Patent Value and Changing Metrics – Time to Believe in Our Product

By John White
April 25, 2016

time-believeThese are interesting times to be a patent attorney. (That was, as you will soon discover, a vast understatement soaked in sarcasm.) The value of the product patent attorneys help create,namely patents, has been, by most traditional metrics, seriously undermined. What was once a $ 1 million dollar plus proposition, is now sometimes tens of thousands of dollars – or zero. The primary driver of the loss: The AIA reconstitution of the PTO with the PTAB (aka “patent death squad”) combined with an untimely string of profoundly anti-patent S.Ct. and CAFC decisions. Both patent owners and their respective patent counsel are “on the run” or “in hiding”. In-house patent counsel (and their outside firm counsel) are having to “justify” themselves and their exorbitant staffs and fees in ways unheard of previously. Think back, fondly, to the patent bubble of only a few years ago: popped, gone, kaput. What happened and why aren’t we (the collective patent we) able to provide any useful answers?

Sadly, although being among, if not the outright, brightest people in any room (false modesty), many patent folks are borderline inarticulate when it comes to speaking patents with those not steeped in the business. You don’t think so; answer this question in 25 words or less: can you define a quality patent? Go ahead, give it your best shot. The answer depends on your perspective, i.e., owner, prosecutor, licensor/licensee, litigator, PTAB member, and your most recent awful experience vis-à-vis validity, infringement, or subject matter eligibility. And, worse, each of those is presently shifting sand, dependent on the technology and the most recent aforesaid coin-toss CAFC or S.Ct. decision on that topic. The mind boggles. Simple declarative sentences are not adequate to communicate the frustration and rapidity with which the unknowable effects of change are being thrust into the system.

The reason it matters as to whether we patent folks can speak non-patent speak is that those who make the decisions about patent value, i.e., corporate C-Level and above, do not speak or grasp patent speak, and instead rely on our guidance to make informed judgments about business and capital commitments. We sadly cannot communicate (think Raj on Big Bang, in the early episodes, around females) and, worse, even if we could, we are not even in the meetings where the decisions are being made. Look at any Org chart: We are often kept at more than arms length by General Counsel or who ever it is that patent counsel report to – solid or dotted line. In short, our fate, and the fate of our life’s work, is being decided by others, without benefit of our thoughts. Tragic, and a real business mistake.

The overarching problem is, even if we were given the benefit of an abbreviated “elevator” pitch to explain ourselves, no single value metric covers every circumstance where value can be shown. Licensing revenue metrics alone miss the fact that the relationship licensee/licensor exists at all. Simplistic ROI measures miss the value provided by the barrier to entry effect that patents provide… and so forth. Each has its application, i.e., for tax implications regarding write-downs and depreciation; for royalty or damage determinations, but none are one size fits all and few provide an apple to apple comparison between entities, because each company is unique.

So, try this, with the CEO, coming back from lunch, awkwardly in the elevator: (after, of course, identifying yourself as the “patent guy” who works for the company) Patent values have never been better. Buying now is the most shrewd business model possible. Those who are left behind won’t catch-up. Smile, and then get off the elevator. Ah yes, it will leave them wanting more.

When they summon you for “more”. Here’s the pitch: as to value, the cost of patents has plummeted. You can pick up quality patents for significantly less than 6-8 years ago. Yup same patents; just much, much lower prices.

As to buying now, as opposed to waiting, well you could wait for the inventory to dwindle and the selection to be picked over and for when the “returns” are being re-stocked, just like you do every December. Or, try this, engage a firm to scout what you need and/or want. Find them and buy them.

Look, what is the reason you buy anything, and I mean anything? 2 reasons: the purchase solves a problem,  which you cannot presently resolve; or, it fosters an outcome, which you cannot presently obtain. PATENTS DO THIS. Here’s how: Patents give you leverage in any deal, in any context, with any entity. Don’t believe me, take this short self-test (and then pass it along to your C-level folks): which is better, the patented product (drug, disinfectant, oil, additive, etc.), or the non-patented one? Which is more valuable, the start-up slathered in patents, or the start-up withd no patents? Which Press Release is meaningful and will move share prices: we announce our new (bet the company) product with 3 pending patent applications, or we announce our new (this had better work, or I am toast) product with 100 patents already issued and many applications pending? Which has a better future, the company patenting the next 20 years, or the one who has decided to rely on “trade secrets and NDAs”? Who do you want to be sued by, the entity with 10,000 patents in the field you work in, or the one with 5? Who do you want to partner with and carve up opportunity with, the entity that runs the show with ownership, or the entity that relies on ……… what exactly?

How about catching up? Can I just “sit this one out” and hope to be there, when it matters, down the road? No. You see, you can’t mine for gold in the claims you, or those you can exchange rights with, don’t own. It is game over fella. Now, you can sit around and hope you can predict the future (look at your recently shredded NCAA bracket for your likely success at this), or you can be reasonable and extrapolate from where you are now? Where will you be on what you have now in 12 months, 3 years, 5 years? What properties, if you could own them, would make the outcomes you need, more likely?

So what to buy, what to scout: My advice is simple: determine first what the entity, i.e., start-up, first mover, legacy corporation, tech transfer office, bankruptcy trustee, is trying to achieve as a business objective. Once this is identified, tailor the patent acquisition advice to support that outcome. A place to begin comprehending how to provide a basis for such counsel is to do an audit of the patents and pending applications that currently exist, the expenses associated therewith, and whether these play a useful role going forward.  A competitive comparison of similar entities may be useful, if such another entity exists. Some pruning and re-structuring may be in order along with a revision to priorities, regions of the globe being emphasized, and technologies that project well into the future.  Put together a budget commensurate with what you want…and buy, buy, buy.

 

The Author

John White

John White is a Director at Soryn IP, a patent advisory and finance firm that, among a host of patent-centric offerings, assists parties in identifying and acquiring patent portfolios that satisfy strategic and business needs. Mr. White is also a US patent attorney and a principal lecturer/author of the PLI Patent Bar Review Course. Since John began teaching patent bar review courses in 1995, he has personally taught nearly 50% of all practicing patent attorneys and patent agents how to successfully become admitted to the Patent Bar. has also taught numerous US Patent Examiners at the United States Patent & Trademark Office (USPTO) in the “Law and Evidence Course” necessary for them to advance to Partial Negotiation authority as Examiners. John serves as an expert witness in litigations and is regarded as a leading authority on patent practice and procedure. For more information please see his profile page.

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Discuss this

There are currently 3 Comments comments.

  1. Benny April 26, 2016 6:01 am

    In my experience, the top level managers over-estimate the value (and scope of protection) of patents and under-estimate the ease of “design arounds”.

  2. Night Writer April 26, 2016 7:54 am

    I passed ’cause of Bob, although I wished he would stop swallowing so much and take a drink of water.

    @1 Benny: I not only agree with this, but I think the justices use this misconception to their advantage with their “preclude all” blah blah blah. When any good patent attorney looks at the claims and thinks, “That would easy to design around.”

  3. Ternary April 26, 2016 10:02 am

    A very appealing and rational proposition. Assuming that an infringement case will cost a company at least $ 500k, it seems it would make sense to collect at least cheap licenses on patents in a technology field in this depressed market and perhaps even buy patents. While it makes sense, I don’t get the impression that it is happening.

    Benny@1 and Night Writer@2 are probably right that circumvention is possible. But it is more likely that there is now a conviction with infringers that invalidation of an infringed patent is more likely than not and that the cost of willful infringement is not prohibitive. That is what the General Counsel is telling the CEO, I believe.

    We need to have a couple of really tough cases like NTP v. RIM (which arguably convinced many people incorrectly, including president Obama, that the patent system is broken mainly by trolls) to convince infringers that taking a license on a patent is a more profitable way to get access to a technology. That will also convince the CEO that he needs to talk to his “patent guy.”

    The Cuozzo patent could have been such a case. Unfortunately, the Cuozzo claims are troublesome, to say the least (what the heck is integrally attached?) and set people (e.g. Justice Breyer) off again about the troll issue. (see very good IPWatchdog post about Supreme Court Cuozzo hearing.)