Intellectual Property Rights

Ten tips for an investment-ready patent portfolio

February 24, 2014

‘Ultimately, the most important role of a chief IP counsel is to build an IP portfolio that gives its owner a corporate advantage over its competitors and a platform for future growth’1. When that future growth requires capital investment, it is incumbent upon the chief IP counsel to ensure that his IP is attractive to investors. A good portfolio should protect both current and future income streams, and be positioned to successfully stave off competitors. We list ten ways to make a patent portfolio investment-ready.

1. Quality not quantity

A large patent portfolio may be very valuable and therefore attractive, but the converse is not necessarily true: a valuable portfolio may often be small. Large numbers of patents and applications at the very worst represent sunk costs, but also a drain on future budgets. Ideally, the relative worth of patents and applications in a portfolio is mapped using some or all of the factors mentioned below, and the patent properties themselves treated according to their placement. Properties of little value or relevance to the business should be marked for monetisation, abandonment, or at the very least, deprioritisation. When businesses patent for the purposes of building reputation, there is a greater likelihood for these patents to be underutilized2.

2. Maturity

Generally speaking, a granted patent is a good patent. Uncertainty as to its scope is eliminated, and the intensity of cost and effort is often in the past. If an investment event is scheduled well enough in advance, many major patent jurisdictions have processes such as Patent Prosecution Highways through which the progress of patent applications can be expedited. On the other hand, the length of patent term remaining is critical where the patent covers a key product or innovation. If a key patent has little term remaining, a clear strategy for extending protection for the patented subject matter is desirable. See Longevity.

3. Longevity

Where patent term extension is possible, these opportunities need to be earmarked. Where follow-on patent opportunities that may ‘evergreen’ or extend the life of protection of a product exist, these need to be identified and a plan of action adopted for divisional or continuation filings. Consideration should also be given to follow-on opportunities where the purpose for originally seeking patent protection for an innovation has shifted. ‘Damn near 100% of start-up companies change their business model not just once, but multiple times prior to achieving success – that is, by the time they find customers’3.

4. Clear title

Any investor will want to understand the risk that a third party may claim rights to the patented subject matter. It is critical to ensure that accurate documentation is in place which establishes a clear chain of title from each and every one of the inventors to the current applicant or patentee. This includes limiting, where possible, patent properties that are co owned, as co ownership is often associated with complications around either restricted or, conversely, unfettered commercialisation efforts by the other party.

5. Encumbrance

In a similar category to ‘clear title’ is ensuring that licences or agreements associated with the IP do not provide rights to other parties that will impede efforts to drive revenue from the portfolio. The nature and implication of rights contractually given to others must be clearly understood and even minimised. Such rights might include grant back clauses, commercialisation rights, sub-licenses and the maintenance of obligations on partners or assignees.

6. Geographic coverage

It is a fallacy that a geographically widespread patent portfolio is always attractive. This is unless, of course, that diversity is because a proper market analysis has been conducted and an economically sound business case exists for patent protection in each jurisdiction. Even the largest patentees in the world patent only where they manufacture or sell, have realistic basis for expecting that they will manufacture or sell, or where their competitors manufacture and sell. A geographically diverse portfolio can be a financial black hole associated with unpredictability, uncertainty and delay. See ‘Quality versus quantity’!

7. Claim species and support

Claims must be directed to catching the ‘infringer’ – and not the potential customer! Claims must also be drafted to ensure that identification of infringement is as easy as possible. In this context, ‘product’ claims are often considered more desirable than ‘process’ or ‘method’ claims – although this is not always true. Claims are only as strong as the experimental data underpinning them. There is an increasing tendency for courts to seek an appropriate balance between competition principles, the legitimate monopoly that a patentee deserves as a result of inventive merit and effort, and public perception of what is ethically and morally susceptible of monopolisation. Ideally there is adequate support for claim breadth included in the patent specification. But supporting data not within the patent specification is often a critical adjunct to the specification itself. Properly archived experimental data which supports both claim breadth and claim species can assist in reducing prosecution costs, and increase the chance of quality patent grant.

8. Freedom to Operate

A patentee is granted a limited monopoly to exclude others from exploiting his invention. A key success factor for an investment-ready patent portfolio is the knowledge that the pathway to commercial success is not blocked by the patents of others. Although a ‘freedom to operate’ or ‘non-infringement’ analysis can be relatively costly, the return gained by easing the pathway to investment is likely to be manifold. Having a freedom to operate opinion in hand can smooth any negotiation as it demonstrates a willingness to reduce risk for the investor, and eliminates the need for extended warranty discussions. The valuable asset that is the prior art knowledge base provided by such a report is also then the property of the patentee for future use.

9. Competitor positioning

A useful by product of a freedom to operate analysis is the identity of other parties that have patents on similar technology – and the list of the patents and applications themselves. Well indexed, regularly updated and analysed, a collection of ‘prior art’ and patent and patent applications in the field can be mined to show pathways for future research – both around competing technology and in ‘blue sky’. Trends in competitor patent data can establish the commercial pathways of other businesses. This can inform higher order strategic positioning of the business and better intellectual property management. A database of ‘prior art’ and competitor IP can be easily built through the normal patent prosecution process, and is a valuable asset to any potential investor.

10. Market analysis

Patent analysis products such as the Thomson Reuters patent landscape maps and Innography’s litigation and licensing ‘heat’ maps are increasingly accessible.They make it easy to generate an overview of the market positioning and competitive landscape of an organisation’s patent portfolio. This overview will enable presentation of a portfolio in its best possible light. Mapping can be used to identify who owns competitive technology, who key innovators, or potential collaborators or licensees are, to inform future commercialisation strategies, and to define R&D programs. Mapping can also show when the leading edge of a technology has passed indicating a decline in market interest, the velocity of spend in a certain technology indicating keen market interest, the geographic focus of a technology, the technical significance of an organisation’s patent portfolio, the relative positioning of other players in the market and whether or not a competitor is being crowded out of its own field. ‘You need to look at the value that a patent creates for your business; for example, its value in enabling you to….grab a share in an existing market. If it doesn’t do that, it’s not creating value. It doesn’t matter how good it looks or how many patents you say you have; if it’s not creating value, it has no worth’4.

Not convinced yet?

It is reported that healthcare investors place a significant weight on IP in their decision to invest5. The same report reveals that:

  • 62% of funded biotech companies have patent applications,
  • 33% of all funded companies have filed a patent application, and
  • 19% have at least one patent application prior to receiving any funding.

It is logical that in making investments, investors will look for the best possible patent portfolio to underpin the business of interest. Taking active steps to make a patent portfolio ‘investment-ready’ according to the ten tips given can only improve outcomes for investors and investees alike.

By Karen Sinclair

This article is based on a presentation made at the Technology Transfer Summit, Australia, 2-3 September 2013 supported by Ausbiotech.

1 Mike Walker, Du Pont Legal
2 Basir, Beyhaghi, Mohammedi, 2012
3 Jackie Hutter, The Hutter Group LLC
4 Terry Adams, Assistant Vice President for Intellectual Property, Nestle
5 Krevits & Moore 2012

commercial assets   intellectual asset management   IP Strategy   revenue streams

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