Growing Intangibles During an Economic Downturn May Pave the Way for Future Profits | Clark Hill PLC
It’s no secret that the US economy has suffered greatly over the past two years. At the height of the pandemic and beyond, local economies missed the usual revenue boost from restaurants, retailers and live events. Supply chains are still struggling due to the shutdown, global production issues and ongoing labor issues. This, in turn, caused high demand and inflation rates.
The next few months, if not years, could see a back-and-forth between inflation and interest rates, as the Federal Reserve seeks to implement new monetary policies that will bring the U.S. economy back to pre-pandemic prosperity. As consumers reconsider their spending and businesses assess their investments and hiring, companies can take steps to stay afloat and launch new business as the market returns. In today’s blog, we discuss how growing intangible assets through intellectual property (“IP”) licensing can be the key to future profits.
Intellectual property as a driver of innovation
Creativity and inventiveness contribute to advancing our society, to solving socio-economic problems and, overall, to improving people’s lives. Over the past 20 years, there has been a shift towards improving access to our innovation ecosystem and protecting property rights to creations and inventions that benefit our society. Patents, trademarks and copyrights provide a means of establishing ownership rights in these innovations. Intellectual property rights encourage us to take risks, embrace new ideas and lead change.
Intellectual property rights and protection are also key to developing our domestic production and reaping the benefits of an innovative economy. According to the USPTO, US industries that make extensive use of intellectual property account for 41% of US economic activity and 44% of employment. Intellectual property-intensive industries such as manufacturing, retail, and professional services accounted for $7.8 trillion of US gross domestic product.
If you own intellectual property, you can potentially monetize that intellectual property. Intellectual property can be sold, mortgaged or even licensed. In the current state of the economy, licensing your intellectual property can generate a reliable revenue stream and help you and your business succeed in the future.
How Intellectual Property Licensing Can Generate Profits
Intellectual property owners can take advantage of alternative financing strategies such as licensing their existing intellectual property and any newly acquired intellectual property. How it works? With intellectual property licensing, the owner sells the rights to use that intellectual property to a licensed contractor. (They do not transfer ownership of the intellectual property itself). The owner assigns subordinate rights to assets such as patents, brand names or trademarks for a license fee. Through a license agreement, the owner establishes the appropriate conditions and permissions – in other words, guidelines for what the licensee can and cannot do with the property. The licensee pays a license fee to the owner of the intellectual property.
As long as you carefully draft a license agreement and monitor the licensee’s use of your IP, your IP should continue to increase in value and marketability. You will receive benefits while the economy works to recover. The increased profits mean that you can further develop your IP portfolio, whether it’s your own work or investing and acquiring additional IP.
Invest in innovation now, create business opportunities in the future
Leveraging intangible assets to generate profits is not a new concept. In the 1800s, Thomas Edison helped finance his business by using the light bulb patent as collateral. In recent years, celebrity branding has become a popular licensing tactic to market everything from beverages and nutritional supplements to household goods and beauty products.
If you own intellectual property, whether a patent, trademark, copyright or trade secret, you may not have considered licensing a license for this intellectual property before. However, investing in creative works, product development and branding now can pave the way for licensing opportunities in the future.
History tells us that companies that innovate and think outside the box are more likely to survive a recession. Set yourself up for success and gain a competitive advantage by realizing the value of your intangible assets and growing your intellectual property portfolio.