License

Monetizing intellectual property

License Business Model Pattern

License Business Model Pattern Featured Image

The license business model pattern provides a powerful way to monetize intellectual property and can be applied across a range of industries and product/services.

What is the License Business Model Pattern?

License Business Model Pattern

The license business model pattern is a strategy where a company focuses its efforts on developing intellectual property (IP) that can be licensed to other manufacturers or businesses. Instead of directly producing and selling products or services, the company generates revenue by licensing its intangible assets, such as patents, trademarks, copyrights, or proprietary technology, to third parties who can then utilize this IP in their own products or processes.

The History of Licensing

The history of licensing can be traced back to ancient times, with the concept of granting rights to use intellectual property or resources in exchange for compensation. In ancient Greece, for example, the government granted licenses to individuals for mining silver and gold. During the Middle Ages, guilds and sovereigns issued licenses for various trades and activities. However, the modern understanding of licensing as a business model began to take shape in the late 19th and early 20th centuries.

Key milestones in the history of licensing include:

  • 1790: The U.S. Patent Act was passed, establishing a formal system for granting and protecting patents, which laid the foundation for modern licensing practices.
  • 1800s: The rise of the Industrial Revolution led to an increase in the importance of patents and licensing, as companies sought to protect their innovations and monetize their intellectual property.
  • 1920s-1930s: The development of radio and television broadcasting led to the emergence of new forms of licensing, such as music and performance rights licensing.
  • 1950s-1960s: The growth of the pharmaceutical and chemical industries drove the expansion of patent licensing, as companies sought to commercialize their research and development efforts.
  • 1970s-1980s: The rise of the software industry and the personal computer revolution created new opportunities for software licensing, with companies like Microsoft and Apple leading the way.
  • 1990s-2000s: The advent of the internet and digital technologies led to the emergence of new forms of licensing, such as open-source software licensing and digital content licensing.
  • 2010s-present: The increasing importance of intellectual property in the global economy has led to the continued growth and evolution of licensing as a business model, with companies in various industries leveraging licensing to monetize their innovations and expand their reach.

Why is the License Business Model Pattern Important?

The license business model pattern is important because it offers several key benefits for businesses:

  1. Focused Research and Development: By concentrating on developing licensable IP, companies can dedicate more resources to research and development, leading to innovative and valuable intellectual assets.
  2. Revenue Generation: Licensing IP allows companies to generate revenue without the need for manufacturing, distribution, or sales infrastructure, reducing overhead costs and financial risks.
  3. Wider Utilization of Knowledge: This model enables the provision of knowledge that might otherwise remain unused, allowing third parties to leverage valuable IP in their own products or services.

Types of License Models

Here are some common types of licensing models and their uses:

  1. Metered Licensing:
    • Usage-based licensing model where licensees pay based on the amount or duration of use
    • Commonly used for software, cloud services, and industrial equipment
    • Allows for flexibility and scalability based on the licensee’s needs
  2. User Licensing:
    • Grants access to a specific number of users or devices
    • Often used for software applications and digital services
    • Can be further divided into single-user and multi-user licenses
  3. Shared Licensing:
    • Allows multiple users to access the licensed product or service simultaneously
    • Commonly used for enterprise software and collaborative tools
    • Enables cost-sharing and efficient resource utilization among licensees
  4. Outcome-based Licensing:
    • Ties licensing fees to the outcomes or results achieved by the licensee using the licensed product or technology
    • Often used in industries such as healthcare, agriculture, and energy
    • Aligns the interests of the licensor and licensee, promoting a focus on performance and results
  5. Manufacturing Licensing:
    • Grants rights to manufacture and distribute a product based on the licensor’s intellectual property
    • Commonly used in industries such as consumer goods, pharmaceuticals, and electronics
    • Allows licensors to expand their market reach without investing in manufacturing capabilities
  6. Commercialization Licensing:
    • Grants rights to commercialize and bring to market a licensor’s innovation or technology
    • Often used by universities, research institutions, and technology transfer offices
    • Enables the translation of research and development into practical applications and products
  7. Cross-licensing:
    • Involves the mutual exchange of licenses between two or more parties
    • Often used in patent-intensive industries like telecommunications and semiconductors
    • Promotes collaboration, interoperability, and innovation among industry players
  8. Open-source Licensing:
    • Grants users the rights to modify, distribute, and use the licensed software freely
    • Commonly used for software development tools, operating systems, and applications
    • Fosters community-driven innovation, transparency, and collaboration
  9. Brand Licensing:
    • Grants rights to use a well-known brand, logo, or character on products or services
    • Often used in the entertainment, fashion, and consumer goods industries
    • Allows licensees to leverage the brand’s reputation and market appeal to enhance their own offerings
  10. Geographic Licensing:
    • Grants rights to use intellectual property within a specific geographic region
    • Commonly used for distribution rights, franchising, and market expansion
    • Enables licensors to tap into local market knowledge and networks while maintaining control over their IP

Impact on the Business Model

License Business Model Pattern Canvas

The license business model pattern primarily affects the following aspects of a company’s business model:

  1. Key Resources: The company’s primary resources are its intellectual property assets, such as patents, trademarks, copyrights, or proprietary technology.
  2. Revenue Streams: Revenue is generated through licensing fees, royalties, or other forms of compensation paid by third parties for the right to use the company’s IP.
  3. Key Activities: The company’s main activities revolve around research and development, IP protection, and licensing negotiations with potential partners.

How to Implement the License Business Model Pattern

To successfully implement the license business model pattern, businesses should follow these steps:

  1. Identify Valuable IP Opportunities: Conduct market research and analysis to identify areas where the company’s expertise and knowledge can be transformed into valuable, licensable intellectual property.
  2. Invest in Research and Development: Allocate sufficient resources to research and development efforts to create innovative and commercially viable IP assets.
  3. Protect Intellectual Property: Ensure that the company’s IP is properly protected through patents, trademarks, copyrights, or other legal measures to maintain its value and exclusivity.
  4. Develop Licensing Strategies: Create a comprehensive licensing strategy that identifies potential partners, negotiates favorable terms, and maximizes the value generated from the company’s IP assets.

Trigger Questions

  • What intellectual property or proprietary assets do we have that could be valuable for other companies to license and use?
  • How can we package and market our licensable assets to attract potential licensees and communicate their value?
  • What pricing and royalty structures should we use for our licensing agreements to maximize revenue and profitability?
  • How can we design a fair and mutually beneficial licensing agreement that protects our intellectual property rights and interests?
  • What support or collaboration can we offer to help our licensees effectively implement and utilize our licensed assets?
  • How can we monitor and enforce compliance with our licensing terms and conditions to prevent misuse or infringement?

Examples of the License Business Model Pattern

  1. ARM Holdings: ARM is a semiconductor and software design company that licenses its IP to manufacturers of smartphones, tablets, and other electronic devices. Instead of producing its own chips, ARM focuses on developing and licensing its processor designs to companies like Apple, Samsung, and Qualcomm.
  2. Dolby Laboratories: Dolby is an audio technology company that licenses its patented sound technologies to manufacturers of consumer electronics, professional equipment, and automotive audio systems. By focusing on research and development, Dolby has become a leader in audio innovation, generating revenue through licensing fees and royalties.
  3. Qualcomm: Qualcomm is a leading developer of wireless technologies, including 3G, 4G, and 5G mobile communications standards. The company licenses its IP to smartphone manufacturers and other wireless device makers, collecting royalties based on the sale of products incorporating its patented technologies.

The license business model pattern allows companies to focus on their core competencies in research and development, creating valuable intellectual property that can be monetized through licensing agreements. By adopting this model, businesses can generate revenue, reduce costs, and contribute to the wider utilization of knowledge across industries.

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