Companies in the United States have realized the massive value of Intellectual Property (IP) and this has led to a paradigm shift. Barely four decades ago, intangible assets like IP constituted only about 20% of the market value of most companies. In the present day, the tables have turned and intangible assets represent up to 80% of a company’s value.
However, statistics reveal disturbing insights about gross underutilization and waste of IP. Even though IP-intensive industries, e.g. patents, trademarks and copyrights, have the potential to generate higher than average revenues, many are simply not optimizing the opportunity.
According to a Forbes report, 95% of 2.1 million patents that were active in 2014 were not commercialized.
During the same period, statistics from the World Intellectual Property Organization (WIPO) reveal that only 2% of the 2.1 million patents in force were commercially successful through licensing. Most interestingly, that 2% represents $180 billion in licensing annually, highlighting the high potential going to waste, i.e. the other 98%. Those numbers have only marginally improved since 2014.
Given the remarkable potential of IP commercialization, why aren’t companies doing more to leverage the opportunity? Take a look at some of the barriers:
The level of financial investment required to file patents and pursue prosecution and litigation stands in the way of commercialization. First, it locks out the most promising players and startups, favoring large organizations.
In spite of the fact that these organizations talk about innovation, they rarely realize their objectives. Not only are they inherently slow and political, but they are also too busy maintaining multiple product lines to dedicate time to walk the talk.
Essentially, companies that have the resources to get IP protection don’t follow through with commercialization. And those that have the will and potential to commercialize often cannot afford it. Few realize the good they can accomplish with patent pending protection, which as Seventh.ai outlines, is not only cost-effective but also easy to implement and highly beneficial.
Frivolous infringement is among the top issues in patenting which has in recent times become synonymous with trolls and litigation. Inventors and innovators who file patents and commercialize their IP have to contend with legacy institutions that are at times out to slow them down.
In some cases, traditional players resort to issuing lawsuit threats which scare smaller players out of the innovation race. Young companies cannot bear high litigation costs and will at times even agree to pay out of court settlements, which spells out death for them anyway.
A majority of companies today are tech companies, a sector which is inherently dynamic and fast-paced. However, the patenting system is far from efficient and is characterized by slow bureaucratic and approval processes.
Early stage projects and startups fail to see the value of filing applications for patents in view of the grim reality that they will likely die out before the patent, if ever, issues.
A majority of patent applicants have a legal orientation, i.e. filing with the main purpose of plugging portfolio holes. While it makes sense, given the litigious nature of the space, it often leads to the creation of low quality patents. Filing a poor patent sets the pace for inevitable failure in commercialization.
Moreover, filing IP strictly for defensive purposes leads many companies to sit on those “paper” patents. Among the undesirable effects of this trend is the fact that it prevents actual products from ever entering the market. And in turn, this stems the tide of natural innovation progression.
Closely related to the above point is the prevalence of low quality patents. According to Bruce Berman, CEO of Brody Berman Associates, a frequent contributor to WIPO Magazine, a good patent has to meet at least these two main criteria: First, it has to have a high likelihood of standing up to litigation, a measure whether the patent is valid or invalid. Second, the concept behind it has to hold the potential of generating revenue (in terms of protecting profit margins or generating direct licensing revenue) to a particular holder at a given time.
The reality on the ground tells a different story, with most patents failing on both counts. As a result, they open the door to potential patent troll abuse and fail to commercialize.
Universities spend quite a bit on R&D, and have been known to produce high quality patents. The impact of technology transfer on the US economy speaks for itself. More than 5,000 startups have been created in the past 30 years, and between 1996-2013 technology transfer has contributed $518 billion to the US’s GDP. However, two main obstacles stand in the way of potential commercialization.
But could they have done better? The main issue is, university technology is typically far too early to suit target industries. Secondly, some universities place too many restrictions in terms of ownership of the patent and demand heavy equity stake (up to 70%) in the companies that have developed the IP in the first place. Such harsh restrictions can seriously cripple a startup, and most founders opt to forgo dealing with a university tech transfer as a result.
It is a huge loss to a university tech transfer for two reasons: 1. The startups that developed the IP in question are likely in the best shape to take the underlying products to market and validate the patent value and 2. That single patent would be very difficult to license otherwise.
Typically it all rests on a single patent, which is usually the case based on a university’s budget, and unless it is the first and critical patent in the development of a drug at the heart of a new medical breakthrough, single patents are effectively unlicensable.
It stands to reason that any effective solution to IP commercialization challenges has to overcome these obstacles. Considering the high potential of commercializing patents, any efforts made in this regard would be worthwhile.
One of the immediate steps we could take to improve IP commercialization is to empower startup founders worldwide. Providing access to simple, safe, affordable tools to help them build high quality patents (and patents pending) would significantly improve their chances of funding, speed up their go to market, and open the doors to a myriad of joint venture opportunities.