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Patent Monetization: Leveraging Technology For A Greater ROI


A patent is a form of intellectual property that allows its owner the right to exclude others from making, using, selling, and importing an invention for a limited period of time, usually 20 years.

Traditionally business houses across the world invested huge funds to generate intellectual property by R&D activities. The major motivation for these intellectual property rights was to leverage the first mover advantage and to keep the competition at bay. However, with changing business landscape these incentives may no longer be sufficient to justify the R&D cost. Companies, across the world, have started considering their R&D centres as profit centres rather than cost centre. In light of this, society coupled with the financial industry empowered with the evolving legal regime and the IPR regime, has come up with various IP monetization mechanisms, which help IP owners augment their revenues and thereby recover their R&D investment.

For example, Texas instruments is believed to be the first company to monetize in the 1990s its portfolio of patents (more than 38,000 in total), when the company was losing its market share to its competitors.

After Texas instruments, it was IBM to use the same technique in the 1990s to monetize its own patents to make more than 1 billion dollars annually in revenue.

Microsoft uses its patents to make deals with the major android vendors, which amount to more than 70% of android’s market share.

The parameters required to evaluate the quality of a patent are as follows:

[1]. Legal strength:

The legal strength of the patent depends on its degree of novelty. A well-structured patent with short but clearly expressed claims makes it easier to win lawsuits, or challenge third party patents during cases of infringement.

[2]. Technology strength:

Once you have analyzed the market for the patented technology, you can easily rank where your patent stands among competitors.

[3]. Commercial value:

There are statistical models available to help calculate the projected size and economic value of the market that is protected by the patent. It will help you determine the product’s potential market share.

The economic right embodied in a patent is granted in 35 U.S.C. § 154—namely, “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.”

A patent holder has full right to generate some revenue from his asset by either discovering the damages, or licensing the available products. It is not possible for a Patent holder to complete all the steps required for patent monetization alone. A certified lawyer or a technical expert is required for the process to run its course smoothly.

As profound a process patent monetization is, it is evident that it will require a considerable amount of patience and monetary investment.

Direct Sell: Direct selling requires the patent holder to directly reach out to potential buyers without the involvement of patent brokers. Once the patent is sold, all the patent rights will get transferred to the new patent holder.

Broker: A broker is a middleman who markets the invention by bridging the gap between the buyer and the seller. Brokers use a patent brokerage business model. This model requires them to make cold calls, represent portfolios, keep a tracker for potential buyers and licensees, and contact them, popularly via emails and telephone.

Licensing

A license is an agreement between two parties that allows the patent owner to transfer interest in a patent to a licensee, who can benefit from and enforce the intellectual property rights. The licensor gives up the right to the intellectual property, usually for a certain period. During this time, the licensee can make or sell the invention or design.

Therefore, while a patent is a right, a license is a permission from the right’s owner.

Types of Licensing in Patent monetization:

· Soft licensing: Soft licensing refers to an agreement signed between a patent owner and a licensee which allows the patent owner to transfer interest in a patent to the licensee for a limited period of time, which he can use to attain profits for the given period.

· Exclusive license: The license holder has the right to exclude all others (even the previous license holder of the patent) from practising the method or patented functionality commercially. The license holder has the right to sue for infringement and the right to license. So basically the new licence holder gains exclusivity over all the rights.

· Non-Exclusive License: License holder has the right to grant as many licenses to multiple licensees.

· Carrot license: Carrot license is mostly used in marketing and sales and requires a friendly approach to convince the target into buying the licence.

· Stick license: A stick patent licensing approach is used when the prospective licensee is already using your patent technology, but illegally. The intention here is to notify the infringer to stop using the technology, non-compliance to which, a lawsuit may follow.

Litigation

Litigation is a method to settle the controversy between two parties i.e. Plaintiff and defendant, when brought before a court. The parties generally would try to settle the dispute in-house, without having to take the matter to the court. Litigation includes any number of activities before, during, and after a lawsuit to enforce a legal right. In addition to the actual lawsuit, pre-suit negotiations, arbitrations, facilitations and appeals may also be part of the litigation process.

Litigating a patent portfolio

· Get the advice from lawyers and technical experts.

· Send the notice to the infringer or the company that manufactures or offers the product for sale.

· If the infringer agrees to take the license then negotiate the damages, otherwise, file a case against the infringer. The infringer can also file a complaint for declaratory judgement against the plaintiff.

· Trials occur in court with both technical and factual knowledge of patents and infringement.

· If the jury doesn’t decide the award for damages, the court will. The court can bring in experts to help decide on the damages. There are two ways for the court to decide how much infringer owes in damages

1. Reasonable royalty is the lowest award a plaintiff can get. If plaintiffs can’t prove lost profits, they try for reasonable royalty.

2. Lost profits damages are the preferred option because they usually offer a larger reward than reasonable royalty. To win lost profits, the plaintiff has to prove he lost money because of patent infringement.

How are Patent infringement damages estimated?

If the jury is not able to decide award for the damages for the infringement, the court can bring in experts to do it. There are two basic ways the court can decide the award are Reasonable royalty and lost profits.

Reasonable royalty

Courts will usually use the 15 Georgia-Pacific factors to decide a reasonable royalty:

1. Royalties patentee receives for licensing the patent in suit.

2. Rates licensee pays for use of other comparable to the patent in suit.

3. Nature and scope of license in terms of exclusivity and territory/customer restrictions.

4. Licensor’s established policy and marketing program to maintain patent monopoly by not licensing others to use the invention.

5. Commercial relationship between licensor and prospected licensee, such as whether they are competitors or inventor and promoter.

6. Effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales.

7. Duration of patent and term of license.

8. Established profitability of the products made under the patent, its commercial success and its current popularity.

9. Utility and advantages of patent property over old modes and devices.

10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefit of those who have used the invention.

11. The extent to which the infringer has made use of the invention and the value of such use.

12. The portion of profit or selling price customarily allowed for the use of the invention.

13. The portion of realizable profit attributable to the invention as distinguished from non- patented elements, significant features / improvements added by the infringer, the manufacturing process or business risks.

14. Opinion testimony of qualified experts.

15. The amount the plaintiff and defendant might have agreed upon before the infringement

Lost profits

Lost profits are the amount of money the patent owner lost due to infringement. It is an obligation for the patent owner to prove that it was the infringement that caused the damages, otherwise he is only entitled to reasonable royalty damages.

1. Lost sales: This is the most common type of lost profit damages. It shows that the plaintiff didn’t make as much money because of patent infringement.

2. Future lost profits: These losses, sometimes also called projected lost profits, are those that the plaintiff thinks will happen because of the infringement. Since future lost profits are usually a guess, they’re very hard to prove.

3. Unpatented items: Plaintiffs can seek lost profits damages on unpatented items if the product has multiple functions, yet the patent only covers one feature.

4. Damage to reputation: If the plaintiff can prove that the defendant’s product is of low quality and thus causes harm to the plaintiff’s product, he can seek damages.

Common Mistakes during patent monetization:

● Not evaluating your intellectual property accurately:

Before you think of monetizing your patent, it is important to understand how the market directly affects the worth of your patent, and the related industries. How the underlying technology of your patent could be of value to goods and services in the market is something you need to work on extensively. You need to figure out whether the claimed features of your patent could actually generate revenue, or is it just a minor function that can be easily designed and would not create much of an impact. Next you need to understand whether or not your patent qualifies for a transformative invention or if it’s just an incremental one. You would also want to examine the state of the art at the time of invention to determine where your patent stands among contemporary patents.

● Not having the right patent monetization strategy:

Once you’re done with the patent valuation part, the next step requires you to extract value from your patent and generate revenue. There are mainly three aspects to patent monetization

Patent licensing - Patent licensing includes a revocable agreement between a patent owner and a licensee. The patent owner transfers interest in a patent to a licensee, who may benefit from, and enforce the intellectual property rights.

Patent litigation - Patent litigation is the legal process that takes place when someone who owns a patent, enforces his right by suing another for selling or manufacturing the invention without permission.

Patent acquisitions - Companies are always looking to expand, and get ahead of their competitors in the industry. A clever approach to do this would be to acquire strategic patents ahead of time, before they could threaten a new product launch, or could prove to be a bargaining chip against a competitor during litigation.

These options are actually far more intricate and abstruse than they seem. There is always a possibility of license negotiations breaking down, or multiyear lawsuits ending in settlement of non-exclusive license and a hefty royalty.

● Incomplete analysis of the market and industry:

Market based analysis takes into consideration similar market transactions of comparable patents. This process also takes into consideration the utility and technological specs, along with the market value of the patent. It’s also important to keep a lookout for various other industries where your patented technology may be in use, but with a little crossover.

● Not choosing the right targets for patent monetization:

Identifying the right companies for patent monetization can be complex and time consuming. Some Patent monetization strategies start with citation analysis to discover what companies own patents and patent applications that cite your patent. This may not always be the best approach to meet your specific monetization needs. Reliance on citation may be misleading because the citations refer to a patent’s specification and not necessarily the claimed subject matter. Unfortunately there is no such formula to produce target lists without human intervention. An in depth understanding of the subject matter claimed in your patent is important in order to choose the right targets to approach for patent licensing or filing potential lawsuits.

● Not having an experienced IP consulting firm to assort all this together:

Patent monetization is a complex domain to explore on your own. You need to be an expert in the areas concerning your patented technology, and also be proficient enough to handle the legal implications that come with it. Most times, it’s not possible for a single person to get through this tangled world of patent codes, laws, and worldwide data bases. You need an experienced firm at your disposal to help you glide through the process.

Conducting a successful patent monetization process requires proper knowledge and experience in the area of intellectual property. To move forward in a strategic and meaningful way, you require a framework that consists of detailed information about the companies and patents being offered on the market. Making critical mistakes in patent monetization could end up costing your business a lot of time and money.

References

[1]. https://www.mclegal.co.uk/exclusive-sole-licenses-what-are-the-differences/

[2]. https://unitedkingdom.taylorwessing.com/synapse/commerical_exclusive_nonexclusive.html

[3]. http://inventors.generalpatent.com/inventor-resources/patent-licensing

[4]. https://ip.com/blog/assessing-quality-patents-3-key-metrics/

[5]. https://law.freeadvice.com/litigation/litigation/litigation.htm

[6]. https://www.techpats.com/5-patent-monetization-mistakes-that-could-cost-you-a-fortune/

[7]. https://sunsteinlaw.com/media/Georgia-Pacific.pdf

[8]. https://www.upcounsel.com/patent-infringement-damages

https://en.wikipedia.org/wiki/Patent_monetization

#patents #licensing #litigation #monetization

Copperpod is one of the world's leading technology research and forensics firms, with an acute focus on management and monetization of intellectual property assets. With offices in US and Asia, our global team of consultants has helped clients realize over $1 billion in revenues from patent licensing, jury verdicts and patent portfolio transactions.

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