Monetisation: what is it, and should I care?

“Monetisation” is used by patent owners to describe procedures that help to derive monetary value from their patent rights. All patentees have the right to stop those who are practising what their patents teach or demand from them either lost profits or reasonable royalties.

The rules outlining the basis for the earliest patents in Ancient Greece, Italy, and subsequently England have been well recited in literature. All of these patent regimes granted inventors a short-term monopoly to practise their inventions if they disclosed the nature of the invention, meaning others could use them after the monopoly expired. While the patent was in force the patent owners had, and still have, the right to license the invention to others until the patent expires.

This ability to license becomes an asset on the day the patent is granted. The patent asset is granted initially to the inventor, and it may be transferred shortly after grant to the company the inventor works for. Therefore, companies accumulate patent assets over time, giving them rights to extract rents from those practising what the patents teach.

The ability to extract rents is a fundamental aspect of any patent system, regardless of the jurisdiction, and this right confers value on the patent depending on the level of infringement in the markets the patent applies to. Once granted, a patent becomes a tradable asset and has the value associated with the possible rents its owner is entitled to.

These last few sentences go to the core of the correct application of the word “monetise”. A patentee has the right to exclude others from practising its patented inventions or monetise the rights embodied in the patent through legal rent-seeking activities such as licensing or even selling the patent assets to others that have value-based uses for them.

"Ultimately a patentee must decide if it is willing to assign patents to firms that are experts at licensing."

Sell it, license it, or have someone license it for you

Monetisation can involve capturing the value of a patent in many different ways through its 20-year life. Licensing to other entities that wish to practise the invention is one way, but there are other mechanisms stemming from other values that may be associated with the patent, such as:

Selling the patent to a licensing company to capture the assertion value of the patent;

Selling the patent to an operating company to capture the defensive value relative to that company’s adversaries; and

Selling the patent to a patent defence fund to capture the litigation value associated with the cost of litigation—avoided by acquiring the patent and thereby not allowing others to assert it.

In such monetisation-focused transactions, patent rights can be transferred to the parties above either through a full assignment of the patents or an exclusive licence that gives standing to assert.

Non-practising patent owners

The patent courts are set up to handle cases where a plaintiff asserts against a defendant and the defendant counter asserts as a counter-plaintiff. There is a chance for the plaintiff and the counter-plaintiff each to win their cases and therefore it is a matter of determining the difference in the damage awards in each direction.

In the case of a patentee that ships no product and provides no services, there can be no countersuit. So the defendant is facing the full level of damages since it cannot offset damages it might be awarded in a countersuit against the damages it must pay its adversary. This leads to non-practising firms having significant leverage in licensing negotiations.

Ultimately a patentee must decide if it is willing to assign patents to firms that are experts at licensing. On the one hand, there can be reputational effects on the patentee in its industry if the licensing firm asserts against the patentee’s competitors; on the other, there can be positive licensing results based on the expertise and leverage such firms have. Each case has to be weighed on its merits.

Art Monk is vice president, patent brokerage at  TechInsights. He has a career spanning 35 years in high-technology business and managing patent divestment and acquisition transactions internationally. He can be contacted at: amonk@techinsights.com