Insurance · 12 December 2016

Making money from intellectual property

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Businesses can sometimes be bought and sold based on the strength of their intellectual property portfolios

In the second in a new series on intellectual property, Grid Law founder David Walker considers the various ways small business owners can be making money from intellectual property.

In the last article we looked at some of the most common forms of intellectual property a business may own. In this article we’re going to look at what makes these intellectual property rights so valuable.

If you have a technology or product based business you may own a portfolio of patents and/or registered designs. These can be valuable in a number of ways.

First, you can develop, manufacture and sell your own products. Your patents will protect how your products work and your registered designs will protect how they look.

Your patents and registered designs will give you a competitive advantage by helping prevent your competitors from developing and selling competing products. Now, this doesn’t mean you can prevent all competition, but a comprehensive portfolio of rights can enable you to offer your clients something unique and valuable, so you can price your products accordingly.

A strong portfolio of patents can also enhance a company’s profile and help demonstrate how innovative it is. Remember the advert for the new Audi A6 from a few years ago? The final line was:

“To date, NASA have filed 6,509 patents. To get to the A6, Audi have filed 9,621 patents.”

This leaves you in no doubt how important being at the forefront of technology is to Audi.

If you don’t want to, or don’t have the facilities or resources to develop, manufacture and sell you own products, you could licence your intellectual property to someone who does.

A licence is a contract that gives the other party permission to use your intellectual property on conditions agreed between you. In exchange, they pay you a fee, known as a royalty.

Owning a portfolio of rights which you licence to other people enables you to run a very lean operation. You can have a very profitable business with hardly any overheads which is an extremely appealing prospect for some people.

I have clients who do this. They are very talented designers but for them it would be almost impossible to run a business producing and selling the high volume consumer goods they design.

Therefore, they focus their efforts on designing new products, which is what they are best at, and licence their designs to another company that has the necessary resources to take the products to market.

Brands, protected by trademarks, can be the most valuable intellectual property rights of all. This is because many people will make a purchasing decision based on the strength of a brand over any other feature.

Just like patents and registered designs, trade marks can be licensed to other businesses. This is effectively how franchising works.

A successful business (the franchisor) licences its brand and system of working (which can also be protected through the strategic use of intellectual property rights) to another business (the franchisee) which then operates strictly within a set of guidelines.

Franchisors can charge hefty fees for the rights to use their brand and system and people will happily pay them. Franchisees know they stand a much better chance of running a successful business under the franchisor’s brand than creating their own.

Traditionally, it was businesses such as publishers, media companies and record labels that made the most money out of copyright material. Today, that’s no longer the case. It’s easier than ever for people to produce their own materials such as eBooks, webinars and training courses which they can sell online.

Copyright laws protect them and give you the right to claim compensation if they are copied without your permission. This means you can build a profitable business around your knowledge, experience and expertise.

Producing and selling these digital products can lead to the creation of a strong personal brand, which can also be protected and then monetised through speaking engagements, endorsements or just the ability to charge higher fees for other products and services.

These are just a few of the examples of how intellectual property rights can be used to generate an income, but they can also be assets that grow in value and then be sold. Sometimes, businesses can be bought and sold solely on the strength of their intellectual property portfolios.

If you can demonstrate that you have a well-protected portfolio of intellectual property rights which have a proven record of generating an income, you can sell them for many times the income they produce for you.

The key to making money from intellectual property is to ensure that it is well protected. This means you need to register rights where ever you can and then take action if someone copies your intellectual property without your permission.

In the next article we are going to look at what you should do if you find this happening.

Missed the previous article in David’s series? Catch up and read Intellectual property – How to protect the hidden assets in your business

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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