“Historical data and trends indicate that recessionary periods are good opportunities for businesses to be innovative and invest internally. Given the events in the first half of 2020, there are heightened challenges and considerations, particularly, how do businesses faced with the reality of decreased revenues and resources optimize their ability to be creative and invest in their patent portfolios?”
“History has shown . . . that companies and countries which continue to invest in new products and innovation during times of economic recession will be those that will be best positioned to take advantage of the recovery, when it arrives,” World Intellectual Property Organization Director General, Dr. Francis Gurry said in a 2009 UN News report.
During periods of economic instability, intellectual property (IP) can be a surprisingly attractive investment vehicle. Product innovation through patent investment can facilitate additional revenue generation through immediate lower-yield returns, as well as longer-term, higher-yield returns. When viewing IP as a true asset, the question for businesses is how to assess and maximize these advantages, particularly in challenging economic times. In-house legal departments are well-positioned to bring value to the business, particularly during an economic downturn, to create new and innovative opportunities and sources of revenue.
IP is a Real Asset
Intellectual Property is rightly considered a real asset with many advantages over traditional assets:
- IP assets are likely to preserve value during periods of economic downturn and instability, often demonstrating a beta much lower than that of the overall market.
- IP assets are unaffected by the scarcity of input resources resulting from an economic downturn, such as supply chain shortages or unavailability in various sectors such as energy, manufacturing, and agriculture.
- IP is essential to GDP, and will continue to be so, as evidenced by the US Department of Commerce’s Bureau of Economic Analysis, which has identified “Intellectual Property Products” as a significant and growing contributor to the economy.
- Intellectual property products often offer low operating risk, ready transferability of rights and/or license, and long economic life (typically at least 20 years), which offer steady cash flows, and may be utilized for funding long-term liabilities.
Product innovation through development and investment in IP can facilitate revenue generation in two streams: immediate lower yield returns, as well as the possibility of longer-term high yield returns. On a fundamental level, the development of IP adds value to a business. It is an asset that can be valued by a professional (e.g., an economist or accountant), and this value can be used to secure a loan or other financing. The baseline value associated with the development of IP originates not only from the assigned value of the asset, but also from its ability to help a company develop additional control over markets. Controlling or gaining influence in a market can lead to increased market share, or the opportunity to license the IP both domestically and in foreign markets.
Consequently, the immediate value proposition associated with IP development is multi-fold, including not only the assessed value of the asset, but the additional opportunities to generate passive income via licensing and related agreements. Enforcement via litigation and/or the sale of a substantial asset or company, may contribute significant value to a business.
Challenges for Businesses and Potential Solutions
Historical data and trends indicate that recessionary periods are good opportunities for businesses to be innovative and invest internally. Given the events in the first half of 2020, there are heightened challenges and considerations, particularly, how do businesses faced with the reality of decreased revenues and resources optimize their ability to be creative and invest in their patent portfolios?
By utilizing various monetization, audit/assessment, and enforcement strategies, in-house attorneys can provide a tangible value-add that positively impacts the company bottom line. Particular areas where in-house attorneys can maximize value include the development of new IP; the internal assessment, auditing and optimization of existing IP portfolios; the monetization of existing IP to develop revenue via licensing and other agreements; the assertion and enforcement of IP rights through litigation and alternative dispute proceedings; and tailored solutions based on combinations of these strategies. In many instances, outside counsel (as well as other third party resources, such as those of legal services companies) can provide an efficient and focused approach to these various strategy areas, providing further control and reduction of costs. The sections that follow offer specific tips and areas where in-house counsel can gain greater efficiencies and maximize value for the business.
Tip #1: Development of Greater Efficiencies in Patent Prosecution and Strategy
In-house counsel can maximize value and revenue by working with outside counsel to streamline the development and maintenance of a business’ patent portfolio and strategy. In addition to their traditional roles in the drafting, development, and maintenance of patent portfolios, outside counsel can provide valuable strategic advice regarding filing strategies, including identifying the most crucial inventions and recommending in which countries and jurisdictions a business should pursue patent filings. An objective assessment of individual business needs and goals can assist in the development of strategies identifying the most impactful markets, thereby streamlining worldwide filings to save on costs. Another option might be to partner with companies in a particular jurisdiction, thereby diffusing costs and providing savings to individual businesses. This type of agreement may include the foreign partner paying for the up-keep of the IP estate in particular jurisdictions.
During difficult financial times, in-house counsel can look to these specific areas for potential cost savings and enhanced productivity:
- In a time of economic uncertainty, in-house counsel can look to outside counsel to identify areas of work that can be performed at a controlled price (e.g., through alternative fee arrangement, capped fees, etc.)
- In-house counsel can rely on outside counsel for continued development of large patent portfolios without the need for extensive in-house resources
- Outside counsel can potentially step in for in-house counsel, especially in view of hiring freezes and competing internal client demands, by handling some of the routine workload typically performed by in-house attorneys
- Prior art and freedom-to-operate searching and review can likely be performed more effectively and at a lower cost by outside counsel and their related resources
These areas of collaboration promote communication and real-time tracking of projects. Consequently, the relationship allows businesses to control in-house lawyer count and cost, while still producing a large number of applications of the desired quality.
Tip #2: IP Portfolio Review and Audits
Another way in-house counsel can maximize value and unlock additional revenue is through an objective assessment of the existing IP portfolio, including IP mining and IP audits. Owners of IP should be looking at current portfolios of patents and trademarks to assess potential strengths and weaknesses. For example, one area that can be costly is on-going maintenance of domestic and foreign IP assets. Outside counsel can perform a mining exercise to determine which patents and trademarks should be maintained and which should be jettisoned. This process of internal valuation and assessment may create additional economic opportunities:
- Assets no longer used can be bundled and licensed to third parties for a fee
- Those same assets can also potentially be subject to an enforcement campaign utilizing third-party resources such as litigation funding
- In certain cases, IP can be used as collateral for a loan
- Another option may be to sell the IP to investors and negotiate a license back to continue utilizing the technology
- Assets that are determined to not have sufficient value can be abandoned, saving the business unnecessary and ineffective costs
All of these opportunities begin with an objective assessment of the IP portfolio’s strengths and weaknesses. Reducing maintenance costs is critical. Businesses can use those dollars formerly deployed on maintenance and redeploy these resources into enforcement campaigns or investment in new technology.
Tip #3: Development of Strategy for IP Litigation and Related Proceedings
Another area where in-house counsel can improve efficiencies is with regard to IP litigation and related proceedings. Economic downturns tend to spur more aggressive assertion of IP rights. One could argue that that now is one of the most important times to protect the investment in innovation, either through enforcement of a business’ own IP or through challenges to competitors’ IP. Companies that emerge from the recession with a stronger IP position and portfolio will likely be able to capture a much larger market share. One strategy for maximizing revenue, particularly with the availability of litigation financing, might be to work with outside counsel to initiate an enforcement action. If defendants are not optimistic about their defenses they are likely to settle as opposed to fighting the litigation, and potentially settle on more favorable terms. Also, enforcement could additionally be used to drive licensing revenue.
In addition to the classic forums for IP litigation, in-house counsel should consider an innovative approach and solutions via alternative forums for IP disputes, including International Trade Commission (ITC) proceedings and Inter Partes Review (IPR) proceedings with the Patent Trial and Appeal Board (PTAB). These alternative forums allow for challenges to competitors’ patents that may interfere with a business’ strategy, potentially providing new opportunities and revenue streams. By challenging competitor patents, a business may remove potential obstacles to further development and commercialization of its own products and services. ITC proceedings are typically performed on a faster schedule than litigation, and can be an effective strategy to address foreign competition. Similarly, IPR proceedings also offer a more expedient and cost-effective strategy for addressing patent disputes in the United States. A thoughtful and strategic approach to enforcement of the IP portfolio, either through litigation or an alternative forum, can offer many efficiencies, further unlocking value for the business.
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