What makes a patent valuable; A patent broker’s perspective

By Louis Carbonneau
February 3, 2015

In a recent article Toxic Asset, we explained in detail how much recent court decisions and new rules at the USPTO had negatively impacted the value of US patents. This is not to say that all patents are worthless, far from it. Actually, based on the fact that we have recently received strong offers on several of the portfolio we are brokering, the patent market place appears to be still alive and may be poised for a rebound.

So what has changed? In short, there has been a flight to quality and only assets of the best pedigree now sell. Although valuations per patent are generally down from 2-3 years ago (we were in the “Nortel bubble”, remember?), they still hold their ground overall relative to historical levels when it comes to “high quality” patents.

Which begs the obvious questions: What makes a patent valuable? And its natural corollary: How can I make my current patents and patent applications more valuable?

This is a matter of opinion obviously and there is more than one school of thought on this matter. Plus, what may hold true today may rapidly change based on some new case law or regulation. But we believe the market place is still the best reflector of how experts look at patents and value them, since buyers have to justify their investment every time they acquire a new portfolio. And after brokering over 2,000 patents these past years and communicating regularly with hundreds of buyers, we think we have a pretty good idea as to what the market values!

When patents are offered for sale or for a license, the main reasons people will open their checkbook are because a) they need the rights (i.e. they likely infringe or will infringe the patents); b) they believe someone else does (this is why Non Practicing Entities (NPEs) buy patents). In other words, patents are nothing else than “litigious rights” reflected in a government issued title which can be passed to others via a sale, or partitioned out via licenses.

Having that in mind, here are a few well-honed approaches that will help drive their value:

  • Draft with Assertion, Not Protection in Mind. Because a patent is primarily a negative right (e., the right to exclude others from practicing your invention). So if all your patent attorney does is ‘teach” the invention (i.e., identification of a market need and your particular solution) to the public into a patent that describes it well and mostly overlaps with the product you sell or will sell, you just wasted a lot of money that could have been better invested elsewhere. Every patent should be drafted (especially the claims) with the anticipation that competitors will want to replicate, improve upon or design around your solution, either now or 15 years from now; your patent is thus intended to make their efforts more difficult, more expensive and/or less effective. This is how you maintain your initial competitive advantage. If you only protect against basic cloning, it will be very easy for others to avoid infringement by adding or removing a single non-essential element. This is where an internal exercise of “designing around” your own patent is useful to anticipate what a competitor might do and broaden the protection accordingly. This costs virtually nothing. Sadly, very few inventors actually do this in a deliberate manner. It is much better for you to “stress test” the strength of your own patent before compelling a competitor to do so. Consider how the claim terms are supported in the specification and might be interpreted by an administrative judge at PTAB or in the district courts years down the road.
  • Build a Family. Although foreign patents are becoming increasingly more valuable, US assets still account in most cases for at least 75% of a portfolio value because this is where the largest damage awards are available. And the US system is unique in that is allows to file continuations (and continuations in part or CIPs) that take advantage of 20/20 hindsight in many cases while still allowing the inventor to benefit from the earlier filing date of the initial application. The important thing is to have a very detailed Specification (the part of your patent that describes the invention) which will serve as a canvas for future claim sets that can continue to evolve as a result of new case law, or can better map on competitors’ product as they come to market. This is a unique advantage that many applicants fail to seize as they seem content to receive their initial patent and neglect to file a continuation to maintain the family alive. This is also a pet peeve for most buyers.

In practice, this means that once a patent has been allowed, a diligent review of the application specification and drawings should be conducted, in view of the prosecution history, to determine if it is worth pursuing a continuation application. While some entities with greater financial resources may have a policy to keep at least one family member alive, smaller companies generally may need to be more judicious with the monetary expenditures. In addition to keeping prosecution open generally, it is highly advantageous to have continued prosecution available in an assertion (or licensing) context.

  • Draft Targeted Claims. Many, if not most, patent prosecutors are taught to draft broad claims. In some cases, this is combined with broad and vague claims, often using language that is not explicitly supported in the specification. Broad and vague is still broad and vague, and while such patents may indeed have some value, they are unlikely to be an assertion or licensing driver, particularly in today’s market. The most valuable claims are often those that are carefully targeted to clearly map to a particular product or process, and often include relatively narrow claim elements by intent. The downside of broad claims is that they are the easiest to invalidate, and they are especially easy targets for invalidity challenges such as Inter Partes reviews in the US. A targeted, narrower claim will be more difficult to invalidate. In particular, such narrowing elements should be a point of patentability distinction, rather than merely claiming some well-known feature that could be easily invalidated through a combination obviousness rejection.
  • Submit a Lot of Prior Art. Currently, close to 80% of US patents that are challenged with the USPTO end up being held invalid because of some prior art that wasn’t in front of the examiners when they reviewed the application. An issued patent where the applicant submitted significant prior art to distinguish its invention is much more likely to sustain challenges downstream and therefore will be perceived by most buyers as more robust, and therefore more valuable. At the same time, don’t submit volumes of prior art references based on techniques such as keyword searches – every reference that is submitted should be a relevant When reviewing prior art, you are not limited to other patents; on the contrary, look for existing and past commercial products and explain how your invention is better. (On a related note, many patent firms still discourage their clients from conducting a prior art search on the fallacy that the examiner is paid to do this and there is no point incurring those costs internally. Well, consider that obtaining a patent in the US only generally costs over $20,000 (including all government fees) and maintaining it through its entire life can add tens of thousands of dollars. Add to this that defending a challenge through an Inter Partes review now costs anywhere from $250K-$500K… Do you really want to invest that much money on such a speculative title when you could probably de-risk this operation significantly by investing $1-2K in a good patentability assessment prior to filing? Do the math!
  • Avoid “Paper” Patents. A good percentage of patents in circulation will never be productized commercially. Although evidence of commercial sales always helps when valuing patents, this by itself is not fatal, as the inventor has no obligation to bring the invention to market under patent laws worldwide. What is not so good, though, is when the patent remains a general idea and there is no attempt to prototype and refine the invention. Judges and juries don’t like to reward people who simply came up with an idea, filed a patent application and moved on. They, and therefore the market too, place a lot more value on inventions that were developed further and where the original inventors had a real reduction to practice. Also, prototyping almost always leads to additional inventions and patents, which makes for a larger and more valuable portfolio due to a higher and stronger cost or performance barrier to others who choose to work around your patents.
  • Confirm Easy Detectability: There are probably hundreds of thousands of patents that are being infringed every day, yet these patents are worthless. Why is that? In short, if you cannot demonstrate that someone is practicing all elements of an issued claim, you have no case to assert your patents. This is the situation with a good part of patents describing manufacturing processes, cloud-related inventions, etc. where the infringing acts happen “under the hood” and there is no way to legally access the missing information. Furthermore, recent case law has raised the threshold for what needs to be proven in the initial pleading and the days where you’d file a general allegation of infringement and find what you needed through subsequent discovery are gone. In most cases, the Plaintiff won’t make it past summary judgment. Worst yet, there is a far greater potential for sanctions and fee-shifting in cases where the Plaintiff had insufficient evidence of infringement at the pleadings stage. Therefore, patents for which demonstrating infringement is impossible, difficult and/or really expensive (e.g., in the semiconductor space) have little value. So always ask yourself how you can write claims that make evidence of use clear while a product is sitting in a box or through visual inspection of the product or by covering functionality likely to be described in sales or user literature.

In parallel, many patents are unenforceable because the acts required to prove infringement are done by more than one party. This is often referred as “divided infringement.” In situations that require more than one party to practice some elements on a given claim, the option to assert direct infringement is usually not available, and this makes the patent a lot less valuable as you then have to resort to alternative “indirect” infringement theories including contributory infringement and inducement.

Conclusion

Securing strong patents generally doesn’t cost more than obtaining bad ones. The key to building a valuable patent portfolio that can be later relied on and monetized lies in the approach taken from the first day a first provisional application is drafted, through steps taken during prosecution and many tactical decisions made well after the patent issues. Only through a consistent and deliberate approach such as the one described above will you create intangible assets that will maintain their value overtime and be there for you when you need them.

 

The Author

Louis Carbonneau

Louis Carbonneau is currently CEO of TANGIBLE IP, LLC, a patent brokerage and strategic intellectual property advisory firm, focusing on IP strategies, patent sales and licensing programs. Mr. Carbonneau is a recognized expert in intellectual property with close to 30 years of professional US, Canadian and international experience in all facets of intellectual property law and business. He is a former patent litigator with a national IP boutique firm and the former General Manager of IP Licensing at Microsoft Corporation where he spent 15 years. The prestigious British magazine Intellectual Assets Management (IAM) recently named him for the fourth consecutive year as one of the World’s Leading Intellectual Property Strategists.

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Discuss this

There are currently 3 Comments comments.

  1. Ely Erlich February 4, 2015 7:31 am

    Good advice!

    Well done.

  2. Rob February 8, 2015 3:48 pm

    designing around” your own patent is useful to anticipate what a competitor might do and broaden the protection accordingly. This costs virtually nothing. Sadly, very few inventors actually do this in a deliberate manner.
    I and I’m sure others designers search all possibilities that present through processing a design with patent ability in mind. This approach can lead to greater more valuable designs but can also lead down the garden path to perpetuity.
    This in no way costs next to nothing

  3. Michael J. Feigin, Patent Lawyer May 28, 2015 1:49 pm

    Pretty good … there is a dichotomy sometimes between what you have to do to get the patent office to accept the patent versus what you need to do it court.