Patent licensing business model attracts attention

A business model for large companies to license unused patents to small and medium-sized enterprises, which then develop new products and generate new business, is attracting considerable attention in Japan.

On February 7 2018 Fuji Xerox announced the full-scale deployment of its patent licensing business to small and medium-sized enterprises. The company has participated in IP exchanges through local government projects since 2016 and its recent announcement follows the signing of a patent licence agreement with a company in Yokohama. It will be Fuji Xerox’s first IP exchange contract.

Besides monetising unused patents, business matching allows large companies to benefit from the publicity generated from their contributions to small and medium-sized enterprises and local communities. Further, as large companies generally provide unused and non-core technologies, patent licensing is unlikely to affect revenue and should find support easily.

Given the considerable difference in resources between large companies and small and medium-sized enterprises (eg, IP staff and financing), litigation risk is low, although some smaller companies may attempt to challenge larger companies’ patents or attempt to use their ideas while avoiding infringement.

However, licensing revenue ultimately depends on the success of the new products which implement patented ideas, and given the unpredictability of the market, significant returns cannot be guaranteed.

Patent licensing is therefore a low-risk, low-return venture for large companies. Fuji Xerox’s announcement confirmed that it will promote this type of licensing model. However, it should weigh the cost and potential revenue (or lack thereof) of patent matching with small and medium-sized enterprise carefully. For large companies approached by small or medium-sized enterprises (ie, where the licensing process is reversed), the benefits seem greater; however, identifying which unused patents to contribute could be challenging given the costs involved. Local governments play an important intermediary role in such transactions. Whether Fuji Xerox can grow this licensing business successfully remains to be seen.