How to maximise profits from your patent portfolio

Securing a patent can be a significant cost to your business. So even before you file an application, you should consider how you will get the most value from it. Thinking about each patent strategically means you can leverage it fully as an asset.

Businesses typically use their patents to protect a product or service in countries where they’re taking it to market. The existence of the patent, and the threat of litigation, does offer significant competitive advantage. However, delays in market entry or changes in sector landscapes can mean patents only used this way don’t return on a company’s investment of time, resources and budget.

In fact, nearly 80% of in-house lawyers say that more than a quarter of their portfolio is underused. Luckily, there are lots of options for making more profits from your patents, particularly if you work them into your IP strategy from the beginning.

Ways to profit from your patents

Beyond using your patents to protect products or services from market competitors, there are some other ways to leverage the value of these intangible assets.

Using UK tax relief

If your business is liable to pay Corporation Tax in the UK and fits specific criteria, then it could qualify for the Patent Box scheme. It allows companies to pay a reduced level of Corporation Tax on the profits they make from qualifying patents. Rather than paying 25%, a 10% tax rate is applied to money made on patents that:

You own or exclusively license

Have been granted by the UK Intellectual Property Office, the European Patent Office or some countries in the European Economic Area

The profits earned also need to fall under the category of ‘intellectual property income’. This includes selling patented products, using a patented process, licensing and selling rights and infringement income. When you elect to the Patent Box scheme, the reduced rate can be applied within two years after the end of the accounting period in which the relevant income arose.

Licensing patents

If you want to maintain control of a patent while using the asset to generate revenue, licensing your IP can be a good option. It also allows the costs and risks of using a patent to be balanced between a licensor and licensee. For example, a licensor won’t have to pay for manufacturing and selling patented products.

Depending on the demand for the legal rights, licensing agreements can be drawn up to be exclusive to a single party or as part of pools or cross licensing to multiple parties. These contracts give the licensees permission to work in ways that would otherwise infringe your IP rights in return for a fee.

If your business can’t service particular geographical markets, then licensing your patent means you can still generate passive income there. You can also mark your patents’ ‘licence of right’ in some jurisdictions (including the UK). This lowers your renewal fees and advertises that your patent can be licensed by others (in terms you and the licensee set out in an agreement).

It is also worth bearing in mind that offering licenses is often a solution to an infringement dispute. So, looking for infringers and offering licences is a valid way to monetise your patents without incurring the expense of litigation.

Adding business value

Rather than thinking of your patents as a cost on your P&L, adding them as an asset on your balance sheet can add significant value to your business. This can be leveraged to meet specific commercial goals. However, it’s important to note that there are various methods for valuing IP, with some being more appropriate than others.

Valuations can be based on:

• Costs that have been incurred when developing or creating IP rights

• Market value, using evidence from the previous track record e.g. transaction data

• Predicted income or economic benefit in the future, with risks and costs factored in to create a Net Present Value (NPV)

Once a patent has been valued, it can be added to a balance sheet and used in the same way as any other asset. This could include being used as loan security or attracting investors to raise capital. Alternatively, if you’re following an exit strategy, it could contribute to the final sale value of a business.

Selling patents

If your business is changing its strategy, whether that’s shifting target markets or entering new industries, then it might be appropriate to sell your IP rights. Again, you should be careful about the valuation method you choose, as there are pros and cons to each option. Outright sale also means you lose the right to work the invention in future, the risks of which should be weighed against the potential benefits.

Refresh your strategy regularly

To make sure your portfolio is as profitable as possible, it’s essential to conduct regular patent audits and valuations. By examining each patent carefully and individually, you can work out if you’re leveraging their full value and spot opportunities to increase their profitability. It also ensures that your portfolio as a whole aligns with your business goals.

When renewal dates come around, it also means you can make sure the terms and territories of each patent are still giving you the right protection. Otherwise, you could be paying for IP rights that are too extensive or in countries that are no longer relevant. You can then cut any dead weight, meaning you're not spending money unnecessarily, only maximising commercial value.