Posts Tagged: "patent monetization"

While many, if not most, enterprises have instituted, and are executing, an IP strategy of some sort, an important question should be considered: Is the IP strategy optimal, such that its execution extracts maximum value from company technology? Some corporate IP strategies may seem sound in theory, but in practice they are (a) selectively or inconsistently applied within or across projects, (b) incompatible with how teams actually work, (c) relatively narrow in how they perceive innovation, and (d) distracting to innovators and IP practitioners while consuming enormous resources. Ultimately, the return on IP investment of such strategies may be questionable. However, enterprises that periodically take a step back to reflect on their current IP strategies, and recalibrate them if appropriate, are likely to derive the greatest possible value from IP.

What is the best way to assess the potential value or use of a patent portfolio? Before we examine this, it’s important to clarify that a patent only has value in the context of its place in a portfolio and in how the portfolio is used to support the organization’s business strategy. Let’s look at two examples. A Patent Assertion Entity will evaluate patent value based solely on the potential revenue that will come from a licensing program. On the other hand, an operating company typically places a higher value on patents that provide protection. This can be the ability to defend leadership in a profitable market category or the ability to offer protection as a sole-sourced product’s revenue stream.

Join Gene Quinn and Ashley Keller on Wednesday, September 28, 2016 at 12pm ET for a discussion on the current state of patent value. We will take your questions, as well as discuss the following: (1) Patent eligibility at the Federal Circuit; reasons for hope. (2) The outlook for innovators and patent owners in Q4 2016 and Q1 2017. (3) Patent Reform: what is likely to happen and how could it impact value and monetization strategies.

To maximize the return on investment from a patent portfolio, patent owners must determine which is more lucrative: sales or licensing. In general, patent licensing promises the highest total return on monetizing an IP portfolio because the IP owner can license the same asset or (a single patent or portfolio) to a number of different licensees. On the other hand, it may take three to five years to realize significant revenue from licensing. Additionally, licensing comes with a host of potential risks including litigation, invalidity arguments, and more. More and more frequently patent sales/transfers are part of licensing settlements to ensure there is more of a ‘win/win’ result for negotiating parties.

This post provides a practical approach for companies to handle the licensing of Intellectual Venture’s (IV’s) smaller in-house funds (ISF & IDF) during a negotiation with IV. These two smaller, in-house funds together represent approximately 20% of IV’s total portfolio. In a typical negotiation with IV, all of the patents in the IIFs (described below) are available for license without exclusions. But, the ISF and IDF patents are more restrictively licensed. Additionally, IV may have presented evidence of use (EOU) materials for assets in these funds, or otherwise highlighted, some of these assets during negotiations, further heightening the risks. For the two smaller funds, IV will provide a list of excluded assets. How can you cost-effectively assess these funds and the associated risks from these smaller funds?

Lenders and investors like Gerchen Keller and Fortress, among others, have provided capital to or are partnering with private and public NPEs. These business are well suited to assessing market conditions, especially value, and calculating risk for given rights in a specific industry. That they are still willing to fund activities and co-invest in this climate is a testament to the durability of good patents. Also, there is some expectation that we are at or near bottom, and that there are more opportunities now.

A patent litigator knows the ultimate truth about patents: their real value is only revealed in the gauntlet of litigation. In a bygone era, patents were reputed to have a statutory presumption of validity, the power to exclude by way of injunction, and the capacity to yield treble damages if an accused infringer were so wanton as to disregard a notice letter and fail to obtain an opinion of counsel. It was often unnecessary for a patent holder to flex its muscle by bringing suit to enforce its intellectual property rights. Instead, the arms-length Georgia-Pacific theoretical license negotiation might well have occurred even before the commencement of any infringement. Those days are over.

Patent licensing is becoming increasingly challenging and it requires thorough preparation on the licensor’s part to convince a potential licensee that a license is both required and inevitable and to persuade them into serious negotiations. The steps involved will vary based on whether your patents are already being infringed upon or if they protect a new technology that can extend market value or penetration. In this article, the focus is on the research and preparation for the licensing of patents that may already be in use.

“At the end of the day innovation is important,” Jung explained before he lamented the fact that the United States “seems to be making it harder and harder to be competitive globally…” Jung ended his presentation by pointing out that in 1820 the United States contributed only 1.8% of world GDP, but that thanks to an innovation economy the United States peaked at about 30% of world GDP, “predominantly driven by invention-driven industries like automotive, like aerospace, like pharmaceutical and so on. These were all based on key inventions that the US dominated the landscape on. That’s clearly not going to be the case going forward. It’s going to be much more distributed across many different countries, which is why I think, again, diversity is going to be the key.”

“I don’t think investors care about names,” Croxall said. “I think they care about results. I have the troll conversation, but it is never with investors. Are they getting smarter about the risk of going to trial? I think they have… I think you get punished more for losing than rewarded for winning.” Croxall also acknowledged that the troll issue seems to have penetrated into the jury box. Hartstein would later agree that public IP companies get punished at least twice as much with a litigation loss as compared with a litigation victory.

One thing is certain in these tumultuous times, the business of patents has changed. The days of bulk buying at $10,000 per patent have ended; public IP companies are under legislative and shareholder pressure; and, IPR’s have significantly impacted the value of weak patents. These are just some of the examples of significant business changes. So what is a patent owner to do when they want to monetize their patents? There are only three options for patent owners: they can license their patents, they can sell their patents or they can do nothing.

Ashley Keller: ”I am mildly bullish, because we’re coming from such a low point that it is likely to improve from here. We just talked about the Supreme Court and the willfulness case. I also think that Europe’s unitary patent system is going to be an eye-opener, because it has the potential to be better than our system’s status quo. Competition is a healthy force, and the new system will drive innovation over there. People are going to pay attention to that, and as a consequence, it may improve things over here.”

Ashley Keller: ”I think the market is challenging right now. I wouldn’t say it’s deteriorating—it’s more stable than it’s been—but I think it’s a challenging market. There has been a fair amount of court activity, with a lot of it potentially negative for patent monetization and patentees. In terms of things on the horizon, Congress seems to perhaps have decided not to pursue patent reform this year, but that is always something that’s looming large in the background. And some of the reform proposals had some decent ideas in them, but they were sandwiched between some ideas that were potentially going to weaken patent rights even further. So until that risk is decidedly off the table, I think the patentees have to be cognizant of it. All of that leads to a difficult environment for monetizing IP rights for the moment.”

Although the job of developing the patent portfolio never ends, once the assets begin to reach a critical mass it becomes equally important to tactically manage the portfolio. Because if not managed properly, a patent portfolio will not only fail to generate revenue, it will also drain the company coffers. With this in mind it is essential to know thy portfolio, prune thy portfolio and monetize thy portfolio. When many think of patent monetization, patent sales and licensing (in and out of court) are what come to mind, but there have been a slew of anti-patent court decisions that patent owners need to consider before monetizing. Crisis is often said to spawn opportunity and the patent world is no different. Uncertainty in the litigation arena has spawned new, non-litigation offerings to innovators desirous of leveraging the value of their patents.

To compete in our new innovation ecosystem — no matter big or small — there are a handful of competencies that an organization should master when it comes to their patent operations. At the risk of over generalizing, these are (1) sound portfolio development, (2) sound portfolio management, (3) building the right team and (4) smart patent deal-making. Although it is nearly impossible to condense actionable wisdom into a multi-part series on the subject, what follows is my attempt to do just that.