The value of all U.S. generated intellectual property is said to be approximately $5.5 trillion, equal to nearly 40% of the U.S. economy. From time to time that value is dramatically demonstrated, such as when Apple wins a $1 billion patent infringement verdict against Samsung, when Nortel sells a portfolio of patents for $4.5 billion, or when Google acquires Motorola Mobility for $12.5 billion, to gain control of its patents.
However, for many companies the cost of obtaining and maintaining intellectual assets – in particular patents – may be a huge waste of corporate resources, either because the company files patents indiscriminately, without sufficient consideration for which technologies, markets and regions may be most deserving of investment, or because it fails to devise and implement a sound plan for monetization of the patents.
Monetization of a patent portfolio usually begins with an IP audit. Working with the company’s business units and engineers, one should evaluate the company’s patents and divide them into three or four categories: those which are presently being used by the company; those which are not being used, but might have value to others; and those which are not being used and appear to have little value. One may also distinguish between patents that relate to the company’s core v. non-core technologies.
The IP audit may include both a business assessment, exploring actual and potential use of the patents by your company and others, and a preliminary technical valuation, considering their apparent strength and value. Is the invention significant or trivial? Is it in a strong or growing industry? How original is the technology? How easily could one design around it or omit the relevant product feature? Do the claims appear to be novel and non-obvious? How easily can one detect and prove infringement?
When considering which patents to monetize, a company will usually retain patents related to its core business. Companies also may be reluctant to monetize core patents, because that might require going after customers or business partners and it opens the door to potential counter-suits, which could threaten the company’s business. However, those concerns can be alleviated, to a certain extent, by transferring the patents to a subsidiary that does not share the parent company’s name and performs no business other than holding the patents, prior to launching the monetization campaign.
Next is the search for potential targets. Naturally, a company that appears to be already using the patents may be a strong candidate. If there is clear evidence of infringement, the patent owner may prefer to license rather than sell the patents. Products suspected of infringement may be dismantled in-house or by a third-party tear-down specialist, to confirm the infringement. Additionally, companies whose patents cite your patents may be interested in acquiring the patents.
As for methods of monetization, there are various options. A company may seek to license directly or may retain a law firm or licensing agent (e.g., IP Value, Thinkfire, General Patent Corp), giving up some revenue and control, but allowing the company to focus on its core business instead of on protracted negotiations. Licensing may be exclusive, non-exclusive or limited to a particular field of use, geographic region or market. If infringement seems clear, it may be possible to sell a covenant not-to-sue. Or, one may seek to sell the patents, usually through a broker (e.g., Ocean Tomo, Inflexion Point, IAG) or at auction (e.g., ICAP, PatentAuction.com). In some cases it may be possible to monetize patents by joining a patent pool. And, in rare circumstances, it may be possible to raise revenue through securitization of the patents.
Whatever option one chooses, the price will be greatest if one can locate targets that are using the patents and present them with clear proof of infringement (i.e., detailed claim charts). As with any good sales pitch, one should seek to maximize the scope of the transaction. That is, while the target may be interested in just one particular patent, the seller/licensor should insist that various related patents and foreign counterparts must also be included (at a correspondingly higher price).
Of course, a business solution is usually best, but most companies will not agree to enter into a costly license or acquisition without litigation, or a credible threat of litigation, so one must be prepared to take legal action.
If there are several potential targets, the patent owner may choose to sue the largest company first, as that target may have the greatest sales volume and should produce the greatest return. But that company also may put up the strongest defense and may have its own patents to assert in a counter-claim. Others prefer to go after smaller targets first, in the hopes of securing a few quick settlements, in order to build up a war chest to fund future actions, boost the credibility of the patent(s) and help establish a reasonable royalty rate.
Finally, one should be able to extract value from even the least valuable patents identified in the IP audit: the patents that appear to be totally unenforceable and of interest to no one. At the very least, one can abandon those patents, resulting in considerable savings in maintenance fees and perhaps gaining valuable information on how the company can improve its patenting strategies and procedures in the future.
There is no single solution for all patent owners. Each monetization plan will vary based on countless variables. But one thing is certain: unless a company engages in the types of activities described above, its patents are unlikely to generate revenue and their value will remain just a theoretical possibility.
For advice or assistance, please contact a Taiwan licensing lawyer.