by Nannette C. Stangle-Castor, Ph.D.

In today’s climate of impatient investors and heavy demands for return on investment, the concept of increasing revenue without significant additional cost is an appealing proposition. This proposition is within the reach of many companies today, regardless of the size of the entity, from large, multi-national corporations to small start-up companies. How does one extract the maximum value from their current assets?

The Real Value of IP
Companies are universally aware of the value of intellectual property (IP). Without it, a business strategy and foundation is deficient and the necessary funding nearly impossible to generate. However, as much as the importance of IP is recognized across all companies, the real value of IP is most often not fully appreciated. Overlooking the true value of a company’s IP is a mistake that the best companies will not make.

Other Markets for IP
For the most part, the majority of companies are focused in specific markets. The technology that is used within a particular company for a specific market may however have alternative uses in other markets. For example, a medical diagnostics company commonly plays exclusively in the human health arena. There are many technologies used in medical diagnostics that have applications in other non-competing markets. A technology that detects the presence of bacteria in blood samples may have many other valuable applications such as animal bacterial testing (both for companion animal and livestock markets), environmental testing for contaminants, food safety testing, and military use for detection of biological warfare agents.

Expansion into one of these numerous areas is a possibility for the medical diagnostics company; however that diversification has many risks and would require significant capital investment, on both a personnel and financial basis. Out-licensing provides an alternative format for utilizing the medical diagnostics’ technology for other areas and generating revenue without expending extensive resources.

Identifying IP for Out-Licensing
The identification of IP that has value in other markets is not a difficult task. However, this is often best done by utilizing outside consultants. These “outsiders” bring a fresh set of eyes that do not have fixed or rigid notions of the applications for the technology.

Beginning the process by taking stock of the company’s entire patent portfolio is highly recommended. This screening of the patent portfolio should identify technologies that have potential in other valuable markets. Once the list of IP with the best potential has been identified, evaluation of those technologies should follow.

Evaluating the technology at the highest level includes determining the markets for which the technology is applicable. In detail, it should include identification of the following parameters for each market area: appropriate markets and leading companies in each market, competing technologies/products, benefits of the technology can offer over existing technology, ease of implementing the technology into other markets with their specific technologies, timing considerations, barriers to entry, and level of development of the technology.

How is the IP Out-Licensed?
Once an evaluation has been completed and the appropriate markets identified, a marketing campaign must be launched. This includes the generation of a target list of potential licensees, production of marketing materials that “productize” the technology, and execution of the marketing plan. The marketing plan can range from a very targeted campaign in markets with only a few main players to a broad campaign with numerous players. Any serious interest in the technology will require execution of the necessary confidentiality documentation and substantial discussions among the parties involved. With execution of an out-licensing agreement, additional revenue will come to the licensor (e.g., medical diagnostic company) in the form of upfront payments, royalties, and portions of any sub-licensing agreements.

Benefits of Out-Licensing
The process of identification of IP, market-centered evaluation of IP, and execution and follow-through of a marketing campaign does take some investment of resources. However, the cost is insignificant when compared with alternative approaches of generating new IP or expanding into different markets with new products. As with the example of technology in a medical diagnostics company, this market requires significant research and development efforts to bring new products to market, thus requiring significant financial investment in order to reap additional substantial gains in revenue through new product offerings. Out-licensing can provide a path for increasing revenue stream without significant investment of either financial or personnel resources.

A successful out-licensing strategy can and should be an integral part of any company’s business strategy and plan. Maximal return on investment has become a demand from investors. Meeting that demand through out-licensing can create a win-win-win situation for all involved. This is a win for the licensor due to the additional revenue generation without significant investment of resources, a win for the licensee by obtaining technology that fills a need that is more advanced in development compared to the generation of new IP, and a win for investors in the licensor’s company because of greater return on investment and a healthier overall company, increasing the odds for future success.