Patent Quality Isn’t the Question. Patent Value is the Question.

“It’s not very helpful to talk about quality,” said former Chief Judge Michel. We agree. Quality has too many meanings for too many people. We all want quality patents, but we do not agree on what quality means. A better objective for patent strategy and patent management is the pursuit of valuable patents. “But wait!” you say, “Isn’t ‘valuable’ just as confusing as ‘quality’?”  In short, “no,” if you identify the value you care about.

For at least some companies, the sources of value can be identified and defined. We have identified five primary value streams that high-technology companies obtain from their patents (Figure 1). There are additional value streams, but we will focus on these because they tend to be the highest value and most common. We are using the term high-technology to refer to companies in the information and communication technology space. To determine if a patent is valuable, we add the value attributable to each value stream. To determine whether a patent is worth pursuing, we can estimate the expected value against the expected costs. To determine whether a patent program has been successful, we compare the value of the company’s patent portfolio to the company’s goals for the value streams. Ultimately, metrics, budgets, and program targets can be set by focusing on the value streams of most importance to the company’s strategy. A follow-up article will provide details on modeling the return-on-investment.

Value streams

Figure 1 presents the value streams on a spectrum from primarily defensive uses of patents to primarily offensive uses of patents. For each value stream, an expected value can be obtained. Whether the expected value is calculated on a per asset basis or a portfolio basis, the important part is that a dollar amount can be assigned to that value stream.


Value stream 1: Counter-assertion

Patents can be used for counter-assertion to defend against patent assertions from other companies. High-technology companies face patent assertions from operating companies in their ecosystem as well as large corporate asserters. To mitigate this patent risk, a company can identify the biggest threats in their ecosystem and build a patent portfolio with patents that those anticipated asserters’ products infringe (you can read more about this here). If an asserter asks your company to take a patent license, you can use your patents to counter-assert. Typically, counter-assertion will help you reduce license fees, or sometimes avoid a patent litigation.

Thus, your patents have value due to their capacity to reduce future license royalties and decrease costs. To fully realize this value, it is important to analyze your patent risk and devise a defensive counter-assertion strategy. You can read more about how LinkedIn built a counter-assertion patent portfolio here.

Value stream 2: General deterrence

Another defensive use of patents is general deterrence. General deterrence takes place when a large patent portfolio deters other companies from asserting patents against the holder of that portfolio. This strategy is often analogized to Mutually Assured Destruction. A general deterrence strategy creates value by reducing the number of assertions from other operating companies. Fewer assertions mean lower legal costs and a lowered likelihood of having to pay for licenses in the future.

Patents create general deterrence when a portfolio is large enough, which means that it is the portfolio as a whole, rather than an individual patent, provides value. The value of a single patent is the incremental value of that patent’s contribution to the overall size of the portfolio.

Value stream 3: Recognition/distinction

Patents are an external validation of a company’s inventiveness by Patent Offices. Patents afford recognition to both the company and the inventors. Many of the world’s largest high-technology companies market their patent issuances and filings as signifiers of their innovation leadership. This external recognition thus supports marketing and branding strategies. The recognition can also serve internal purposes, helping companies to identify, compensate, and retain their top inventors. For a more in-depth discussion of the broader motivations for obtaining patents for recognition see Rantanen, Jason and Jack, Sarah E., Patents as Credentials (August 4, 2017).

Value stream 4: Deter copying

Exclusivity is the textbook rationale for a patent system: if you invest in inventing novel technology, a patent gives you a chance at market exclusivity. Note: this is a chance, not a guarantee. In high-technology, the exclusion value is often limited: (1) there are often many ways to design around a patent, and (2) the product life cycles are short, so effective exclusions are difficult to maintain. That said, the deterrence value is still relevant concerning a direct copy (e.g., from a former employee or a direct competitor).

Notably, a few high-profile cases illustrate the value of deterring copying: most recently, Apple was awarded $120M in their slide-to-unlock patent lawsuit vs. Samsung, and, earlier, Amazon’s 1999 one-click buying patent lawsuit vs. Barnes and Noble. Both of these patents were successfully used against companies providing features that look like they were directly copied.

Note, outside of high-technology, market exclusion by stopping infringing products is typically the highest source of value from your patents. It is so rare in high-tech, we usually will note it as a source of value, but do not model it.

Value stream 5: Licensing

Regarding the offensive-defensive strategy spectrum, licensing sits at the end of the offense side. Licensing is asserting your patents to make money from other companies. The value is the expected value of future licensing revenue minus the costs of the licensing program. Many large companies, such as IBM, Microsoft, Qualcomm, and British Telecom, run extensive patent-licensing programs.

Additional Perspectives

The above framework is helpful for considering the primary value streams high-technology companies obtain from their patent portfolios. Additional considerations:

  • Value is contextual. The ’123 patent held by a company with a defensive strategy can provide value through counter-assertion. If that same patent were held by a corporate asserter, the patent might provide value primarily through licensing revenues.
  • One patent can provide multiple value streams. The ‘456 patent held by a company with a defensive strategy may, for the most part, serve as general deterrence; however, when a specific corporate asserter shows up, that patent provides counter-assertion value.  
  • One portfolio provides multiple value streams. For a company like IBM, the patent portfolio might be used both to support licensing and to provide external recognition.
  • Strategy implementation is required. If your company invests in a large number of patents for recognition but fails to publicize those efforts and link those efforts to its innovations, the value diminishes. Similarly, if the ‘456 patent is ready to license, but the company lacks a licensing team and associated capabilities, that value cannot be realized.

Conclusions

Focusing on patent value is more helpful than focusing on patent quality. Patent value allows you to connect metrics, budgets and expected return-on-investments. In this article, we have discussed five value streams that high-technology companies obtain from their patents. Companies can model these values across their portfolio generating an expected return on investment (ROI) for their patent efforts. This modeling allows the patent team to answer tough questions from executives such as “why are we spending so much on patents?” or “what is our return on our patent portfolio?”

The Author

Kent Richardson

Kent Richardson counsels clients on a variety of patent and business matters including patent buying, selling, licensing, valuation, prosecution and operations. Kent has licensing and marketing patent portfolio experiences resulting in more than $600M of patent license bookings. Kent has served as an expert witness on patent monetization and licensing practices in cases in England and the United States. Prior to founding the ROL Group, Kent was the General Manager of ThinkFire Services USA, Ltd’s Silicon Valley office. Kent has worked in various senior management roles with such growth businesses as Sezmi, Constellation Capital, Rambus, Numerical Technologies. Kent is a member of the California Bar and a United States Patent and Trademark Office registered patent attorney, and holds five US patents.

Contact Kent via e-mail at kent@richardsonoliver.com, or the Internet at Richardson Oliver Law Group.

Kent Richardson

Erik Oliver counsels clients on patent, licensing and trademark matters. He brings more than ten years of patent prosecution, litigation, and licensing experience and a track record of millions of dollars in both patent and technology licensing deals. Prior to founding the ROL Group, Erik was a Vice President at ThinkFire Services USA, Ltd’s Silicon Valley office. Erik has held various senior positions with a range of responsibilities at Rambus Inc., Synopsys, Inc., and a number of Silicon Valley startups. Erik is a member of the California and District of Columbia Bar and a United States Patent and Trademark Office registered patent attorney.

You can reach Erik via e-mail at erik@richardsonoliver.com, or on the Internet at Richardson Oliver Law Group.

Kent Richardson

Hannes Forssberg Malm is a student at University of Gothenburg where he’s pursuing a master’s degree in law and a master’s degree in innovation and entrepreneurship in biomedicine with a major in Intellectual Capital Management. Hannes works as an intern at the Richardson Oliver Law Group on various IP strategy, IP law and business strategy projects in Silicon Valley. He also has prior experience as the CEO of HandelsConsulting AB, one of Europe’s largest student operated management consulting firms. Hannes is an appointed representative of University of Gothenburg School of Business, Economics & Law on the Student Council of the Royal Swedish Academy of Engineering Sciences.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 2 Comments comments. Join the discussion.

  1. Edward Heller August 9, 2017 11:25 am

    Kent, good analysis.

    Now let us drill a little deeper: whether to use MAD or whether to cross license?

    MAD deters, but it does not permit one’s own R&D staff to freely copy from competitors. It also leaves one open to collateral attack whereby that competitor sells its patents to an assertion entity that is immune from counter attack. Thus if this is a real possibility, one should actively pursue crosslicensing.

    But crosslicensing has its own downside. It prevents ones own otherwise “high quality” patents from having significant value. Thus one cannot sell the patents to an asserter for their real worth because they are already cross licensed.

  2. G. Nick Weisensel August 11, 2017 6:19 pm

    Kent, Erik, and Hannes,

    Your article correctly identifies that simply “value” of IP is an insufficient, and often ill-posed, concept. I and many others readily agree. You further identify several common types of “value” streams. Each is characterized with context, purpose, usage, etc.
    (As you note, there are more types of potential value streams / sources than the important ones you highlight. Pat Sullivan and others have identified many, many more with descriptions of each and, importantly, also how it is measured / reported. (see Value Measurement & Reporting Collaborative (VMRC) (ca. 2005)) Some readers might find these others useful as well in their situations.)

    While moving from simply “value” to “value in use” or “value in context” is a giant leap in clearer understanding, I think there is another small step that focuses your main point even more. In contrast to “value,” the concept of “worth” more quickly and effortlessly gets people thinking more extensively about the connection of value with context. Asking, “What’s this patent worth?” almost begs the rejoinder, “It depends.” Correct! … on context. The idea of “worth” readily moves the thinking about “value” away from the asset and more toward the context. Response to this specific question almost requires such rebalancing improvement, or if absent, then a response is more self-evidently deficient.

    Looking forward to the ROIP follow-up piece.

    P.S. Going back to your opening paragraph, is it possible that even “quality” would be less confusing and more meaningful if similarly “you identify the quality you care about,” i.e., “quality in context”? Still not as useful as “worth,” though.

Post a Comment

Respectfully add to the discussion.

Name *
Email *
Website