Building IP Value ... Developing Marketability

 

In previous issues, we've discussed the question of what's the value of my IP? Part of building value is marketability - proving the commercial market for your IP. This month, we focus on several ways you can create marketability (and build value) for a newly developed IP. 

 

Test marketing the products or services derived from your IP on a local, regional, or national basis, is one of the best strategies for proving marketability. For new product inventions, selling the products through one or more retail channels will be one of your best strategies to prove customer demand. If you have a proprietary service (knowhow), you could test the viability of licensing through a test market with a potential licensee. If it's a new entertainment property, develop some animation and show it online. If it's a book, self publish and start promoting sales. Anything you can do to enhance the viability and demonstrate that there is a marketable interest in your intellectual property will enhance its value.

 

Another important component of marketability is understanding the numbers - the cost to produce and deliver, the price and the profit margins. The better you understand the profitability of your IP, the stronger position you will be in to license your IP.  If figuring out the numbers is not your strength, you can bring somebody onto your team who can help you assess what the numbers may be. Enlist the aid of an accountant, or someone who understands finance, or someone who has had experience working with similar types of products or services and understands what the revenue models could be for commercializing your intellectual property.  

Your presentation is what engages potential licensees and demonstrates the potential of your IP. So how are you going to present your intellectual property? You've only got one chance to make a good impression, and what's most important is to show how the intellectual property will make money.  

 

In order to demonstrate all of this, you must have your IP in a visual format. If you're presenting a product, you should have it in tangible working form, such as a working prototype or actual production sample, and ideally, be able to document that the product will sell and make money. If it's a new technology, you should show exactly what the technology is and how the potential licensee can use this technology to increase their business.  

 

What I suggest you do is take a look at the materials from tradeshows. You'll be able to see how established companies (and potential licensees) are presenting and selling their products. The more you can develop your presentation to be reflective of the trends in the particular industry or segment, the greater your likelihood of succeeding in licensing your intellectual property. 

Did You Know...

 

$5.065 Billion in (US) Licensing Royalty Revenues Generated in 2010

 

Nearly half (47%) of licensing industry royalty revenues are generated in the Character segment, which includes characters from all portions of the entertainment business. Other major segments of the licensing industry include Corporate Trademarks/Brands, accounting for 16.7% of the business, Fashion (13.6%), and Sports (12.7%). The Music sector is the only category that showed an increase (4.5%), a result of strong sales of music merchandising tied to concerts and events as well as revenue from online and mobile devices.

 

Source: Licensing Industry Merchandisers Association (LIMA)  

 

Negotiating Checklist - Consideration

 

Payment terms (i.e. consideration) for licensing agreements can and do vary from deal to deal.    

 

Consideration can include straight royalties, milestone payments, determining rate of exchange, equity, and minimum annual payments.

 

Following are some of the ways that consideration payments could be structured in a licensing agreement:

• Royalty Free
• Royalty as a percent of profits, gross sales, net sales, specific amount, or per unit
• Single Sum license fee
• Milestones (what are they and amount paid at each one)
• Equity: Stock of Licensee, or of existing company, or new company, with value of stock at market value, date of agreement or according to a schedule of payments
• Payment to be made in US Dollars or a specified Exchange Rate

6 Ways to Increase IP Value 

 

Building value is key to developing a successful licensing program.  This 4 minute video discusses 6 ways you can build value for your IP.