below what legal costs, etc. would be to fight.
- Another strategy is a higher lump sum with royalties
Some discounted value of total damage exposure.

Licensing
Royalties
 Need to figure out rates
- Look to any industry examples;
- Varies dramatically among industries;
- Look up legal decisions on reasonable royalty;
- Keep tabs of whether abiding by terms of the agreement;
need an accounting per time period.
 What products the royalty applies to and match with
scope of license

Licensing
Other Considerations
 Duration.
 Exclusivity.
 Related patents.
 Obligation.
 Control.
 Right to enforce.
 Right to sublicense.
 Termination.

Licensing – Observations (1)
Can be very lucrative – e.g., IBM, Microsoft.
Demonstrates return on investment (ROI) while
keeping ownership of patents.
With large scale program
 Need a team to lead effort;
 Need to keep track of all candidates;
 Need to set policies regarding ability to tailor terms and
policies to be used;
 Need to be able to convincingly show why they should
like a license;

Licensing – Observations (2)
You will need to have the threat of litigation to get
parties to sign up.
 Be careful regarding declaratory judgment (DJ) motions.
Decide what patents you want to license.
Consider bundling patents.
Get knowledgeable before seeking to license a
Standard Essential Patent (SEP)
 FRAND terms, risks.
Be persistent. Expect most candidates to ignore you.

Enforcement
File an action in
 U.S. Federal District Court;
 International Trade Commission (ITC) – prevent
importation.
Understand costs
 $1 - $2 million a year for moderate cases.
 Substantially more for large cases (tens of millions )
 May get someone to handle on a contingency basis
- lay out percentages;
- lay out triggers;
- lay out control provisions.

Enforcement - Observations
Do your homework on infringement before filing suit
 Understand risks
- Invalidation of patents
- Counterclaims
- Duration of operation
Be prepared to settle case.
Your choice of counsel is critical to your result.
May take years to see money, but verdict can be
substantial.

Collateralization
Use patents as collateral to secure financing.
Valuable business assets.
Make sure it is worth risking the patents.
Understand your obligation to maintain patents until
obligation is satisfied.

Info
Lewis Lee
Patent Attorney @ Nelson Mullins
lewis.lee@nelsonmullins.com

Monetization of patents

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