Road to Patent Acquisition & Portfolio Enhancement

In this writeup, I tried to discuss the real issues and process of patent led technology acquisitions in various industry verticals. How/Why patent led technology acquisition takes place and what are the factors that are crucial in this process. It is based on my observations, learnings and experience in this field. This discussion is more focused towards Intellectual property aspect of a technology and how patented technology and portfolio is managed.

Introduction:

Management always confronts new challenges. Technology and Patent asset creation and exploitation are key to success to any company operating in any area of technology. Economic historians have emphasized the role of technology and organization in economic development.

Intellectual property is an aspect of property rights which augments the importance of know-how assets. Intellectual property is not just important in the new industries such as microelectronics and biotechnology. It is of importance to more mature & tangible asset based industries such as  petroleum and steel.

Patents are increasingly becoming as commodity which are used, valued,  and exploited as tangible assets. New business models pertaining to IP has changed the way a global company plan its business and technology strategy. Increase threats of Non practicing entities, law suits & increased pressure of acquiring new technology in short time have hugely impacted the company’s technology strategy.

Identification of Need of Patents/technology:

It is obvious that technology is needed to increase operational efficiency, or competitive advantage. 

However, a new kind of model in IP world is changing the the ways how companies look at intangible assets. There have been increased threats by Non - practicing entities (NPEs) which includes small businesses, universities and independent inventors holding patents but do not engage in product sales,  known as patent speculators or “ trolls”.

With this radical shift in IP arena, it has been concluded that building a strong offensive patent position ensures that executive and operational staffs are not disrupted by the tedious intricacies of patent litigation. The portfolio should enable personnel to give their full attention to building valuable products.

In certain cases, If a company wants to use patents primarily to prevent others from marketing competing products or even researching alternatives to current products, they employ a “ blocking ” strategy.

Hence as the first step, following analysis is required for assessing need for patents or technology:

1. Acquire Patents/Technology for increasing operational efficiency

2. Acquire Patents/Technology for new competitive product

3. Acquire Patents/Technology for defensive purposes

4. Acquire Patents/Technology for offensive purposes

5. Acquire Patents/Technology for strategic purposes

In this step it is essential to evaluate current technology and patent portfolio of the company and match the objective with the overall business and technology strategy.

Example: A telecom company wants to acquire quality IP assets in “Cloud computing” area. They look forward to enter in this area as well as wanted to acquire assets for defensive purposes.

Patent/ Technology search:

After assessment of the requirement, variety of sources can be referred for acquisition of patents.

1. Patent Literature

2. Identified Inventors

3. Non core asset of other a company working in other domains

4. Patent Brokers

5. Patent Auctions

6. Online Patent Market (a new system started by Ocean Tomo, similar to stock market)

7. Conferences

Example: The said company has many options for technology search and can use any or multiple, as mentioned above

Technology evaluations: This is one of the most important step in patent and technology management. As in the given example, the company looking to buy patents must ensure the following:

1. Ownership of the patents

2. Global Coverage

3. Validity of the patents

4. Claim strength

5. Dependence on other technology

6. Overall package of the patented technology (what is protected system, method, or use)

7.Overall fit in the portfolio, and pursued technology strategy

8. Licensing executives

Price Fixation and Negotiations:

This is probably the most difficult part of patent acquisition. Valuing a technology or patent is the most crucial step. Till date, there are no established and universally accepted models for valuing IP assets.

A lot is dependent on from whom the company is buying the technology. Inventors usually over expect the value of the patent. A broker might inflate price to earn deep profit. The company has to carefully evaluate and fix the price. Some valuation approach can be used for this purpose.

1. Market based 2. Cost based 3. Income based

One of the somewhat accepted methods of royalty assessment is 25% rule. According to this rule 25% of operating margin is given back to the inventor.

At this company also need to decide whether it wants to purchase the technology as outright sale, licensing it, or lease it.

On the negotiation table, company need to put its tradable and must ensure that clear right is provided to the company. Price, exclusivity, incremental inventions & training are some key issues while negotiating the deal.

In the example, the company may just want to license the technology due to its high cost.

Technology Contract :

After rounds of negotiations, a definitive contract is drafted that incorporate the terms and conditions for final deal. It is very important for the company to consider following points while drafting final agreement:

1. Coverage of patents

2. Territory in which patents are assigned/licensed

3. Exclusivity

4. Language

5. Terms of Payments

6. Confidentiality

7. Ownership of improvements

In this case of Cloud computing, in case company decides to license the patents. It must ensure the above mentioned points in the contract.

Absorption, performance evaluation:

Generally companies operating in highly dynamic technology area such as computing, communication. Technology is absorbed and launched in the market very fast. In most of the cases, alternatives are ready even before the launch of the basic products.

The absorption of the technology is ensured by the companies by some time bundling technical support from the seller. The performance evaluation is generally done by $ earned by deployment of the technology or number of patents acquired/total revenues.

Conclusion:

The patent monetization as an area is still in juvenile phase. Developed economies such as the US has witnessed a sea change in the way patents and technology are exploited in the industry. At many occasions, a patent related dispute almost finished the flourishing company. Hence, companies are proactively seeking to acquire new assets.

It is recommended that companies must investigate its own portfolio while deciding the need of a technology. In couple of occasions, a exchange of technology proved to economical and mutually beneficial.

In high tech areas, a new concept of patent pool is emerging where companies pool their assets and cross license to save time and effort. In the above example, apart from buying assets, company could also seek participation in patent pools.(Some successful patent pools are MPEG-LA which license key patents related to MPEG-2/4)