Patents & Licensing – A Brief Primer on Investing In Innovations

Posted on 4th September 2023

Technological advancement, the lifeblood of modern society, rests firmly on the bedrock of innovation. These innovations, however, demand substantial investments in time, effort, and financial resources.

One of the perils innovators face is the risk of their ideas being copied or stolen, leading to significant losses. This is where patents and licensing come into play, serving as a protective shield for these valuable innovations.

This guide delves into this fascinating realm of patents and licensing, so keep reading to comprehend better their pivotal role in investing in innovations.

Understanding Patents & Licensing

Patents are legal instruments that grant inventors exclusive rights over their inventions for a set period, typically 20 years. Eligibility hinges on novelty, usefulness, and non-obviousness. They ensure inventors reap the benefits of their innovations, encouraging more breakthroughs.

On the other hand, licensing permits another party to use your patented invention in exchange for royalty payments. For example, a pharmaceutical company might license a patented medicine formula to a manufacturing company, allowing the latter to produce and sell the medicine while the patent holder earns a royalty.

How Patents and Licensing Contribute to Innovation

Exclusive Rights and Profitability

Exclusivity is pivotal in the realm of patents and licensing. As hinted earlier, innovation can be quite expensive, demanding substantial investments. Exclusive rights conferred by patents prevent others from copying or exploiting the invention without the patent holder’s consent.

This creates a “legal monopoly” for a set period, allowing inventors to recoup their investment and earn a profit. It also allows the innovator to control supply, demand, and, ultimately, the price without fearing being undercut. Exclusivity incentivizes further innovation by ensuring profitability, perpetuating the technological advancement cycle.

Attracting Investors through Patents

At times, the cost of bringing an invention to life could surpass the financial resources of the inventor, necessitating external funding. Investors are crucial in such scenarios, providing the capital to progress innovations from concept to reality.

However, investors are cautious and prefer to fund ideas they are confident will yield a return on their investment. A portfolio of successful patented ideas can be a significant attractor for investors, demonstrating a proven track record of innovation.

In this case, patents assure exclusivity and profitability, which investors highly value. Moreover, a successful patent portfolio enhances an inventor’s reputation, further bolstering investor confidence.

Increasing Market Share through Patent Licensing

While exclusivity is beneficial for profitability, it can limit the market penetration of an invention, hindering its potential impact. This is where patent licensing can prove transformative. By licensing patents, inventors can allow other entities to produce and sell their inventions, expanding distribution and increasing market share.

Take, for example, a tech innovator who has developed a groundbreaking software application but lacks the manufacturing capabilities to mass-produce it. By licensing the patent to a global software production firm, the inventor capitalizes on its existing manufacturing and distribution networks, ensuring broader market reach and penetration for their invention.

Downsides of Patents and Licensing

While patents and licensing confer numerous benefits in innovation, they are not devoid of drawbacks. Obtaining and maintaining patents can be quite costly, often costing thousands of dollars.

The patent application process can be time-consuming, often spanning several years, and involves a complex labyrinth of legal procedures and technical jargon. Also, there is an inherent uncertainty in the outcome of patent applications as there is no guarantee that a patent will be granted.

Even if granted, there’s no absolute certainty it will be upheld in court if challenged. If a competitor infringes on your patent, you may need to engage in a costly and protracted legal battle to enforce your rights, further exacerbating the financial and time-related burdens.

There is also the question of sharing your idea when licensing, which can mean that you do not have exclusive knowledge of the details of your patents, meaning your license could become your stiffest competition upon the expiry of your patent protections.