Are licensing worth the effort?

Are licensing worth the effort?
Are licensing and out-licensing patents worth the effort for small- and medium-sized enterprises? Little is known about the actual deal-flow of technology licensing as secrecy shields most of the deals being made.

Patent out-licensing generates multibillion dollar revenues for companies such as Microsoft, IBM, Texas Instruments and Qualcomm. But a lot of non-revenue-generating deals such as cross-licensing, licenses provided as equity injections in private companies and licensing deals made as part of the settlement of infringement lawsuits are other types of technology deal-flow that are not so easily quantified.

What is known is that activities in patenting have doubled over the last decade in the US, China and Japan, home to some of the largest multinational companies, while, on the other hand, Europe has been close to a standstill. Some would argue that the battle for the future has begun, and the expected end result is that, in a near future, only a few companies will end up cornering the technology markets by sharing their IP through covert licensing deals. So where does this leave the small- and medium sized enterprises (SME) that own some type of unique, patented technology?

As the larger technology companies increase their world dominance, they will eventually be able to control markets and keep the competition away. This could make it almost impossible for the SME to expand its business beyond a certain level. Initially, the dominant company may choose to ignore the competition, giving way for competing technologies or investor fatigue to take care of the problem. Should the technology prove to be too successful to simply ignore, the dominant company would typically use its position to “deal with the problem” e.g. by limiting access to the market using any of its platforms. Here are some situations where the strength of the IP-portfolio could become a key parameter:

1) Obviously, if the dominant company infringes any of the SME’s patents, the situation should be used to force the dominant company, through litigation, to forcibly provide market access or accept a cross-licensing deal that will allow the SME’s access to the market.

2) Local or global antitrust laws can be used to force the dominant company to forcibly open its platform to provide equal access for all players in the market. In this situation, the advancements provided by the technology of the SME will be a key argument, as they provide multiple benefits to society and should be allowed to proliferate.

3) If patent infringements go both ways, the IP would seemingly have little value, as the dominant company may continue to exclude the SME with little risk. However, a situation still exists where the SME’s IP may become the winning article . Even though the large technology companies may have shared the market amongst them, there will always be struggles and fights that are just part of the game. Selling or licensing the SME’s IP to the dominant company’s biggest competitor may provide this party with the upper hand in one of these matches. Alternatively, leaking information of this strategy to the dominant company could also be used to force the acceptance of a cross-licensing deal.

4) Finally, but probably most likely, the IP can force open a segment of the market that caters to a niche of customers with very specific needs, and that only a smaller, specialized organization is fit to respond to. Such niches exist all over and tend to be lucrative, but they are rarely growing markets. Niche markets seem to be a fertile ground for SME’s in the future.

There is no best way how to go about the issue of utilizing IP through licensing, and the possibilities goes way beyond the aforementioned situations. In fact, only imagination limits the ways IP can be used in alternative licensing constructions. Building stronger IP-portfolios should be the main focus of any SME. Concealing the technology and focusing on in-house innovation is not the best way to achieve this. The combined effort of research teams in different areas with diverse focuses and goals has often proved to be a winning recipe. As an example, the collaborative development of computer operative systems such as Linux and BSD, is now dominating operating systems of all embedded electronics, and forms the basis of operating systems for smartphones. As another example, some of the best inventions are the byproduct of research in other areas –  just think of the ear thermometer, camera phones and CAT scanners, which were based on unrelated technologies developed by NASA. In fact, thousands of companies have benefitted from technologies that originated from the research of NASA, which in itself is produced in hundreds of research labs.

IP licenses are the currency of new technologies. In order to be part of that future, it is necessary to make the deals that provide access to the best technologies. For any technology-based company, using its own IP to leverage the IP-portfolio is simply playing it smart.