Site icon Duncan Bucknell

Focus on the lesser value in licensing (No. 48 in our list of IP mistakes)

This is an interesting mistake because you can find yourself doing the right thing while emphasizing the wrong thing.  It is certainly not a mistake to pursue licensing and monetary value from your IP portfolio.  It is a mistake when licensing happens tactically that could happen strategically.

Marshall Phelps, an IP icon for his work at IBM and Microsoft, noted that the greater value of licensing for most innovator companies is not in the royalties, but in the business relationships that licenses create.  His licensing program with IBM received a lot of attention when it reached the $1 billion annual royalty mark.  While that royalty was large, it only represented a fraction of the $31 billion of business IBM did at that time.

Many top business managers apparently focused on the $1 billion dollars of annual royalties rather than the integrated business relationships those licenses created and their positive affect at helping IBM gain the other $30 billion.  Licensing initiatives began with the royalties as the primary focus – a hard value easy to quantify, and not the business relationships – a softer value difficult to quantify.  As such the licensing initiatives set themselves up to underperform.  Licensing functions operated with objectives independent of the overall business strategy itself.  They became just ad hoc attempts to monetize the patent portfolio.

Even if ad hoc licensing programs work to secure royalties, and even if ad hoc approaches prove better than doing nothing at all, they leave business value untapped.  Untapped business value is the cost of the mistake.

(This is number 48 in our list of IP mistakes and how to avoid them.)

Image credit: Hemera Big Box of Art 1 Million

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