How to Create an Effective Intellectual Property Monetization Strategy

Intellectual property can be a crucial asset to your business if used strategically. For many businesses, intangible assets make up 70-80% of firm value if used correctly. However, this value is often not reflected on the balance sheet, which results in the operation being undervalued. An effective intellectual property monetization strategy accounts for the different roles intellectual property can play in facilitating business growth and ensures that the intangible assets you have created are profitable to your business and effective in achieving your short- and long-term goals.

There are several steps involved in assessing intellectual property and creating a monetization strategy. Once you have created your strategy, you should be able to easily and concisely answer two questions: “what is the best course of action for my intellectual property” and “how does intellectual property contribute to the overall value of my business in the short- and long-term”.

Step 1: Assessment of business

The first step in developing an intellectual property monetization strategy is critically assessing the strengths, weaknesses, and opportunities within your business.

Any decisions you make about your intangible assets are also decisions made about your business, which is inseparably intertwined with your intellectual property. Thus, a strategy developed for one without due consideration for the other tends to be inefficient, unproductive and unsuccessful at maximizing your business’ potential.

Take the time to evaluate the general strategy of your business, including the business mission statement, short- and long-term goals for profitability, expansion, development and other critical metrics. Reflect on what your business does in practical terms, for example by defining the core products and services that generate revenue, and think about how you would like your business to evolve in response to emerging market trends.

One way to tackle this is to conduct a SWOT analysis (strengths, weaknesses, opportunities, threats) to identify the current state of the business and future steps that need to be taken to ensure success. The value of preliminary planning techniques like a SWOT analysis is derived from understanding the current state and growth trajectory of your business. This allows you to make informed, thoughtful decisions that makes sense for your business not just today but further in the future as well. Consequently, do not shy away from being honest about ongoing legal risks, vulnerabilities, or other weaknesses since it is more often than not easier to correct these problems proactively than reactively.

At the completion of this initial step, it is critical to understand the current condition of the business (finances, operations, short-term outlook) as well as longer-term goals to increase profitability, market share, etc. All decisions regarding intellectual property should be considered within the wider context and circumstances of the business and be guided by overarching business needs and goals. It also means understanding what legal protections are afforded to intellectual property rights holders and how these rights are commonly enforced.

Step 2: Assessment of intellectual property assets

The next step would be to conduct a similar analysis of the intellectual property assets that belong to you or your business. This should include both registered assets (patents, trademarks, copyrights, industrial designs), assets currently in the process of registration, and unregistered assets (i.e., brand goodwill, trade secrets, ideas for which a patent has not yet been filed, etc.). It also means understanding what legal protections are afforded to intellectual property rights holders and how these rights are commonly enforced.Your intellectual property is only an asset as a result of the rights they afford your business, and your business alone. If you do not understand what those rights are, your intellectual property is no more of an asset than the paper its printed on.

Try to conceptualize a mission statement that will adequately reflect the purpose for which your intellectual property was created (and registered, if applicable) and how that purpose helps your business. For example, a trademark may have been created as a catchy brand name to attract consumer attention and recognition of the product, which may help your business increase its market share by fostering, for example, recurring customers and stronger word-of-mouth marketing.

At this point, you should also conduct a SWOT analysis of your intellectual property assets. Try to strike a balance between being overly hopeful and too critical in your analysis. Here, it is also helpful to determine the competitive advantage that your intellectual property can offer to your business, whether it is providing a unique experience for consumers, goodwill from a trusted brand name or a cheaper method of production than market competitors. Not sure what could be strengths, weaknesses, opportunities and threats when it comes to intellectual property? We’ve generated a few examples below.

Strengths	Weaknesses	Opportunities	Threats
Trademark is a coined word – distinctive, cannot be confused with another business	Copyright notices not being used (i.e. not putting public on notice that website material is subject to copyright)	Could strengthen copyright position by registering select works with the copyright office	Competitor applied for a similar trademark
Trademark always identified as a trademark	Selling in US but trademark only registered in Canada		Small business is using identical trademark on somewhat related goods (not registered)
			Trademark registration is due for renewal
			Trademark X hasn’t been used yet, risk of expungement for non-use

When considering threats to your intellectual property, consider how legal risk can be mitigated through intellectual property registration and how you may approach intellectual property enforcement. Since intellectual property rights are exclusory rights, enforcement is key in maximizing the fiscal return from your intellectual property portfolio. Active enforcement of your intellectual property rights is necessary in preventing competitors from realizing unlawful commercial gains through infringement. For example, a competitor may seek to increase their market share by incorporating your patented technology into one of their competing products.

It is important to look out not only for the usefulness that consumers can derive from your intangible assets, but how it affects the entire consumer experience. A laser focus on utility can prevent you from discovering other uses for your assets that can result in business profitability. Also understand that different forms of intellectual property protection can apply to the same product or service to provide more comprehensive legal protection.

Other factors to consider include the lifespan of your intellectual property, whether any oppositions or challenges from competitors need to be pursued, whether there are any maintenance or legal fees associated with upkeep of the asset, and whether there are any monetization offers pending that need to be considered (i.e., a licensing offer).

Once you have evaluated these considerations, you should be able to answer the 5Ws of your intellectual property assets:

• What: which assets you have in your possession, the status of their registration, and their value (both financial and operational).
• Who: who is entitled to legal ownership of the assets used within your business? (i.e., yourself, the business at large, independent contractors doing work for the business).
• Where: in what jurisdictions are your assets currently registered and where do intellectual property rights have to be acquired as the business continues to expand its operations? Identify what jurisdictions you anticipate doing business in in two, five, and ten years’ time and how you can facilitate the expansion of your business into new and possibly legally dissimilar markets while minimizing the risk of infringement.
• When: what timelines exist on the registrations of your IP assets? When are maintenance deadlines coming up? Are there any deadlines that are expiring for registration of new assets (i.e., the grace period for disclosure)? Are there any monetization deals on offer for which a decision has to be made on a timeline?
• Why: for which purpose was the intellectual property created and registered? Is that purpose still relevant and profitable to the business? How have these purposes been adapted as your business evolved?

Step 3: Determining role of intellectual property within business

The next step is to merge the two assessments together to determine both the value your intellectual property holds and the role that value plays within your business. There are several strategies for intellectual property valuation, which can be divided into two primary categories: quantitative methods and qualitative methods.

Quantitative valuations rely on measurable data or numerical information to produce an estimate of asset value, particularly on the basis of opportunity cost. Qualitative valuations attempt to provide a non-monetary estimate of value through intangible metrics such as strategic impact, brand loyalty and impact on future growth.

The two should not be treated as mutually exclusive, and can both be useful for guiding the trajectory of a monetization strategy. However, it is often more useful to conduct a quantitative valuation if tangible metrics are necessary for securing a licensing, collateralization or securitization deal. You can read more on the methods of quantitative and qualitative valuations, as well as how to conduct them, in our IP valuation primer.

Once the fiscal value of your intellectual property assets has been determined, it is then necessary to evaluate all available monetization scenarios to figure out which one yields the greatest short- and long-term benefits. There are a number of common monetization strategies that can be explored, including commercialization within the business, co-development, licensing, securitization, and spin-out.

When selecting the best route or combination of routes to utilize the intellectual property assets, make sure to look at the opportunity costs involved in each as opposed to evaluating only the potential revenue. Analyze and balance the gains arising from decisions prioritizing short-term or long-term goals against, respectively, their long-term or short-term implications. It could be that what seems like a good opportunity for an immediate injection of revenue causes your intellectual property to be undervalued in the long run.

For example, a two-year licensing contract may yield more immediate revenue than independently commercializing a patented invention due to the high initial cost and the lack of economies of scale within your business. However, such a licensing deal may saturate the market by the time you are prepared to enter and dilute the long-term profits from your patent. When reviewing short-term commercialization opportunities, like licensing agreements across prospective licensees, consider not only what the market indicates the value of your intellectual property to be but also the capacity of your business to independently pursue commercialization.

For another example, consider your trademarks. Licensing the use of your trademark to a third-party should be carefully considered and not done in a hurry. The wrong partner can easily diminish the value of your trademark. If customers are sold a subpar product branded with your trademark, they may come to associate your trademark with inferior quality or poor value for money. If this happens enough, your trademark may not have the same power it once did to drive sales and signal a quality product or quality business. Often the depreciation of the goodwill associated with your mark will far outweigh the benefit of the revenue from licensing.

Intellectual property is likely to also play a role in your business that isn’t directly related to revenue and profit. Whether it is an asset that can be used to convince investors that your company is serious about entering the market, a potential draw for hiring talent, or being able to enter R&D networks that were previously closed to your business, identify and note any non-tangible benefits. Simply put, the opportunity to license, invest in, or work on developing cutting edge technology or work with a reputable brand can be a significant selling point.

Step 4: Developing a vision and strategic objectives

Once you have conducted the above assessments and determined the most beneficial monetization route for your intellectual property assets, it is time to integrate this information into the strategic framework of your business.

Integrate intellectual property into your vision statement, which aims to address the direction the business will take in the long term based on the purpose and values that it hopes to bring to market.

Here it is also key to clarify what steps need to be taken in the short and medium terms to make the vision statement a reality. Thus, it is necessary to define the strategic objectives of the business and how intellectual property can help you accomplish them.

Some questions to consider in formulating your strategic objectives include:

• What do we do better than our competitors?
• How can we secure and monetize our competitive advantage?
• What gaps exist in our market that competitors are not addressing?
• What value do we bring to our consumers?
• What are the associations that we want consumers making with our business/brand?
• How can we minimize the legal risk we accept while growing our business through new business opportunities?
• What are the obstacles to achieving the above objectives and how can we use our assets to overcome them?

The vision statement and strategic objectives should form the core of your strategy, upon which you should be able to set goals for intellectual property performance and business performance at large.

Step 5: Setting short and long-term IP goals

The strategic objectives identified in step 4 should form the basis of the short- and long-term goals of your intellectual property strategy. Unlike the broader strategy, the goals should be specific, measurable and timely in order to be actionable and easily assigned to employees or partners responsible for their undertaking.

Ideally, a goal within the overarching strategy should be SMART, or possess the following characteristics:

• Specific: the goal should have a definite and quantifiable aim as opposed to a general qualitative one (i.e., “increase market share within the perfume industry by 2%” as opposed to “sell perfume to more people”).
• Measurable: you must be able to measure whether the goal has been fulfilled through an impartial indicator, or set of indicators (i.e., checking the total products sold on the market to determine percentage of market share in a given time period as opposed to assuming that more perfume sales mean that the target has been reached or that such an increase in sales is sufficient to achieve your broader growth strategy).
• Actionable: there should be a clear path to how the goal can be fulfilled that is broken down into steps if necessary. When setting the goal, it is not enough to outline just the goal; the path to accomplishing it should also be specified in actionable terms (i.e., Company XYZ will aim to increase its share of the perfume market by 2% by marketing XYZ trademark in association with perfume products to increase consumer loyalty and brand goodwill).
• Realistic: the goal must accurately estimate the capabilities of the business and the scope of legal protection that the intellectual property is entitled to. Overestimating the potential of the business can lead to goals that are too lofty and thus cannot be accomplished. Conversely, ignoring valuable intellectual property or using intangible assets without appropriate legal protection creates an ongoing risk of competitors capitalizing on your unprotected or under-protected assets.
• Timely: there should be a concrete timeframe associated with accomplishing the goal. Further, for more substantial, long-term goals, midway checkpoints should be specified to see if progress has been made toward the larger goal in that timeframe. While timelines may change as your business pursues its long-term goals, it is important to identify and understand why a timeline went off-course or what strategies were effective in accelerating progress.

Step 6: Creating a timeline for achieving target IP objectives

Your vision and strategic objectives should not be abstract. Without specific and measurable goals to structure the trajectory of your intellectual property assets, it is nearly impossible to create a fully functional monetization strategy.

As such, it is key to establish a timeline for the accomplishment of your strategic objectives. If applicable, set both an ideal goal time and a more realistic one to keep your business on track. It may also help to identify and consider the capacity of your business to recover from delays in achieving your strategic objectives. This may mean developing a remedial strategy that re-allocates resources or addresses underperformances that compromise a timeline.

Setting such a timeline will also help you track the performance of your assets later and simplify the process of reviewing your commitments.

When establishing your timeline, make it easier for yourself to stay on track by involving others. This can include sharing the timeline with business partners, investors and other stakeholders, as well as setting up a rewards system for those involved (i.e., a bonus system for meeting deadlines ahead of the timeline).

Key dates along your timeline should be reviewed on a consistent basis to include more short-term goals, and, if necessary, calendar additional long-term goals.

Step 7: Communicating strategy to relevant parties involved in the business

Once you have established the short- and long-term goals for your intellectual property assets, it is time to get your business partners on board. Of course, your monetization strategy is an intangible asset in itself, and as such should be kept confidential from competitors and other entities not involved in your business; however, confidential does not mean entirely private.

A good rule of thumb is to reveal to others as much as they need to know to be an effective asset to the business (i.e., disclose information on a “need-to-know” basis). The extent of this disclosure is decided on a case-by-case basis – for example, information disclosed to an employee working on creating new assets for the business would be very different from the details given to a licensing partner. In general, the more involved someone is in your business strategy, the more information they should be provided with. Before disclosing your IP assets to anyone, it may be helpful to consider if disclosure can jeopardize your right to obtaining IP assets later on. For example, in the case of patents, some jurisdictions such as the European Union do not permit any disclosure before the filing of a patent application. In Canada and the United States, however, a patent application may still be filed within 12 months of any public disclosure. There are a number of strategies to protect your inventions while also having the ability to discuss them with prospective business partners and investors. For more information on the different strategies, please consult our resource on Non-Disclosure Agreements and Provisional Patent Applications.

Business partners should be notified in advance of all changes in your plans. For example, if you have decided to terminate a licensing deal in favour of commercializing an asset on your own, make sure to notify the licensee several months in advance so they have adequate time to communicate this information to those involved in their channels of production, distribution and marketing. It is especially important to review any licensing agreements you use or are subject-to to determine what legal obligations you have and how you must conduct your business to comply with the terms of the contract. Using the above example, this may mean reviewing a licensing agreement to determine how far in advance of terminating the agreement you must provide notice of termination to the other party, what form the notice must take, and what penalties arise if you are noncompliant.

In some cases, it may also be useful to ask others for input on your strategy at this stage and implement their suggestions into the plan. Involving others in the development of your strategy may prevent insular thinking, open the business to fresh perspectives and build a stronger relationship with relevant entities.

Step 8: Implementing performance tracking systems

It is key to consistently measure the performance of your intellectual property and the profits that it brings to your business to make sure that it is being used in the most effective way possible. Implementing performance indicators into day-to-day operations will make sure that you catch any inefficiencies early on and can correct them before they materially impede business performance.

Performance measurement can involve both tracking milestones (both whether they have been accomplished at all and whether they have been accomplished by the deadline set) and tracking metrics on a consistent basis. Relevant metrics can include profitability, market share of consumers, month-by-month or annual growth of the commercial goods backed by the IP asset, and/or growth of royalty payments from partners involved in commercializing the assets.

The metrics should serve as a check-and-balance system to any monetization strategy and ensure that the intellectual property continues to be profitable. The most important thing is to have a consistent timeline for conducting these audits, and to take action to alter the short-term goals if the results are not consistent with expectations.

Step 9: Setting up a review process to identify new opportunities and maintain IP value

Developing an effective monetization strategy does not mean that your work is done. For your intellectual property to continue to bring value to your business, your strategy must be constantly reviewed to ensure it remains in line with your goals and maintained in accordance with the guidelines of your jurisdiction. This includes not only filing all maintenance fees and applications on time, but also seeking new opportunities for monetization and legal protections.

Within your timeline, include checkpoints at regular intervals at which you and other key decision makers within the business evaluate current performance metrics and research market opportunities such as new licensing, securitization or collateralization to see if any of them would increase the value and profitability of the intangible assets owned by your business. Having such a review process prevents complacency and the gradual decline in value of the intellectual property while promoting a more active and engaging involvement of team members in developing intangible assets.

Conclusion

Hopefully this guide has provided you with a strong framework for creating an effective intellectual property monetization strategy. If you would like our help at any point in the process, contact us for a complimentary and confidential initial telephone appointment.