Due Diligence for Patents – Licensing Potential

In many cases, the licensing potential of an invention is the best way to see its complete value.

When rating inventions for patenting, the licensing potential of an invention is a key component. In this analysis, we are interested in the maximum potential uses of the invention. Technologies that are transportable or applicable to different industries, market verticals, or other uses are inventions that can have enormous economic value.

The licensing potential can be considered by envisioning a licensed version of a product that can be sold into different markets. For example, a feature of a software product may be made into an API that may be called from other applications. The API may be packaged up as a standalone product and licensed to other applications.

Considering the “reuse” of the invention by other companies may greatly expand the invention’s use across industries and markets.

This analysis should not be limited by your company’s business plan, current product roadmap, or other artificial constraints. Instead, this analysis should consider every possible way the invention should be used in every conceivable industry. In many cases, the licensing potential of an invention should reveal the largest suite of uses and users of the invention. Further, this analysis should consider the licensing potential of the invention as industries mature and as market changes occur.

Consider how the invention may be used in different industries in 5, 10, and 15 years, especially with different scenarios where commodity prices rise or fall dramatically, when entrenched players are upended, when market consolidation occurs, or other market swings may take place.

The licensing potential analysis should help you understand how useful the invention may be to others – which is the value or power that invention has in the marketplace. If the licensing potential of the invention is limited to specific industries or niche uses, it may be useful to attempt to reform the invention to become more useful in other uses. Having a general purpose type of product that may be used many places is much more valuable than a single, niche application. Those inventions that are very niche-focused may not be very interesting or valuable, and sometimes may not pass a due diligence prior to filing a patent application. A licensing potential analysis may rate the invention on the following scale:

5: Invention has significant value and is a key elements of a licensable product for other markets
4: Invention has very significant value in other markets (i.e., dramatic cost savings or improvement)
3: Invention has good value in other markets
2: Invention could be licensed as part of a package with other inventions
1: No expected licensing potential – invention limited to our products/technology

Check out our other posts on Patent Due Diligence.