Licensing Viability Analysis Series: Part 2 - Evaluating IP Assets
Understanding the Foundation of Your Commercialization Strategy
Summary
A Licensing Viability Analysis relies heavily on an objective evaluation of your IP assets.
This evaluation assesses the strength, scope, and commercial value of IP from a licensee's perspective.
Key IP types for licensing include Patents, Trademarks, Copyrights, and Trade Secrets.
The value of each IP type depends on specific characteristics like patent claim scope, trademark distinctiveness, software functionality, and trade secret secrecy.
Objective insights from experienced professionals are crucial to avoid bias and accurately assess legal nuances and market fit.
Introduction
In our previous post, we introduced the concept of a Licensing Viability Analysis as a crucial tool for inventors and small companies. We emphasized that this analysis is a pragmatic, objective assessment designed to provide a clear roadmap for commercialization, moving beyond wishful thinking to a fact-based strategy. A cornerstone of this analysis, and often the starting point, is a thorough and objective evaluation of your Intellectual Property (IP) assets.
For any licensing strategy to succeed, a deep understanding of the IP being offered is paramount. This isn't just about identifying what IP you have; it's about critically assessing its strength, scope, and commercial value from the perspective of a potential licensee or acquirer. The insights gained from this analysis will shape available strategies and guide the identification of an ideal licensor profile. While you, as the inventor, possess intimate knowledge of your creation, maintaining an objective stance during this evaluation is challenging but essential. Leveraging experts with market experience provides valuable insights and helps avoid the common pitfalls of self-assessment.
In this installment, we will break down the major types of Intellectual Property, discussing the key characteristics that make each valuable for a potential licensor or acquirer.
Major Types of Intellectual Property Assets
Intellectual property refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce. For the purpose of licensing, the most commonly encountered types are patents, trademarks, copyrights, and trade secrets.
Let’s explore how each IP category can be evaluated to help build a viable licensing strategy.
Patents
What they are: Patents grant the inventor exclusive rights to make, use, sell, and import an invention for a limited period, typically 20 years from the filing date, in exchange for public disclosure of the invention. Patents protect functional aspects of an invention.
Characteristics important for licensing value:
Scope of Claims: The breadth and depth of the patent claims are crucial. Broad claims that cover a wide range of embodiments or applications are generally more valuable as they provide greater exclusivity and make it harder for competitors to design around the invention. However, narrow claims can be more defensible. The analysis should determine what the claim language covers using a reasonable interpretation of the claim language.
Enforceability: A strong patent is one that can be effectively defended against infringement. This involves clear claim language and sufficient support in the specification.
Novelty and Non-Obviousness: While these are requirements for patentability, their continued strength post-grant, especially against newly discovered prior art, is vital. A patent easily invalidated by existing prior art has little licensing value.
Commercial Applicability/Market Fit: Does the patent cover something the market actually needs or wants? Is it an incremental improvement or a disruptive technology? Is there current use in the market today? A patent on a commercially irrelevant invention holds little value, regardless of its legal strength.
Remaining Life: The closer a patent is to its expiration, the less valuable it becomes, as the period of exclusivity is shorter. This needs to be factored in to the licensing strategy and valuation.
Global Coverage: For technologies with international market potential, patents in key global markets can increase value.
Trademarks
What they are: Trademarks are signs, designs, or expressions which identify products or services of a particular source from those of others. They protect brand names, logos, slogans, and other identifiers that distinguish goods or services in the marketplace.
Characteristics important for licensing value:
Distinctiveness: The more unique and memorable a trademark is, the stronger it typically is. Fanciful (e.g., "Kodak"), arbitrary (e.g., "Apple" for computers), and suggestive (e.g., "Coppertone") marks are generally stronger than descriptive or generic marks.
Market Recognition (Brand Equity): A trademark associated with significant consumer goodwill, trust, and market share (a strong brand) carries substantial licensing value. Licensees seek to leverage existing brand recognition.
Registration Status: Registered trademarks (especially federal registrations) provide stronger legal protection and presumption of ownership, making them more attractive for licensing.
Clear Ownership and Usage: Undisputed ownership and consistent, proper usage of the trademark are essential for its value.
Scope of Goods/Services: The range of products or services for which the trademark is registered and used can affect its licensing potential across different industries.
Global Presence: Similar to patents, trademark registrations in relevant international markets enhance value for global brands.
Copyrights
What they are: Copyrights protect original works of authorship fixed in a tangible medium of expression, including literary, dramatic, musical, and certain other intellectual works. For the purposes of technology licensing, this analysis will primarily focus on software, given its significant role in innovation and commercialization.
Characteristics important for licensing value:
Uniqueness/Novelty of Code: While copyright doesn't protect the underlying functionality, the unique and original expression of the code (how it's written) is what's protected. Highly optimized, innovative, or specialized code can be very valuable.
Functionality and Market Demand: For software, the underlying functionality it provides is key to its commercial value. Even if only the code is copyrighted, the market demand for the solution the software offers drives licensing interest.
Ease of Integration and Use: Software that is well-documented, modular, and easy for licensees to integrate into their own systems or products holds more value.
Dependencies and Open Source Compliance: Understanding any dependencies on third-party libraries or open-source components is critical. Licensees need assurance regarding the clear ownership and proper licensing of all software components to avoid future legal issues.
Clear Ownership: Demonstrating clear ownership of the entire codebase, especially if multiple developers were involved, is crucial. This includes proper assignment of rights from all contributors.
Registration Status: While copyright exists upon creation, registration with the relevant copyright office (e.g., U.S. Copyright Office) provides significant legal advantages in enforcement.
Trade Secrets
What they are: Trade secrets are confidential business information that provides a competitive edge because it is not generally known or readily ascertainable. This can include formulas, patterns, compilations, programs, devices, methods, techniques, or processes. Unlike patents, trademarks, and copyrights, trade secrets are not registered and rely on active efforts to maintain their secrecy.
Characteristics important for licensing value:
Actual Secrecy: The information must genuinely not be generally known to the public or to competitors.
Commercial Value: The trade secret must derive independent economic value from not being generally known.
Reasonable Efforts to Maintain Secrecy: The owner must have taken reasonable measures to keep the information confidential (e.g., non-disclosure agreements, restricted access, strong cybersecurity).
Difficulty of Reverse Engineering: Trade secrets that are difficult or impossible for competitors to independently discover or reverse engineer are more valuable.
Competitive Advantage: The information must provide a distinct and tangible competitive advantage to the owner.
Challenge in Licensing: Licensing trade secrets poses unique risks due to the potential loss of secrecy once information is shared. To mitigate this, licensors must implement robust confidentiality safeguards, including strong non-disclosure agreements (NDAs), limited access protocols, and strict dissemination controls. Additionally, practical licensing models—such as "black box" arrangements, where the licensee accesses outputs without full exposure to the underlying know-how—should be considered to preserve confidentiality while still enabling commercial use.
The Importance of Objective and Experienced Insights
This overview provides a foundation for evaluating your IP assets, it's crucial to understand that conducting a truly accurate and robust IP analysis demands objectivity and often, specialized expertise.
Avoiding Bias: As an inventor, you are deeply invested in your creation, which can naturally lead to an overly optimistic assessment of your IP's strength or market appeal. An objective third party can identify weaknesses or limitations that you might overlook.
Legal Nuances: The legal intricacies of IP — patent claim interpretation, trademark distinctiveness, copyright ownership chains, and trade secret protection measures — are complex. An experienced IP attorney can provide critical insights into the enforceability and scope of your rights.
Market Perspective: What an inventor perceives as valuable IP might not align with what a potential licensee values. Licensees are looking for IP that solves a significant problem, offers a clear market advantage, and integrates seamlessly with their business. An experienced licensing professional can help bridge this gap.
In essence, while you can begin to outline the characteristics of your IP, a professional and unbiased assessment is invaluable. This ensures that the IP evaluation component of your Licensing Viability Analysis is grounded in reality, setting a solid and credible foundation for your commercialization efforts.
Conclusion
Understanding and rigorously evaluating your Intellectual Property assets is not merely a formality; it is the bedrock upon which a successful licensing strategy is built. By dissecting the characteristics that imbue patents, trademarks, copyrights (especially software), and trade secrets with commercial value, you begin to grasp the true leverage you hold. In the next post, we will shift our focus to Market Opportunity Analysis, exploring how to objectively assess the landscape into which your invention might enter.
This is the second post in our series about performing a Licensing Viability Analysis. Up next we will discuss assessing market realities.