Selling Intellectual Property - Everything You Need to Know

Intellectual property is another word for any copyrighted, trademarked, or patented property. It’s any creative or “intellectual” creation thought up by the human mind. These aren’t physical items, per se, but for business owners, intellectual properties are the ideas and strategies that make up your business and keep your customers coming back. 

Key Points:

• Intellectual property includes any copyright, patent, or trademark your business owns. They’re often the most valuable pieces of your business. Selling intellectual property can help you get the immediate cash that you or your business needs.
•  For high-priced patents and trademarks, working with a lawyer can help you secure the best monetary deal you can get.  

Can Intellectual Property be Sold?

Patents, trademarks, and copyrighted property can absolutely be bought and sold. The process is more complex than if you’re selling physical property (such as selling a small business), but it can be done. If you have an established brand, your intellectual property value could be great. However, there are a few challenges faced by small business owners who are looking to sell intellectual property, including:

Current market and/or economy. Your intellectual property is only worth as much as you can sell it for. During economic downturns, it can be difficult to get the price you want for anything you're selling, including IPs. 

Future value. Determining the potential future value will be important when you sell because it could mean a bigger price tag. However, it can be difficult to determine this arbitrary value as you can never be exactly sure what the future holds, and you can never fully determine what the demand for your IP will be.

If you are a sole proprietor looking to see their intellectual property you might also want to take a look at selling a sole proprietorship.

Selling vs. Licensing - What Works Better For Me

Depending on the intellectual property in question, selling may not always be the right option. Sure, selling gets you cash in hand right away, but you could be missing out on huge profits in the future. Licensing can help you keep ownership and get royalties, providing a greater income over time. 

Consider selling if:

• Your intellectual property is especially valuable at the current moment and you know you can get a good price (your lawyer should be able to advise you on that). 
• You no longer want financial responsibility for your IP. 
• You’re in need of a quick cash injection into your business.

Consider licensing if:

• You’re more interested in earning consistent income from royalties. 
• You have an emotional connection to your IP and don’t want to relinquish full rights. 

How to Value Intellectual Property?

Valuing your intellectual process is a science you’ll need to learn. As the seller, you’ll be responsible for negotiating the price with the buyer. You need to make sure you don’t undervalue your property. There are three ways you can come up with the right price for your intellectual property. 

• Cost estimate. This method should be used by newer businesses since it looks at how much it costs you to register your IP with the government. This is by far the simplest estimating method. Add up all of the costs you took on to create the intellectual property (including social media, designing costs, etc., etc.). 
• Market estimate. This price range can be found by looking at what the rest of the market is selling its assets for. For example, if you were to sell a blog to a larger parent company, you’ll want to take a look at what similar blogs have sold for recently. 
• Future estimate. If you want the highest possible profits, considering what your IP may be worth in the future, and valuing it as such may be the way to go. If your business has been around for a while you can demonstrate to buyers how your business has performed in the past and prove that you’ve been successfully growing because of your IP. 

Intellectual Property Transfer Process in a Few Simple Steps

Selling your IPs is a legal process, so it can get complicated. Generally, however, there are just a few steps, all of which you can take with the help of a lawyer if need be.

Understand what you’re selling

The selling process will look a little different depending on the type of intellectual property you're selling. Let’s take a look at the three most common types of IPs: patents, copyrights, and trademarks. 

Valuate your business

Before taking any immediate actions, take a bit to establish how much you want to sell your intellectual property for. As mentioned in the section above, decide which valuation method works best for your business based on its age, product, and the intellectual property itself. 

Hire a lawyer 

Unless you're proficient in legalese, you’ll likely want to hire a lawyer to help you through the sale process. Intellectual property attorneys can help you understand complex laws around patents, trademarks, copyrights, and trade secrets. 

Create an asset purchase agreement

There are generally two types of purchase agreements when selling intellectual property: Asset Purchase Agreements and Asset Assignment Agreements. Both of these have their own positives and negatives, and which you choose depends largely on the price you’re looking for and how much control you want to retain over the IP.

• Asset Purchase Agreement. With a Purchase Agreement, you’re fully selling your intellectual property and transferring ownership to the buyer. This will likely come with a higher price tag. 
• Asset Assignment Agreement. An Assignment Agreement allows you to temporarily transfer rights to a buyer. You can transfer rights for a certain amount of time, or if you want to sell but maintain rights for a certain time, this agreement allows for such an arrangement. 

Review offers

Even if you do have a lawyer, you get the final decision in the offer you accept. Take every option into consideration and compare the offers to other similar intellectual property sales. This can ensure you’re getting the price you truly deserve for your creation.

What Happens After the Sale

After selling your patent, trademark, or copyright, your legal situation will depend largely on your final agreement. If you have language in your sale papers that outlines a royalty situation, stay in frequent contact with the buying company.

Additionally, you may be on the hook for capital gains tax, depending on the details of your agreement. This is why having an IP attorney work with you on the sale of your intellectual property is so important. They can ensure you know all the details of your agreement before you sign on the dotted line. 

Why Sell Intellectual Property?

Selling an intellectual property can give you or your business a direct cash flow you may desperately need (or want). But there are many reasons you may want to consider selling, including:

•  Costly maintenance. If you need to maintain your patent year after year, this could run you hundreds or even thousands each year in renewal fees. Selling not only gets you more money now, but it’ll help save you going forward as well.  
• Cover the high costs of registering a property. When you registered your property, if you opted for a patent or a trademark, you likely spent quite a bit of money. If your property is in high demand, selling could not only help you recoup these original costs but could add on a nice chunk of change. 
• Benefit from brand recognition. Your property is valuable because of the customers it brings in. Customer loyalty is seen as extremely valuable in the business world and can make you a profit far beyond what you spent to register your IP. 

Tips to Keep in Mind When Selling Intellectual Property

When selling a patent, trademark, or copyright, you need to keep a few important points in mind. 

• Always consider future value. When you sell your IP, you’ll retain no control over the asset. That means you won’t get any more profits and you could be missing out on substantial royalties over time. You’ll need to weigh the pros and cons of upfront cash vs. larger payments over time. 
• Take steps to avoid seller’s remorse. If you sell your IP just to find out the idea has made its new owner(s) a lot of money, you could face some serious seller’s remorse. In order to avoid this, you can include language in your sale agreement that offers certain payouts if certain sales goals are met. 
• Consider selling just a portion of your rights. Selling a portion of your rights or simply licensing your IP can help you continue to make money on your creation. You do run the risk of your IP losing value over time, so again, make sure you do your research and fully understand the market you’re selling in. 
• Learn how to approach investors. Learning how to pitch your idea to venture capitalists or other investors is a sure-fire way to get the price you deserve. This article can help you understand what investors might be looking for in a pitch.
• Don’t be afraid to use a broker. At the end of the day, if you just like coming up with the ideas and don’t want to play a part in the business side of selling intellectual property, an IP broker can help. Interview multiple brokers and ask about their costs and experience. They’ll take it from there. 

For more general steps to help you sell you business check out this selling a small business checklist.

Final Word

Your company potentially holds much more value than just the product or services it sells. Your intellectual property, which includes patents, copyrights, and trademarks, could be worth quite a bit. Selling intellectual property can give you immediate cash that can be used to grow your business even further.