Lump sumSale Price

An assignment may be appropriate however where the patent owner prefers to receive a lump sum price, at the time of the assignment, rather than collecting royalties.

The payment of a lump sum may be a term of a license contract. However, if only that sum is paid, and royalties are not payable, it will generally be regarded by the person paying the lump sum as being a purchase price for the patent. The person making such a payment will therefore be likely to seek a permanent and irrevocable assignment, instead of a revocable license contract with conditions.

This will be so where the payment of the lump sum relates to the whole of the unexpired period of the patent.

Where the lump sum payment relates to a lesser period, then assignment would be inappropriate, and instead there should be a license for the period that relates to the actual lump sum payment.

Royalties may be received over a period up to 20 years for example, in the case of a patent.

In that case, the patent owner runs the risk that over that very long period there may be technical failure, market failure, regulatory failure, or even a competing product that enters the market and erodes the royalties that might otherwise have been paid.

Rather than risk uncertain royalties with a license, the patent owner may prefer to receive a once only lump sum payment, at the outset, receiving all the value of the patent in this way on one single occasion only.

This may be an occasion when assignment may be preferable to a license.

By assigning, the patent owner transfers these risks of reduced royalties in the event of technical failure, market failure, regulatory failure, and competing products, to the assignee.

The once only lump sum payment that the assignor receives is not refundable if these risks should eventuate.

The disadvantage to an patent owner is that the lump sum amount at the time of the assignment will be assessed on the value of the patent at that time.

This means that these risks will be factored into the lump sum price, as will a discount rate for the immediate benefit of a sum of money which if paid otherwise as royalties would have been over time a greater dollar amount.

Another disadvantage is that the patent owner, by assigning, ceases to have the prospect of blue sky financial return should the patent have otherwise generated greater royalties than the lump sum amount has been assessed on.

These disadvantages however need to be weighed up against the advantages of a once only lump sum price.

The capital value of a patent that is assigned may be a very substantial amount of money.

Receiving a capital lump sum can be extremely advantageous to an assignor.

The assignor may have the need for capital. The assignment of a patent can provide an excellent opportunity for raising that needed capital.

The assignor in need of capital may otherwise have had to raise debt capital, with repayment obligations to the lender, as well as interest obligations.

Often, debt capital in this way is difficult to raise because conventional lenders are reluctant to regard a patent as adequate security for borrowings.

Or, where the assignor is a company, it may otherwise have had to raise equity capital, by issuing shares in return for the capital subscribed, with the a result that the assignor’s existing shareholders would be diluted.

Selling a capital asset such as a patent for a once only lump sum amount may sometimes be a more attractive capital raising option than raising debt capital or equity capital.

For example, a start up company such as a biotechnology company researching and developing a patent to take it to state of development where it can make a commercial deal, may choose, instead of licensing the patent, to assign it, and in that way raise substantial capital to fund further research and development of other patents in its portfolio.

Assigning for a lump sum will not always be a prudent course, but it sometimes may be the most prudent course to take.

http://www.wipo.int/sme/en/documents/license_assign_patent.htm