There is no question that a portfolio of patents can provide tremendous value to a company. In fact, many will agree that trying to compete in a high technology industry without adequate patent protection is insane if not merely futile.
Whether you have a patent portfolio of 200 or 20,000, identifying which are providing the value can be a daunting task. The comparative value from one patent to the next is not always readily apparent. Certainly all patents are not created equally. There are a number of factors that can influence value, from licensing (think IBM) to litigation (multi-million dollar verdicts are commonplace in the news). These highly publicized benefits are unfortunately not very applicable to most patents in most portfolios.
From the perspective of many companies that design and make products, the salient value factors in a patent or portfolio of patents lie in the ability to protect products and technology, avoid litigation, and leverage cross-licensing opportunities. These factors are not as sexy as giant licensing revenues and damage awards because they are largely unseen. A company, maintaining high margins on a new (patent protected) product, will seldom directly credit the patent protection for keeping competitors at bay or forcing R&D dollars to be spent to design around.
Additionally, a portfolio of key patents may keep a competitor from asserting their own against you – a sort of patent based cold war phenomena. It is impossible to know when a competitor has decided not to assert a patent against you. These immeasurable factors are nonetheless important because they speak directly to value – costs saved, margins and revenue dollars protected.
Since these value factors are so hard to identify, one must change their analysis to distinguish key patents from the rest.
Start by reviewing the portfolio from a high level and pare down using a tiered approach. The fundamental idea is to associate patents with revenue streams to assign a value. Products can be easily organized into high level technology segments. Turn to the patent portfolio and assign each patent to one or more of these technology segments. You will likely find patents that fall outside of core technology – it is useful to identify that these patents are not protecting any current products. Once the patents are correlated with products by way of the technology segments, a high level value determination may be made based on the revenue streams associated with your products.
At this point is important to bear in mind the geographic nature of patents. Since a patent only protects an invention in a specific geographic region, a correlation between revenue by region and the jurisdiction of the patent is critical. If key sales for a particular technology occur in Japan, and your patents are only US, you are not protecting your technology, and the US patents are of far less value than a Japanese patent would have been.
The next step to this analysis is to consider competitor activity. Competitor sales by technology segment may be mapped out by region and correlated to patents as described above. The same should be done for competitor manufacturing sites. The ability to stop a competitor from making an infringing product can be of great value even in a region where there are no sales.
This analysis provides a direct business-aligned value perspective of a patent portfolio. Important groups of patents applicable to strategic regions of the world rise to the top while those of trivial relevance fall to the bottom, creating a value spectrum. The approach is somewhat simplistic, but the results will enable more informed decisions from a business or legal perspective.
About the author:
Thomas Marlow is Intellectual Property Counsel for Fairchild Semiconductor. In his current role, he and his team are responsible for managing worldwide IP strategy, enforcement, and procurement. A primary focus includes promoting and capitalizing on innovation within the company to generate a strong intellectual property portfolio around Fairchild’s technology focus areas. Marlow’s work also includes patent portfolio management, strategic and competitive landscape analysis, as well as patent and IP portfolio evaluation to assist prosecution and business development decisions.
Previously, Marlow was a private practice Patent Attorney in Minneapolis practicing in the electronic arts including semiconductors, integrated circuit design and fabrication, wireless communications, and computer networks. While there he worked with companies and inventors to write and prosecute patent applications, and develop patent and portfolio analysis programs.
He attended the University Of Notre Dame where he earned his Bachelor’s Degree in Electrical Engineering. He later received his Juris Doctor degree with a concentration in Intellectual Property from Franklin Pierce.
You are absolutely correct. This is indeed a first step in a large process (resources permitting). It is important to remember, however, that a trivial innovation in any product will prevent outright copying. By that same token, a trivial innovation that is difficult to design-around can protect more than just its increment.
I agree with your comments. It is unfortunately very difficult yo predict the current (or future) value of a "before its time" patent. Blocking patents are a little more identifiable by their relation to a base technology. Still not a simple analysis. You bring up a good point, however, in the link between valuation and inventor recognition. How do you recognize inventors who develop IP which is difficult to value, but nonetheless is providing (sometimes great) value to the company. I would like to find a good solution for that issue.
Many times, the "heavier stack" analysis does play a part in licensing negotiations, unfortunately. The long and short of it is that detailed patent valuation is an arduous (and imprecise) task.
By valuing your patents by their relation to competitor technology and revenue streams, you can bring an extra data point to the table. This data point can help counterweight an opposing numerical advantage.
Good question. Valuing or at least setting up a high level priority structure is useful to assist in making a number of IP related decisions. Patents cost money to maintain. Those with high value should be maintained, and those with low value should be further analyzed for potential abandonment and $ savings. High value patents related to my products may be reviewed for to determine if additional patents may be filed (continuations) based on the original disclosure, or brainstorming sessions may be setup with engineers to further develop and protect potential design-around ideas.
High value patents related to competitor products will be moved to the top of the list for potential infringement analysis.
These are just s few examples of uses for this simple value assessment.
As far as this analysis not being the only indicator of value, I completely agree. Think of this analysis as one (easy) indicator of positive value. We can agree that if a patent protects a large revenue stream, it likely has high value. I do not mean to suggest, however, that those patents that are not tied to a large revenue stream are of low value. Further analysis on other characteristics is necessary to make the high/low valuation on those patents.
Consider this an easy, step 1, analysis. We will probably agree that it is easier to calculate current revenue streams than future ones.
Assigning a patent to its most relevant revenue stream is a fine start, but you must also look at the patents themselves. For example, a company could have patents directed to an important product, from a revenue perspective, but the actual innovations covered may be trivial.
Important patents often reflect concepts developed "before their time". A patent may have no revenue flow in the early years until the world catches up and appreciates its importance. Also, blocking patents may prevent competitors from entering the space and yet not generate any "revenue" - even though they protect critical revenue streams. These issues can be important to inventors if their contributions to the success of the company are not fully appreciated until after the fact.
This is an interesting concept -- assigning value to your own company's patents based on tying them to your own company's revenues. That doesn't necessarily relate to any sort of intrinsic value, or what a licensee would pay -- but is perhaps a good way to determine how much you stand to lose if you get sued and some of the key claims in any of those patents get invalidated.
When it comes to cross licensing, is it not standard procedure for each company to just weigh their stack of patents, and the company that has the heavier stack receives money from the one with the lighter stack? :)
I am curious as to why the patent portfolio needs to be valued? If the company owns the IP already does it matter that some are more valuable than others. I guess I am missing the reasoning behind assigning value to particular patents. Anyway, I would also suggest that just because you are not earning a revenue stream from a patent does not detract from its "value". On the contrary it could be the most valued if it is in a future product. Just a few thoughts and questions. Thanks!
I don't disagree with your comments. By no means would I suggest that the techniques described in this article represent a complete patent portfolio valuation.
Really what I describe in this (brief) article is an exercise in finding value as much as it is an exercise in efficiency.
I suggest focusing on patents relating to established products with easily predicted revenue streams because the analysis is simplest, and if the products are creating $$s, it is hard to question the value of the corresponding patents. If nothing else, these patents need to be identified first.
Once that analysis is completed, and time and resources permit, the rest of the portfolio can be attacked from any number of angles (including the factors that you describe).
p.s. I have not seen a House-of-Quality approach applied to a patent analysis before, but it makes sense - I like the idea, and may have to give it a run on a future project.
This approach would seem to work for established products with easily predicted revenue streams, but how about new products where you don't know the revenue stream. Do you just go with the marketing estimate? This can be dangerous. On the other hand, a patent on a product outside the core may open up a large market.
I would suggest a broader muti-dimensional measure be developed to identify the potential (perhaps using a House-of-Quality like approach) for a patent over a wider range of criteria. It might be interesting to identify a first cut criteria list. Anyone have a suggested starting point? Would you include things like sunk cost? Numbers of recent patents in this or similar fields? Market size (from outside sources)? Rankings of importance from key customers?