11. Exploiting your IP assets

As the company progresses you will accumulate IP assets, both registered and unregistered.  At the point of exit, you will hopefully exploit these by virtue of the value that they add to the company.  But that value comes from either the real value that has been achieved by the prior exploitation of the assets or the foreseeable value to be achieved in the future.

In the case of a tech start-up, it is unlikely that you will have exploited value by selling an IP asset in its entirety.  Even if that option were to be available, a company targeting a future exit or sale would be unlikely to look at an option that merely adds cash to the balance sheet.  A more likely scenario is a company licensing out itsIP in return for royalty payments.  IP assets can be carved up in many ways to maximise their value.  Assets may be carved up by country or by application.  Within such a carve-up, licences can be exclusive or non-exclusive.  Maximising revenue from a licence is of course important, but so is maintaining the option to enter future agreements.

When negotiating a licence with a willing licensee, you are trying to achieve a win-win outcome to maximise the incentive on the licensee to succeed and generate licensing income for the licensor.  However, licences should have some provisions covering the event that the licensee underperforms for some reason.  These provisions may include some minimum royalty payments or an option on the part of the licensor to cancel the license in such circumstances.

Bear in mind that a first licence, or first few licences, may be key to securing further licences.  A discount may be considered for those first through the door.  Early licences can also demonstrate potential at the exit point.

Registered IP is a clear indicator of a company’s innovative behaviour and its desire to carve out a space in the marketplace.  Whilst being subtle about it, there is significant benefit to be gained by publicising your approach and its successes.  Whilst observers might be cautious about the value of your shouting about a particular US patent being granted, they will likely take notice of some report on your overall filing and grant numbers, as well as statements concerning the importance that you place on seeking robust protection. 

It's also worth keeping in mind that the existence of IP rights sometimes might not be enough of a deterrent to prevent competitors from launching infringing products or services.  A large competitor with deep pockets may, for example, take the view that an early-stage start-up will not have the money or bandwidth to fight a lengthy legal battle to defend its IP position.  One way a start-up can guarantee a fairer fight if fierce competition is anticipated is to take out an IP insurance policy that will cover litigation costs if and when court action becomes necessary.  Insurance might not be cheap, particularly when a large IP portfolio is involved, but it may help convince competitors – and investors too – that you are serious about defending your market position and potential for growth.  Even if no IP insurance policy has been secured a priori, financing for litigation may still be available through litigation funders who may agree to help with the legal costs in exchange for a share of any damages.