Captured by catalogue

Leveraging patent catalogues to reap the benefits of your portfolio

It is amazing that it has taken this Patent catalogues are invaluable for long for senior management (prompted companies needing a quick answer by investors) to ask their IP groups what the return on investment (ROI) is on all of to what IP assets they own and what this. This article focuses on the concept these are worth. As investor interest of the patent catalogue – a database and in IP monetisation continues to soar, workbench that incorporates tools to a well-maintained catalogue can be help IP practitioners develop tactics to a crucial part of a business strategy define and support an effective patent and licensing strategy. By applying some or all of these tools, practitioners will be better By Terry Ludlow positioned to answer the hard questions related to the ROI and value of their A sea change is taking place with regard to companies’ IP portfolios. IP awareness. Senior management in many Apple and Samsung are currently locked technology companies are being pressured in a billion-dollar litigation over patent for answers to the question: “What is our infringement. Allegations of IP theft and intellectual property worth and how are we unethical conduct abound in the popular seeing returns on this value?” Interest was press. However, nothing could be further first sparked by the US$4.5 billion Nortel from the truth. The patent thicket is dense patent sale. Follow-on deals – such as in the technology industry and cross- AOL’s sale (perhaps prompted by dissident licensing is standard practice. In theory, shareholders) of patents to Microsoft for royalties flow from low R&D companies more than US$1 billion and the high-profile and new market entrants to high R&D sale of the remnants of Kodak’s patent companies, which have invested and rights for US$525 million – have cemented pioneered the technology that enables, for the notion in the investor community that example, today’s smartphone handsets. patents are valuable (see Table 1). In practice, the advantage goes to the well A typical mature technology company prepared. A patent catalogue is designed holds thousands of patents. To an investor, to be a 24/7/365 effort, which prepares these appear as a cost centre. An average any company for the challenges it will face patent will cost between US$8,000 and in executing a patent strategy that fully US$10,000 to draft and between US$2,000 supports its strategic business plan. and US$5,000 per jurisdiction to file. At an average drafting and prosecution cost of Patent quality versus patent value US$10,000 per patent, IBM’s 6,000 patents Although the terms ‘patent quality’ a year would cost it US$60 million in the and ‘patent value’ are often used United States alone. Add maintenance fees interchangeably, they are in fact separate to this (eg, Round Rock Research’s portfolio concepts. ‘Quality’ refers to the legal aspects of just over 3,000 US patents costs over of a patent – high-quality patents meet US$2 million per year in maintenance or exceed the statutory requirements for fees), and it is clear that developing and patentability. ‘Value’, on the other hand, maintaining a typical technology company’s applies to the business aspects of a patent patent portfolio is a big budget item. – that is, a technology’s market value as www.iam-magazine.com Intellectual Asset Management July/August 2013 81 Captured by catalogue

incorporated into products and services Table 1. Corporations driving up the value of patents being sold on the market. Date Deal Amount # of patents Patent quality The US Patent and Trademark Office April 2011 OmniVision acquires Kodak patents US$65m 850 (USPTO) – aided by companies including July 2011 Google acquires IBM patents Unknown 1,000 IBM, Google and Microsoft, and by July 2011 Rockstar acquires Nortel patents US$4.5b 6,000 several law schools in the United States April-Aug 2011 HTC acquires patents from ADC, US$400m 300+ – has studied the legal requirements and S3* and Dashwire best practices for meeting quality legal August 2011 Google acquires Motorola Mobility US$12.5b 17,000 requirements. A couple of projects, such September 2011 Google buys more IBM patents Unknown 1,000 as the Community Patent Review project September 2011 Nokia/Microsoft give right to license Unknown 2,000 and the Software Partnership project, have to Mosaid looked at obviousness, in particular in April 2012 AOL sells patents to Microsoft US$1b 800 software patents. The Peer to Patent project April 2012 Microsoft sells to Facebook US$550m 650 and the new AskPatents.com website – June 2012 Interdigital sells to Intel US$375m 1,700 which crowdsources prior art submissions November 2012 MIPS sells to Bridge Crossing LLC US$350m 580 – focus on improving validity. January 2013 Unwired Planet buys Unknown 2,000+ According to most accepted definitions, Ericsson patents ‘patent quality’ is a concept best left to January 2013 Kodak sells patents to Apple, Google US$527m 1,000 legal scholars. Debates on standards for obviousness and improving methods Source: Chipworks, 2013 for thoroughly checking prior art during prosecution will result in higher-quality Table 2. Patent portfolios can be used to achieve different business objectives standards for patents. Senior management and the average investor will assume that 1. Motivation  Motivating employees basic legal standards for patentability, 2. Brand  Attracting customers, partners and investors and therefore patent quality, are being 3. Protection  Protection of your products maintained in a portfolio. From a business 4. Improvement  Protection of future/improved products standpoint, value is much more interesting. 5. Blocking  Patents not used by owner, used to block competitor products Patent value 6. Confusion/intimidation  Intimidating competitors Patent value can be determined in many 7. Licensing-out  Better market penetration, generating income different ways and the choice of method 8. Assertive licensing  Generating income often depends on the purpose of the 9. Cross-licensing  Access to third-party technologies valuation, as outlined below. 10. ROI/salvage  Return on R&D – US$20K patent Accountants often need to determine 11. Patent transfer/M&As  Generating income or cost savings; joint ventures the value of a portfolio to report to or start-ups shareholders or submit to tax authorities. The balance-sheet definition considers a patent portfolio as an asset, like a building the value of a patent portfolio with its or mineral rights over a given piece of cost. However, does ‘cost’ mean the R&D land. It usually invokes complex formulae cost of developing the patents, the cost of designed to set the asset value of each producing the products that use the patents patent in the portfolio, before summing up or simply the cost of drafting, prosecuting the total. Surprisingly, there is seldom any and maintaining the patents? Does cost examination of the patents to determine have any relevance to the value that a their value. The balance-sheet definition prospective buyer or licensee puts on a recognises that a patent portfolio is a patent portfolio? This definition is best left tangible asset and attempts to put a price for accountants who need a simple solution on it. However, it fails to set a market-based to an accounting problem. standard for evaluating the various elements A more practical definition of value – the patents – that together make up the looks at the portfolio’s ability to support asset. This method fails to recognise that a company’s strategic business objectives, between 95% and 97% of patents have rather than the intrinsic quality of little or no value. The key to determining individual patents (eg, how well they are a portfolio’s value is to find the potential written; how non-obvious and distinct from ‘star’ patents and then leverage them to prior art they are). This premise implies match and support strategic business that although legal advice is essential, it opportunities. is not a company’s lawyers, but the senior By contrast, the cost definition of business managers who have the final word patent portfolio value attempts to equate in determining a portfolio’s value. This

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Figure 1. Patent value versus number of patents highlighted by litigators when they are turned loose and have a big enough budget. 3 - 5 claim charts < 20 claim charts Serious settlement discussions happen < 20 patents < 100 patents sooner when a sufficiently large group of Potential licensee will try to win Potential licensee cannot win patents is asserted as a portfolio, convincing Small early settlements or long litigation Likely settle soon and for large number the potential licensee that there is a high probability it will need a licence. Conversely, Elpida/Acacia model Micron/Round Rock model at some point this equation flips. Each additional patent in a specific technology < 3 claim charts area is worth progressively less once the Likelihood of success low without quality patents critical mass is exceeded – value generation can be optimised by splitting the portfolio Value of patents Number of patents into parallel portfolios. And thus many a Source: Chipworks, 2013 privateer is spawned!

Strategic objectives for IP programmes can be measured by its ability to support Patent and IP strategies do not exist in various business objectives by: a vacuum. Patent strategies should be • Directly generating revenue through an important component of an effective friendly or adversarial licensing. business strategy. Examples of the • Protecting market share in present and successful use of patent portfolios to future businesses. support business strategies surface on the • Propagating new business opportunities public record with increasing frequency: and partnerships. • Using patent sales to generate revenue from a failed business – recent Patent value is thus contextual and is examples include Nortel’s sale of over derived from the strategy that the patent 6,000 patents for US$4.5 billion. portfolio supports (see Table 2). Patents • Using patents as loan security – recent and patent portfolios will have vastly examples include Alcatel-Lucent using different values to different people or its 27,000-plus patent portfolio as organisations, depending on what use they security on a loan of more than US$2.1 can put them to. This was illustrated by billion from Goldman Sachs and Credit the Nortel portfolio sale. The patents were Suisse. worth US$4.5 billion to the consortium • Companies acquiring patents before of companies that needed to keep them expanding internationally, as Chinese out of the hands of competitors and non- companies are doing now. Anecdotally, practising entities (NPEs), while boosting we are hearing a lot of stories from their own portfolios. These bidders were brokers about active Chinese patent mostly competitors in the fast-growing buyers. Huawei attempted to buy assets and changing wireless telecommunications from 3Com for its technology in 2008 market. Many were new entrants with weak and patents from 3Leaf in 2011. Both patent positions. The Nortel portfolio was purchases were rejected by US foreign unique in that it both covered key aspects investment controls (Committee on of the technology and was almost totally Foreign Investment in the United unencumbered. The bidders’ growing States). Huawei ranks number three businesses justified their part of the US$4.5 in telecommunications infrastructure billion price tag. However, NPEs that worldwide, but nowhere in the US looked at the purchase as a pure monetary market. investment dropped out early in the • Using patent litigation to secure bidding, as they could not get an adequate divestiture or acquisition of a business ROI at such a high initial purchase price. unit – years ago, Digital Equipment In addition, patent value is not Corporation (DEC) sued Intel to individual (see Figure 1). The whole can establish the value of its technology. be worth much more than the sum of the The lawsuit settled when Intel bought parts. As patent aggregation entities well most of DEC. know, a critical mass of patents in a specific • Improving patent portfolios through technology area needs to be assembled to acquisitions. It is widely held that maximise returns. In litigation, a single Google paid US$12.5 billion for patent – no matter how high its quality Motorola Mobility to acquire an and value – will be attacked vigorously extensive patent portfolio in wireless in today’s environment. Most patents telephony. Acacia purchased Adaptix have weaknesses that can be exposed and for US$160 million in January 2012 www.iam-magazine.com Intellectual Asset Management July/August 2013 83 Captured by catalogue

and promptly closed licensing deals Figure 2. The ideal IP department – a theoretical workflow with Microsoft and Samsung, followed by litigations against at least seven Patent Troll litigation additional companies. acquisition • Using patent monetisation programmes to buy time for corporate reorganisation: • Between 2008 and 2010, Kodak generated more than US$1.9 billion from licensing its 11,000 patents to delay its entry into bankruptcy reorganisation. The January 2013 sale of a part of the company’s portfolio for US$525 million Invention programme Patent became a key component of the Patent licensing & reorganisation. portfolio Patent litigation • Currently, Nokia is generating much Patent strategy catalogue of its revenue from licensing, while the business adjusts to smartphones Patent and a new Windows mobile prosecution operating system. It is estimated that Nokia will collect a royalty of between 1.5% and 2% for every long-term evolution (LTE) mobile phone sold. Nokia is successfully Patent leveraging different entities (eg, disposal Pendrell, Mosaid, Sisvel and Vringo) Source: Chipworks, 2013 to monetise certain assets, with annual licensing revenue of more than US$600 million, including a the privateer Rockstar. In addition, settlement payment from Apple of Ericsson recently announced a new €480 million. partnership with Unwired Planet • Using patent acquisition to buy your setting up a new privateer to further way out of a losing litigation – HTC monetise its portfolio. bought 235 patents with the acquisition of S3 Graphics from VIA Technologies Different strategic objectives, different and then used these to help with its criteria counterarguments in an International Different strategic objectives will give Trade Commission case against Apple, different weight to each of the criteria which was eventually settled. for measuring portfolio value. In the • Using patent licensing to generate pharmaceutical industry, patent value revenue: is often driven by the patent’s ability to • IBM chose to generate revenue maintain a monopoly for as long a period (at times more than US$1 billion as possible after the years required for drug annually) by directly licensing its development and regulatory approval. In personal computer, software and the high-tech sector, patents are more often semiconductor technology. used to generate licensing revenue and/or • Texas Instruments generated more reduce royalty fees. than US$1 billion per year for many Small pharmaceutical research years, licensing semiconductor companies and universities provide technology primarily to Asian many examples of patents being used to companies which were gaining establish mutually profitable partnerships. market share. Focused on research, these companies and • LSI has reported licensing revenue institutions have little interest in creating of more than US$100 million per and developing markets. They patent year, or 4% of its total revenue, their discoveries, then enter into (usually) and includes patent licensing in its friendly technology transfer licensing with annual report to shareholders. large companies, which have the means and • Eric sson has an active licensing interest to market products that use these group generating more than US$1 discoveries. There are examples of attempts billion a year in royalty fees. It to transfer this model into the technology was also a key player in the Nortel world (eg, Rambus and Tessera). Overall, patent purchase and the creation of however, the fairly comprehensive rejection

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Figure 3. Strategic patenting • Patents in areas identified as requiring improvement. Patenting inventions Inventing patents • Patents in areas identified for future 2. Plan 4. Envision development. • Improvement – future protection • Blue sky, what is the future Patents protecting future products alternative technology? The traditional measurement for IP

Long term Confusion & intimidation groups is the number of applications filed and/or number of patents issued per year. 1. Design 3. Combat While this data is easy to obtain, merely • Patents from ongoing projects • Patents designing around competitors counting applications and/or patents Protection of existing and Blocking, patents related to includes no consideration of value or

Short term near future products competitors products contribution to the business. Measuring the number and not the value of patents can In product scope Outside product scope lead down a dangerous path. Executives and Source: Chipworks, 2013 investors equate quantity with value. Many chief IP officers will know the following story line: “I tried to focus more on getting of it by most technology companies is yet valuable patents and de-emphasised another example of the vast differences quantity. Then the numbers came out at the between the pharmaceutical and the high- end of the year and our major competitor got tech sectors. more patents than we did. The newspapers The exact mix of revenue generation, questioned whether we had lost our business protection and opportunities innovative advantage. The shareholders and and partnerships will change according to the CEO got very upset, so we put quantity the strategic objectives of your company. back as a key metric.” Until we can establish However, the following two truths do not that patent portfolio quantity does not equal change: value, we may be stuck with this situation. • Patent portfolio valuation is a business A better quantitative measurement responsibility. might be the number of new proud patents • Value is based on a patent portfolio’s created each year. Proud (or ‘star’) patents ability to support the company’s are the subset of the 3% to 5% of a strategic business objectives. company’s patents that can be documented to show use in products available on the Performance metrics open market. Any patent with demonstrated If you cannot measure it, you cannot value is a useful tool to help achieve manage it. This means that if you want to numerous patent objectives. Unfortunately, improve the performance of your patent this adds a few more years to the timeline portfolio, you must establish metrics for between invention and achievement, and tracking and measuring its value to your has to span the chasm between prosecution company. A practical definition of ‘patent and licensing teams. portfolio value’ allows you to apply methods Metrics also often cover revenue – to measure and improve its performance. To another simple annual measure. Many generate business value from your patents, technology companies use patents as the metrics that you establish for evaluating revenue generators to help offset the cost your portfolio’s performance must link of R&D. When revenue generation is a back to your business strategy. Some business objective, this works well for measurements to consider may include: the licensing team as a measure of overall • The number of ‘proud patents’ – patents portfolio quality. However, providing that can be documented as covering feedback to the prosecution team is technology that is actually being used in difficult and the connection between the market. individual revenue-generating patents and, • The number and value of infringements in particular, patents in the early stages of identified. development and prosecution is distant. • The number and value of technological transfer licences. The patent catalogue • The number and value of product How many IP groups can list their top 10 revenues that are protected or strategic patents? How many can list their competitors’ product revenue that is 10 most valuable patents? (See Figure 2.) threatened. How many can quickly assemble a list of the • The value of markets protected. top 10 most relevant patents to assert in a • Revenues generated through new cross-complaint the day that they are put on opportunities and partnerships. notice by a competitor? A patent catalogue www.iam-magazine.com Intellectual Asset Management July/August 2013 85 Captured by catalogue

assembles the data required to answer these Figure 4. The patent catalogue questions confidently. Various commercial and proprietary search and reporting tools on PMM – Existing market your patent analysis workbench can then be Licensee used to interrogate the catalogue and report #1 results that fulfil these types of query. Licensee Licensee #2 #3 A patent catalogue starts as an PPM inventory of your patent resources. It Patent Patent provides a single point of reference for catalogue workbench PPM these resources so that you know exactly PPM what you own. There is no off-the-shelf PPM Potential solution. Many organisations have ad hoc Potential licensee #1 systems that attempt to track their valuable licensee #2 patents. In some cases this consists of PMM = Patent market matrix asking inventors what patents they think PPM = Patent product matrix PMM – Emerging market are most useful – unsurprisingly, it is often their own! Some companies have a shelf Source: Chipworks, 2013 on which are stored the claim charts and assertions that have been used in previous licensing campaigns and litigations. More • Use of competitors’ products – can advanced companies collect this data in you find references or produce Excel spreadsheets. documentation showing the use of your The task of developing and maintaining patented technology by others? a well-researched, well-organised and • Market data – to which products in well-documented patent catalogue is which markets do your patents apply? not a trivial exercise, especially for an Who are the players in these markets? organisation that owns hundreds, if not What revenues are they generating and thousands, of patents. It is nonetheless what is the growth forecast? essential – you cannot reap the benefits • Enforcement history – has this patent of an invention if you do not know what it been documented and used in any is and understand its potential. A patent licensing negotiations? catalogue requires sufficient resources, but • Existing licences – who is licensed to it can be developed apart from the pressures use this patent? For how long and under of imminent litigation or licensing threats if what terms? it is included as a component, or indeed the • File history – what are the limitations foundation, of a patent strategy. to claim interpretation inherited from A patent portfolio exists as a group the prosecution process? of patents owned by the same entity. • Validity – are there any new concerns Patent docketing software can help with or art that limit the scope of the claim prosecution and maintenance. The patent interpretation? catalogue adds much more detail, including: • Litigation history – has this patent been • Patent family – what continuations, enforced in litigation? What are the foreign equivalents or pending limitations added to the patent in claim applications exist? construction or invalidity arguments in • Ca tegorisation beyond the international its litigation? patent classification and/or national patent classification (or the new Using the patent catalogue to identify Cooperative Patent Classification) portfolio strengths and deficiencies usually codes patents by: technology Many methodologies exist for evaluating type – a multilevel taxonomy which patents and portfolios. By understanding provides a meaningful description of the value of your patent portfolio as a the technology claimed in the patent; or whole, you can develop programmes to market-specific applications – which exploit strengths and remedy deficiencies types of products could this patent apply not just of individual patents, but of the to? Which markets do they apply to? entire portfolio considered as a strategic • Enforceability/detectability – can resource that supports business objectives. the claims be investigated and Tactics to improve portfolios include: proven without sneaking in to your • Patent acquisition to fill gaps quickly. competitors’ research labs or production • Patent development through invention facilities? programmes to fill predicted gaps or • Use of your own products – do you needs. actually use your own invention? • Targeted patent strengthening

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Figure 5. Evaluating products be pursued as patents and which should be maintained as trade secrets or abandoned. When the key metric is the number of High applications filed, budget is the only limitation. A patent catalogue can provide the Reverse invention programme with guidance. engineering An effective patent catalogue points to Functional weaknesses in your portfolio, identifying testing areas where you can focus patent development to extend breadth and Relative cost Inspection depth in order to support your business objectives better. Incentives and metrics Standards can be developed and used to encourage the Low development of new patent applications Literature in areas identified as weak or needing help reviews three years out. Strategic patenting can be Low High divided into the following four categories: Relative impact • Design – most companies are very good Source: Chipworks, 2013 at patenting what they invent. Invention programmes encourage inventors to submit invention disclosures covering programmes to increase patent the work that they carry out. value through filing continuations, • Plan – more visionary companies will continuations in part, divisional also encourage inventors to consider the applications or seeking a reissue to longer term. What key technologies and continue to build the portfolio value. key inventions are required for the next generation of products – and the one Tactics to leverage the value of the after that? Spending time identifying portfolio include: areas for future R&D and developing the • Patent licensing programmes. ideas into patent disclosures can get key • Patent disposals to leverage residual and future core technologies into patent value through sale of surplus patents to applications quickly. independent buyers. • Combat – a few companies will also • Sales to privateers. consider what their competitors need • Sales through brokers. to be inventing. The most valuable • Abandonment of low or no-value patents in your portfolio are often those patents to reduce maintenance fees. covering technology that is central to your competitors’ products. A so-called When you know how your patent ‘war game’ exercise casts a group of your portfolio measures up, you can develop inventors in the role of the competition. strategies to leverage its value. You will Competitive intelligence enables you to identify the technologies in which you need familiarise your inventors and strategic to support research to develop new, valuable marketers with the competition’s patents and in which you should seek to products and technologies. Turn them purchase patents. When faced with a new loose to create speculative future licensing partner, you will know whether to product roadmaps and identify key negotiate a favourable licensing agreement new technology requirements. These aggressively or whether to enter into can then be developed and turned into friendly licensing agreements quickly. patent applications that have a higher probability of being valuable against Invention programmes your competitors in future cross- Your patent catalogue has helped to identify licensing discussions. the types of patent that you need to • Envision – encourage outside-the- improve your portfolio, and your existing box thinking. What are the potentially invention programme can be adapted to disruptive technologies or developments fill some of these needs (see Figure 3). that could leave you producing buggy Typically, invention meetings get a group of whips in an automotive age? professionals together to review invention disclosures produced by proud inventors, Invention programmes should include eager to collect the patent incentive bonus, your company’s legal, technical and market and to determine which inventions should specialists, and bring in independent www.iam-magazine.com Intellectual Asset Management July/August 2013 87 Captured by catalogue

research and expertise in the same areas. Table 3. Privateer examples Your company experts know your patents, your technologies and your markets. External Privateer Company specialists and researchers offer experience of patent portfolio valuation tools and Sisvel Philips methods, as well as technical expertise and Sisvel Nokia knowledge of markets, competitors and IPCom Bosch opportunities beyond your current scope. Oasis, Picture Frame Intellectual Ventures Mobile Media Ideas (MPEGLA) Sony, Nokia Doing ‘something’ with your patents Round Rock Research Micron The patent catalogue provides a framework Acacia Research Renesas, Elpida for making decisions on what can be done Mosaid (Core Wireless) Nokia, Microsoft with your existing portfolio to leverage Altitude Apple value and support your company’s business Rockstar (Nortel patents) Ericsson, Microsoft, Apple, BlackBerry, Sony strategy (see Figure 4). A patent market Vringo Nokia, Lycos matrix (PMM) plots your patent families against the markets they apply to and Source: Chipworks, 2013 identifies potential licensing partners. Once it is known which companies potentially use your technology in which markets, Monetisation tactics you can do a PMM evaluation to plot your The patent catalogue can guide strategy patents against their products. A patent development and decisions on various product matrix (PPM) can be developed patent monetisation options. through technical and legal due diligence to determine the strength of your portfolio Buying or selling patents when an assertion campaign is being Patent acquisitions are generally made considered. It is also prudent to do some based on the patent’s ability to strengthen sort of PPM in reverse – what patents an offensive or defensive patent strategy. does your licensing partner own that could As offence, newly acquired patent assets be asserted against your products? Once can help a company to generate cross- your relative strength is known, decisions complaints or counterclaims, and create can be made about initiating a licensing licensing royalty revenue to support programme or seeking a cross-licence. A operating income. As defence, patent full-scale technical support programme acquisition helps companies to establish will generate evidence to optimise your and strengthen their position in the market. negotiating position. New market entrants need patents as a countermeasure should a competitor target Technical due diligence them for patent infringement allegations. The primary purpose of technical due Market pioneers can build a dominant diligence is to ensure that the patent has patent position to maintain market value in the industry, enabling it to protect monopolies and prevent competitors from markets or leverage value from potential attempting to enter their market space. licensing partners. Technical due diligence A legal review of the claims in a patent will determine whether the invention is will play a pivotal role in the decision being practised, and provide proof that the to proceed with the acquisition. In the invention is being used (see Figure 5). course of due diligence, all documents and Technical due diligence can range from a information relating to any past and present quick and basic patent review through online litigation, or claims of infringement, literature reviews to full infringement analysis invalidity and/or ownership involving the that helps to identify and map claim elements patent, should be acquired and analysed. to applicable products/devices. More rigorous However, a legal review alone is not enough. investigation usually results in higher impact When purchasing or selling any patent evidence, albeit at a higher initial cost. In all asset, technical, market and legal due cases, if a true market value is being sought for diligence is required. When buying patents, your patents, the potential buyer/licensee will the level of due diligence performed is require that the value of the patents to its own typically predicated on the deal value and company be demonstrated. More evidence and purpose of the transaction. For example, more patents equal more coverage and higher minimal due diligence would be performed value. A licence or sale value will be related on patents being purchased for defensive to the size of the market that the technology reasons at a low-deal value. Due diligence in covers and the breadth and significance of the this scenario might involve a basic review technology on offer. to look at claim scope, initial validity and

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Table 4. Each tactic has its advantages and disadvantages

Cost Reward Risk Time to money Other considerations

Internal High High High 3-5 years Requires long-term licensing commitment of group company resources Agent Medium Medium Medium to 3-5 years Expands bandwidth – high allows for parallel programmes Privateer Low Medium Medium Some upfront Your own private troll! and some Lose control of patents 3-5 years Pools Low Low Low Follows Supports business adoption of groups technology Sale Low Low Medium 6 months – Could lose good 1 year patents for 10% or less of licensing value Abandon Low None Medium None ‘Oops’ factor

Source: Chipworks, 2013

infringement impressions. As the deal value A licensing programme can be run goes up and/or the patents are required internally, with the advantage of retaining for more immediate and specific purposes ownership and control of the patents and – such as strengthening a licensing strategy, and leveraging internal knowledge programme or litigation – so too does the of the portfolio. Licensing programmes can level of due diligence, which at this level also be run externally through a contract often requires evidence of use analysis and licensing organisation. While it may appear advanced legal research and review. Usually, to be more expensive, this option can be the level of due diligence required is driven done in combination with an internal by a combination of deal value and purpose. programme to ramp royalty streams more Technical due diligence is also quickly. Patents are a wasting asset – performed by companies looking to sell they expire 20 years after first filing. In a patents. Traditionally, there has been mature market, a faster ramp for a licensing minimal need for due diligence on the sell campaign will maximise revenue, justifying side. However, the economic climate has the cost of additional licensing bandwidth. changed, creating a buyer’s market. The supply of patents exceeds demand, but To litigate or not to litigate? patents with a demonstrable value are still Patents have no value if the holder is in short supply. To separate the 3% to 5% not willing to enforce its patent rights. of valuable patents from the rest, buyers Ultimately, the threat of a court decision ask sellers to provide evidence of a patent’s forcing an infringer to cease practising the value, with expectations rising in lockstep invention or acquire a licence engenders with price. value in a patent. Whether you decide to settle or to litigate, you should do so in the Licensing and litigation knowledge that your decision is supported Licensing promises the highest total by rigorous analysis not just of the present return on monetising an IP portfolio. The case, but of its implications for the entire calculation is simple: the rights holder can company. You will know just how much license the same asset (eg, the IP portfolio) you stand to gain or lose by holding firm or to a number of different licensees, which letting go. can generate higher revenues than selling the asset once to one purchaser. Licensing Privateering takes longer (between three and five years) As noted elsewhere, privateering is not a to generate revenue and comes with many new concept in the patent world (see Table risks (eg, litigation or invalidity arguments). 3). It has gained in popularity recently, with Selling can provide revenue now (between companies such as Ericsson, Microsoft six and 12 months), with less risk but much and Nokia engaging privateers to help to lower potential returns. optimise the monetisation of their patents. www.iam-magazine.com Intellectual Asset Management July/August 2013 89 Captured by catalogue

When evaluating your patent catalogue, company’s patent pool revenue and good you may well identify orphan portfolios for inventors’ egos, it is almost certainly and surplus patents. Orphan portfolios are bad for patent strategies. Patents that cover patents that are no longer required in support market-essential but non-standardised of business objectives. They may cover features or best-mode implementations are technologies for markets that the company much more valuable in today’s environment. has either exited or never entered. Spending They lose tremendous value and utility to scarce resources to monetise these patents strategic patent programmes when they are may not be the best use and a monetisation mistakenly declared to be essential. programme may expose the company to unwanted litigation risk. Mergers and acquisitions Surplus patents are found in technology Wall Street has become enamoured with areas where your company has been very intellectual property. M&A deal value was active in generating patents. When a up 10% in Q1 2013 compared to Q1 2012, critical mass of patents is exceeded, the even though the number of deals was company has more than enough to assert down 16% for the same period, according against any challenger or licensing partner. to Thomson Reuters Deals Intelligence. Excess patents add no additional value to Telecommunications, high-tech goods and a negotiation. Technology companies with consumer staples are all sectors driving tens of thousands of patents are often in growth and all major filers of patents. In this position. If you can identify enough many instances, patents and intellectual proud patents to cover the company’s needs, property have become drivers of deal value. then some portion of the surplus patents Google’s US$12.5 billion acquisition of can be considered for sale. Motorola Mobility is widely considered Privateering can be considered as a to have been driven by the search giant’s way of optimising monetary returns with strategic need for mobile handset and a deferred payment. Often, a privateering LTE patents. The 1,500 patents covering organisation will pay little or no money Lexmark’s inkjet printer business were upfront and will share a portion of the gross announced as a feature of its purchase by revenue as a delayed contingent payment for Funai Electric for US$100 million. The the patents. Risk is assumed by the privateer. knowledge derived from a patent catalogue The main disadvantage is that a company can be leveraged to help drive deals in must lose control of its patents and any similar, if usually less spectacular, ways decisions regarding licensing strategies. (see Table 4).

Patent pools Investing in portfolio knowledge Patent pools such as MPEGLA or LTE may Executives in innovation-driven industries offer a faster route to revenue and also are increasingly pressured to leverage the help to reduce administrative costs. They value of their intellectual property and are formed around industry standards their patent portfolios. In some cases, organisations and are intended as one-stop companies are looking to sell patent assets licensing shops for all patents essential quickly as a way to raise cash, streamline for practising a standard. Participation in their businesses and reduce maintenance a pool is important for business groups in fees. In other cases, companies are looking your organisation. Their future business at targeted patent acquisitions to accelerate is built around participating in standard licensing programmes, ease entry into new setting, and your company’s future product markets or support litigation. With the revenue stream may depend on their volume and value of deals rising, the risk negotiating a standard that incorporates of making a wrong decision has never been your company’s technology. higher. Investment in portfolio knowledge However, royalty streams are limited reduces this risk and enables a better by fair, reasonable and non-discriminatory evaluation of patent value. licensing commitments. The patents Developing a patent catalogue is not a essentially become encumbered and are of single event. Catalogues must be constantly limited use elsewhere. A key concern is to maintained and evolve to ensure that a valid consider what patents are really essential and complete picture of a company’s patent in standards. There has been an explosion assets is quickly available to decision makers. of self-declarations of standards-essential Knowing and understanding the patents. There are an estimated 400,000 practical value of your patent portfolio self-declared essential patents for the LTE will help you to make these difficult calls telecommunications standard. While this when they come, because you will know may perhaps be good for increasing your more precisely what your patents can

90 Intellectual Asset Management July/August 2013 www.iam-magazine.com Captured by catalogue

contribute to your company’s bottom line. Action plan A The companies with the most vigorous enforcement programmes have a better A practical definition of ‘patent portfolio strategies, from buying and selling to understanding of the value of their value’ is the degree to which it can support establishing a privateer. portfolio. Patent portfolio knowledge the corporate business strategy. One way to • Technical analysis ensures that a patent is essential, first to generate executive ensure that you maximise the value of your has value in the industry – enabling it to buy-in and to align the corporate will. It portfolio is to develop a patent catalogue: protect markets or leverage value from then becomes a crucial part of designing • A patent catalogue incorporates tools potential licensing partners. It can range effective patent strategies that optimise the that help IP practitioners to define and from standards-based literature reviews portfolio’s contribution to achieving your support a solid patent and licensing to full infringement analysis that helps company’s strategic objectives. strategy that is based on strategic to identify and map claim elements to business value. applicable products/devices. • A well-documented patent catalogue – • Developing a patent catalogue is not ranging from details of patent families a single event. It must be constantly to enforceability and use of invention maintained and evolve to ensure that by your own company/competition – a valid and complete picture of a helps to drive invention development, company’s patent assets is quickly licensing programmes and monetisation available to decision makers.

Terry Ludlow is the founder and CEO of Chipworks, Ottawa, Canada

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