Did you know that patents offer a company a low-cost and low-risk way to enter a market and potentially earn a high return on investment? In fact, they can offer a way to diversify revenue streams outside traditional markets. Even though inventions may be outside a company’s core space, it may be worthwhile pursuing patents since they can add tremendous upside to a company’s value with limited downside. Here’s how.
Patents provide their owners with the right to exclude unauthorized parties from using the inventions claimed within the patents. This is true whether the patent owners decide to use the claimed invention in a product or not. So, a patent can cover application of the claimed invention outside of the core market of the patent owner, where they may never have considered actually introducing a product.
This versatility can be advantageous for a company seeking to diversify its revenue streams. Instead of launching new products outside of its core markets, a company can simply exclude others from using their patented inventions in these markets. Whereas the development, testing and marketing costs of launching new products can be high, running into the millions in markets with high barriers to entry, filing and maintaining a patent over its lifetime can be done at a fraction of the cost.
If any of these inventions become highly valuable, the potential licensing revenue can easily exceed the filing and maintenance costs of the patents. In addition, the company can sell the patents for a large profit. A patent can be thought of as a call option on an underlying asset, which in this case is the invention. If the invention is successfully adopted, the patent itself becomes valuable. It has a large potential upside relative to its downside. But remember, similar to a call option, the patent does have an expiry date.
Patenting, then monetizing these patents, outside a company’s core space can enable the company to diversify its revenue stream and alleviate the impact of adverse conditions in its traditional markets. The company can use these patents as leverage against competitors if necessary, and as bargaining chips in negotiations. All without the cost, risk and distraction of trying to launch a new product outside its core market space.