The Importance of
a Patent Portfolio
No matter the size of your portfolio, there are several opportunities – and responsibilities – attached to each and every patent you hold. Different patents can play different roles in supporting your overall business strategy, possibly underpinning direct sales and licensing revenue simultaneously, depending on the business model of your company.
A strong, well-rounded patent portfolio is important
for six core reasons:
- To prevent or delay the introduction of competing products
- To build your brand and reputation as a “thought leader”
- To generate revenue via licensing
- To use as leverage against or to counteract your competitors
- To strengthen your position in business negotiations
- To add to your company’s overall value and desirability
Of course, there are costs connected to maintaining your collection of patents. If these costs didn’t exist, most companies would hold on to all of their patents indefinitely and counteract the public policy of advancing technology in the name of societal and economic progress.
If you’re not a giant corporation flush with cash, worry not. There are ways in which you can re-position your existing patent portfolio and as a result, better leverage your patents so that you’re getting the most value out of your intellectual assets instead of wasting resources on patents that aren’t producing meaningful results.
Know When to Let Go
A patent should always be tied to some sort of return or benefit your company is receiving. As stated by the United States Patent and Trademark Office (USPTO),
“patents should help you grow into a new business area or protect your own.”
Just like any other business asset, your patent portfolio should undergo routine audits in order to evaluate whether or not each of your patents is contributing some sort of value.
If the cost of maintaining a patent exceeds the revenue that patent is generating, you need to give serious consideration to dropping, selling or trying to license out that patent. Seems simple, right?
Unfortunately, because patents typically require a significant amount of time and money to actually acquire, it can be hard for many companies to make unemotional, rational decisions concerning what to keep and what to sell off or repurpose. The key? Don’t let your heart (or anyone else’s, for that matter) guide the evaluation process. Start by asking yourself,
“Why am I paying to maintain this patent in the first place?”
Other than revenue, patents can deliver strategic benefits, such as a strong contribution to your brand’s reputation or position in the marketplace. If your competitors are making moves, a robust patent portfolio can help you maintain a competitive advantage.
It can also be worthwhile to investigate if a patent can be licensed for use by another party, which can turn an underutilized or unnecessary patent into a new source of revenue. This route may make sense when it comes to older technology or technology you’re no longer pursuing but may be of interest to someone else. Consider business segments outside of your strategic focus or possibly even low-value competitors in your own segment.
If you’re working with a law firm, you’re probably not maximizing the value they could be providing if your firm is simply renewing your filings for technical compliance with minimum maintenance requirements. Ideally, your firm should help you accurately assess which of your patents are worthwhile using a business-oriented filter that is unbiased and detached from emotional connection you or someone else may hold.
Most companies keep patents for too long without exploring how their intellectual property could be better utilized. If there is not a strong business case for maintaining a particular patent, that patent should be:
- Dropped
- Sold
- Licensed
- Assigned to a company that can license it for you
Determining a Patent’s Value
There is no single way to calculate a patent’s value, which can be determined by a patent’s monetary worth or the value generated by its qualitative attributes.
Some people mistakenly value their patents at the cost of acquisition, but that would be like valuing Manhattan at $24 in beads. Other people try to determine a patent’s theoretical licensing potential, but that can be challenging to determine with any actual basis.
The real value of a patent rests in a complex assessment of the revenue associated with the patent and the competitive advantage the owner enjoys over others. In other words, what would happen to your company if you didn’t own the patent?
Much of the answer is related to the context surrounding a patent at the time of its evaluation, such as, is the company that holds the patent no longer in business, or is the patent currently being used to produce a product?
You’ll also want to recognize that the value of a patent depends on its audience. If an offer is from a strategic player that is currently active in the marketplace, it will mean much more than it would to a financial investor, whose only option would be to sell your patent to someone else.
Regardless, there are some basic factors to consider, including:
- Whether or not the patent has ever been challenged or opposed. If it has, is it still fully intact, or has it been compromised?
- The overall size and activity of the patent class at the USPTO
- The age and overall strength of the patent
Common methods for determining a patent’s
monetary value include:
The Income-based Approach
An attempt to calculate a patent’s value based on its future revenue potential adjusted for net present value
The Cost Approach
A look at what it would cost to create, develop, patent and produce a similar non-infringing product
The Market Approach
A review of recent transactions of what could be considered substantially comparable to your patent
(Watch the video: “How Do I Know if a Patent is Worth the Cost?”)
Adding to Your
Current Portfolio
Audits – a tactic mostly associated with the IRS – are actually quite valuable for any company concerned with both securing new patents and freeing themselves from the cost of maintaining patents no longer generating value.
A patent audit involves gathering all of your current design elements, products and processes for the purpose of:
- Identifying any un-patented material that would benefit from patent protection
- Evaluating your current portfolio of patents to determine:
- What patents are valuable enough to maintain or renew
- Actions that need to be taken regarding patents that are pending
- If there are any active patents that could be dropped, licensed or sold
Keep in mind, you won’t want to consider patent protection for every product or idea you discover.
When it comes to a healthy patent portfolio, quality is more important than quantity, especially if you’re a small-to-medium-size market business.
Otherwise, expending resources on patent acquisitions and renewals begins to outpace the overall value created by your portfolio.
It’s always good practice to keep tabs on the filings submitted by players in your market. It’s also important to pay attention when one of your competitors is facing patent litigation. Knowing what your competition is up to can help you identify new opportunities of your own while helping to avoid potential dead ends. Stay in the loop using relevant USPTO databases or through the use of a patent watch service provided by an IP services company.
In short, when deciding whether or not a product, process or design is patent-worthy, consider whether or not that patent would be of any real value to your business, either in the form of new products, licensing opportunities or advancing your position in the marketplace.
(Read more: The Essential Guide to Patent Filing)
Considering Acquisitions
Using patents to validate your market standing can be a good strategy, but it might not the most cost-effective way to achieve your objectives.
Acquiring patents from others is typically more affordable than building up a large patent portfolio yourself. If another company is struggling financially and looking to liquidate its remaining patents, you may be able to purchase those patents for significantly less than it would require to secure a similar patent on your own.
For example, a company that designs and markets GPS navigation products may acquire patents from a bankrupt travel startup to gain access to specific software algorithms rather than spinning up a development program using internal or contract resources.
Licensing
One way to leverage patents you no longer see as useful is to license them out for use by someone else. While you’ll want to spend time outlining the goals of your licensing strategy, a solid licensing agreement is one that is designed to benefit both you and your licensee.
To start, you’ll want to be careful not to disclose sensitive, confidential information to every party that appears interested in your intellectual property, as doing so could compromise your ability to forge a licensing agreement with the eventual licensee.
When searching for those who may be interested in a licensing agreement related to your IP, you’ll want to have already created a clear definition of what exactly you are seeking to license. This can help you establish boundaries within a licensing agreement, which helps keep you and your licensee on the same page throughout your relationship.
From there, examine the marketplace for those who could benefit from what you have to offer and attempt to identify a handful of initial candidates to approach.
What to Consider
While most licensing agreements involve both quantitative and qualitative benefits, the monetary compensation you stand to receive is usually the focal point of any deal. When crafting any license agreement, be sure to consider the following components:
A licensing fee
An upfront – and possibly recurring – fixed payment for providing a licensee with your patent
Royalties
An ongoing payment from a licensee, which is usually dependent on a percentage of sales tied to your patent
Yearly maintenance costs
While you are still responsible for maintaining your patents, the costs associated with renewal can be passed on to your licensees if those terms are contained in your licensing agreement
Milestones
Depending on the type of licensing agreement, you can include terms that require you receive compensation when a licensee reaches certain sales-related milestones using your patent
Licensing Agreements – Exclusive vs. Non-Exclusive
Whether or not a licensing agreement should be exclusive depends on a variety of factors, including:
Your product or service
If your patent covers a product, process or technology that is unique to you and cannot be easily replicated by anyone else, it holds more value and would require a higher investment from a licensee for the agreement to be exclusive. Otherwise, you could be losing out on revenue associated with licensing your patent to multiple parties.
Product distribution
If a licensee will be responsible for marketing and/or distributing your patented product or technology, an exclusive licensing agreement almost always makes sense. Having more than one licensee performing these tasks simultaneously can create a myriad of issues that can affect your brand and overall marketplace presence.
Support Responsibilities
Fulfilling tasks associated with end-user support and parts availability grows increasingly difficult as more parties become licensees of a single patent. Therefore, limiting the number of licensing agreements you have in place at any given time can help you maintain a strong reputation among your customers and distributors.
The most important thing to keep in mind is not to run out looking to license your patents without doing your homework.
Know your potential licensee and know the current state of your market. This can help you determine if you should license now or wait until a better opportunity presents itself.
If you anticipate the market for your patented technology growing significantly in the next five years, it may be wise to wait. And always, consider your goals now and your goals for the future, as what makes sense today could create challenges tomorrow.
Staying Organized
Build a Core Document Library
- Confidentiality and non-disclosure agreements
- Employee agreements with clauses such as duty to assign and non-compete clauses
- Invention disclosure forms
- IP portfolio management spreadsheets
- New product introduction plans
Having all of these things in line is especially valuable during transitions involving restructuring, forming a joint venture, or other corporate transactions.
Select a Docketing Program
An effective docketing program – whether internal or cloud-based – can make maintaining and evaluating your entire patent portfolio much easier and more efficient, and your risk of missing renewal deadlines or losing track of pending patent applications is virtually eliminated.
If you don’t have the time or resources to establish and monitor a docketing program, the implementation and management of such a system can be the responsibility of your law firm.
Trade Secrets and
Pending Patents
Keeping the trade secrets associated with a pending patent under wraps is big when it’s uncertain whether you’ll actually receive that patent. Here are some tips to prevent this from happening:
- Employees, contractors and outside observers should all sign non-disclosure agreements before viewing or beginning work on patent-pending materials
- Mark sensitive materials with “confidential,” “proprietary” or “trade secret”
- Utilize password protection wherever possible
- Keep track of who accesses what information and when
- Lock file cabinets & desk drawers
- Restrict internal access to information to a “need-to-know” basis
- Escort all visitors and restrict the use of cameras or cell phones
- Keep specific processes shielded behind locked doors
- Require the return of information at the conclusion of a project or during the exit interview
- Require approval of any external disclosure and make sure a non-disclosure agreement is always utilized
- Keep your patent applications unpublished
- Re-educate your employees on your trade secret policy as needed
“Should I be working with an ‘all-purpose’ business firm or a boutique firm focused exclusively on IP?”
While a firm that specializes in IP matters may possess a deeper level of technical knowledge, there are advantages to partnering with a full-service business law firm:
- When your business and IP counsel are separate, you risk constructing a patent portfolio that is out of alignment with your overall business goals.
While an IP-only firm may be your best option for an esoteric patent application, the industrial applicability articulated in the patent may not have anything to do with your overarching growth strategy.
- An integrated firm is much more likely to craft patent applications that are consistent with your company’s overall goals by viewing your portfolio as business asset in the context of a business strategy. This mindset requires that all existing and potential patents are backed by a strong business case.
- If you decide to keep your business and IP counsel with separate entities, you’ll want to make certain they are aligned in a way that delivers you with a focused, consistent approach – not multiple isolated strategies.
Start with Your Team
Employment Agreements
Being on the same page with your employees regarding who owns the intellectual property created on the job is key to protecting your IP portfolio. If your employees create or interact with intellectual property on a regular basis, you’ll want to educate them on their inventive rights at the start of employment; including an IP assignment clause within each of your employment agreements or a separate invention agreement is perhaps the easiest and most common way of doing so.
When drafting or reviewing an IP assignment clause, consider the following:
- You should clearly state an employee’s specific responsibilities, as this can impact whether or not IP created by that employee fits within their scope of duties
- Ownership rights regarding materials created by an employee should be detailed and clear
- Be sure to include the ways in which your employees will disclose inventions created during the course of employment, as this can be critical to filing timely patent applications
- An IP clause should include specifics regarding an employee’s IP rights post-employment
Failure to address inventive rights within your employment agreements can lead to the loss of your ability to file for protection or added complexity and cost to pursue IP an employee develops.
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