Four Stages To Monetizing A Patent Portfolio 28/09/2017 by Intellectual Property Watch Leave a Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) The views expressed in this article are solely those of the authors and are not associated with Intellectual Property Watch. IP-Watch expressly disclaims and refuses any responsibility or liability for the content, style or form of any posts made to this forum, which remain solely the responsibility of their authors. By Martin Bijman, Director, Intellectual Property Products , TechInsights Successfully pursuing the monetization of IP assets requires an accurate assessment of their value and position within the marketplace. Essentially, monetizing a patent portfolio includes four key steps: Developing an accurate assessment of the current value of the portfolio Understanding the trends within the portfolio based on accurate analytical models Making well-informed decisions to enforce, buy/sell, or abandon your patents Making adequate preparations for negotiation Developing an accurate assessment of the current value of the portfolio What is portfolio value? Portfolio value is the benefit to your business when your portfolio is used to support your business objectives. Two dimensions that dominate a representation of portfolio value are: The negotiating potential of the patents themselves, which is comprised of two factors: Quality Provable use The economic impact that the patents have when they are used Ultimately, evidence of use is key in patent valuation. Some of your patents will have evidence of use established; these will be your more important patents, and they will define your monetization plans. Patents with potential value are those that have evidence of use, but that have not yet been proven or helped you to achieve your organizational goal. Value is realized when you use a patent successfully to achieve your goal. What assets do you have? Conducting an initial inspection of your assets will assist you in planning your IP strategy. Figure 1: Portfolio landscape of a semiconductor company Figure 1 shows the portfolio of a modest semiconductor company with about a thousand assets. The map on the left shows the entire portfolio. The clustering provides a high level overview of the areas of coverage of the assets. For example, on the right are patents that relate to semiconductor manufacturing, at the top are patents related to integrated circuits, and on the left are patents related to sensors. Landscaping software was used to generate this view; alternatively, you can separate patents into bins, which is usually done manually by market or by technology. Either method can be applied to produce a high-level overview of your assets. Three value components Three key value components should be considered when evaluating your monetization strategy: Patent quality Provable use Economic impact Patent Quality Patent quality is defined legally and technically; legally in terms of its validity and utility, and technically in terms of novelty, anticipation, and prior art. A number of factors contribute to patent quality: How well it has been written by the prosecution team What prior art exists, and whether it will be anticipated The quality of language within the patent The interpretation of the analyst The last two points can be combined into one: “words analysts like.” Some terms are an instant tip-off to an analyst that a patent isn’t as strong, or isn’t as well-written: Imprecise language, ex. terms like “coupled” instead of “connected” Divided infringement, if a claim clearly includes multiple actors Claim contains coefficients, values or equations Using the exact chemical composition of a material instead of using its proper name Patent quality is subjective, and it changes over time. It should be re-evaluated in preparation for any monetization activity. Provable Use If there is no provable use in a patent or in a portfolio, it effectively cannot be monetized (other than as a cost-savings measure). So, for starters, evidence of use and its detectability must be present in order to include a patent in an action. Workaround must also be considered – if you can implement a feature without infringing upon a patent, the value of the patent decreases significantly. A patent rating system can assist in classifying patents as candidates for various monetization activities. A score can be assigned to individual patents based on the combination of its associated evidence of use, and the detectability of that evidence, as illustrated in the table below. Detectability Easy Able Difficult Use Known A A B Likely A B C Possible B C D Unlikely C D D A – ready to use B – second priority; these could be relevant depending on the action at hand, or they could be ideal candidates for strengthening C – these might be good patents, and well-written, but not aligned with the strategic goals of your business D – these are patents you might consider culling or abandoning Figure 2 illustrates a comparison of the portfolios of three different organizations where all patents have been graded A through D. Figure 2: Comparing portfolios of rated patents It is common for an organization to hold very few A-rated patents; only 2 to 5% of patents will fall within this category. The balance of patents graded B through D are more dependent on the portfolio management approach. Economic Impact Economic impact determines the value of the use, and can be defined by answering the following questions: How important is this one innovation when compared to all the innovations in the products? Did it invent something that’s brand new, or is it an improvement? What is the decrease in value of the product to buyers if the enabled feature is removed? Another approach is Relief from Royalty, which applies a discounted cash flow (DCF) model to the addressable market, based on the litigation value of the patents. This approach takes several factors into account: Addressable markets Past damages Geographic coverage Apportionment Unlicensed market Remaining life Royalty rate Expenses Taxes The DCF model aims to answer the question: what would you pay for a patent if you planned to use it for litigation? How to measure current value With the value components defined, you need to determine the current value of individual patents. The best way is to put eyes on patents. You need subject matter experts knowledgeable in the goals, strategies, and plans of the business as well as in the technology the patents describe – to read the patents from both a legal and a technical perspective. Some other activities that can contribute to measuring the current value of your assets: If you have not done one for a while, a full portfolio assessment is advisable Some organizations will read patents as they are granted to stay on top of their asset portfolio Others assign multiple portfolio managers who are tasked with ongoing analysis of the patents Some organizations rely on their inventors to provide feedback, and, while this can be a valid and efficient approach, inventors are typically quite proud of their inventions, and will tend to describe them as being more used and important than they are Analytical tools can be used to provide a high-level overview of the state of the portfolio assets Understanding the trends within the portfolio based on accurate analytical models Analysis here is more about measuring the overall appeal of your portfolio based on the strength of your offerings in a monetization action. Three components contribute to this evaluation: Analytical tools Analytic evaluation of negotiation potential Analytic evaluation of economic impact Analytical tools There are several analytical tools for patents and patent portfolios that can provide guidance into valuation. If you are selecting a tool by which to evaluate patents, you need to make sure that it can account for all your defined parameters, and that the data that it provides actually represents real world use cases. You must understand the use cases you’re evaluating against, and how the data fits with them. Goal of analytics Description Portfolio ranking Better than counting # patents Portfolio landscape Clusters of technologies, application areas Market assessment Overlap all companies in a technology Competitive assessment Overlap all competitors in a market Acquisition analysis Overlap of buyer and acquisition portfolio EoU candidates Prioritize which patents to read first Harvest taxonomy Extract a taxonomy from the patents themselves Model a taxonomy Automate the taxonomy using classifiers Crowded space white space Identify high and low density of patents Document analysis Analyze patents and other documents together Analytic evaluation of negotiation potential Evaluating negotiation potential is a combination of objective and subjective factors; you can use analytical tools for this evaluation as long as you are applying those tools specifically to the opportunity at hand. Some pointers that will help include: Don’t analyze all patents together. Some patents are written differently than others because of their related technology; patents relating to semiconductor processes, integrated circuits schematics, systems operation, and software are typically written differently and may require a different analytical model. Ensure the words in the claims are supported in the disclosure. If they are not, the patent value is reduced. Measure validity based on different word structures in the claim. Instead of measuring word count, you may want to examine how many unique words a claim includes, or how many unique concepts or action words are included in a claim. Measure claim coverage. A broader scope within a claim, or a claim that is covered globally increases its value. Get an accurate picture of provable use. Analytical tools can only help so much, and in order to determine the provable use of a claim it should be reviewed by a subject matter expert. Analytic evaluation of economic impact In evaluating economic impact, we are really looking for foundational patents; patents that enable new technologies and applications, rather than patents that refine these technologies. Each technology may have a small percentage of foundational patents (<1%), some key elements patents (~10%), and many refinement patents (~90%). A popular patent attribute to reflect this is forward references, on the assumption that patents with more forward references tend to be older and can be considered foundational. Alternatively, landscaping tools can help identify foundational patents in bulk, comparing attributes of a large cluster of patents that together enable a technology. Figure 3: Landscaping tools help identify foundational patentsFigure 3 shows the patent portfolios of several companies mapped to identify technology clusters. The older patents in each cluster would typically be foundational patents, and would generally have a higher economic impact. Make well-informed decisions about enforcing, buying or selling, and abandoning your patents Decisions to enforce Typically, the upper management of a company provides direction on how the patent portfolio should be used. This direction, combined with the question: “how would enforcement support our business?” outlines your enforcement strategy. There are several ways enforcement can support your business: It can give you greater freedom to operate – analyze: potential sources of threat, and prepare to assert or defend against them It can allow you to protect your market – you can establish a market rate for your products with your first target, and then apply that rate to targets moving forward It can guide efforts to structure for minimum exposure and tax planning – it can inform the creation of IP holding companies, with consideration of OECD BEPs (base erosion and profit sharing) Decision to buy and sell Deciding to buy or sell can be informed by several different factors. For example, in areas of crowded space, meaning where you have an oversupply of assets in one area, there may be the opportunity to sell. In areas of white space, where you haven’t got enough inventions in one area, there may be the opportunity to augment your portfolio with a purchase. It will be helpful to define the criteria by which your organization will determine whether to buy or sell. Example criteria include: Areas of over-patented art Patents that are expensive to detect The innovation is worthwhile, but the addressable market is small Patents that are nearly expired Patents in areas of legal uncertainty Patents outside of the core areas of business that are unlikely to be used in counter-assertion efforts Decisions to abandon The criteria to determine which patents to abandon are simpler to identify and assess: The claim is undetectable The innovation was not accepted by the market, and is not expected to be Maintenance fees are imminent and the evidence of use is difficult to detect There are quality issues – poor claim construction, unsupported words, claim limitations, or the claim is too narrow Significant cost savings can be realized by abandoning patents that meet the above criteria. Review the patents and perform due diligence by having a subject matter expert evaluate them, because you’ll leave these patents behind if you decide to abandon them. Make adequate preparations for negotiation Preparation for negotiation The steps you take to prepare will need to be adjusted to suit the specific negotiation at hand. Generally, you will need to compile similar types of information whether you are preparing to assert, defend, buy, or sell: If the negotiation will involve asserting your patent rights: First, know your opponent. Otherwise, you may find yourself in a position where you go to assert, and get hit hard by your opponent in response. Identify the major sources of revenue for the potential licensee or defendant in terms of the products generating this revenue and geographic distribution of the sales or manufacturing of these products. Select exemplary products that represent a large proportion of each revenue segment, and that are representative of the features of many of the products in the segment. Determine which of your patents have the potential to develop evidence of use regarding the exemplary products. Gather information to understand the technology platforms in these exemplary products such as product literature, regulatory filings, or existing reverse engineering material. Sort your portfolio by technology, use analytics regarding existing evidence to prioritize your patents, and have subject matter experts identify candidate pairs of your patents and target exemplary products This is followed by a set of investigations to find evidence of use, include further reverse engineering. The number of evidence of use documents you might prepare depends on your negotiating strategy and the target. Ultimately, to maximize license, you will need to show infringement of innovations in as many of the target revenue segments as possible. Scale the amount of material needed for such a negotiation based on the potential for your patents may be weakened by prior art or IPR filings and the anticipated leverage the defendant may have in a counter assertion. Summary Monetizing a patent portfolio requires a deeper understanding of your assets than how much you think they’re worth; you need to consider their value to your organization now and in the future, their value in the current marketplace, and their value as it relates to the specific opportunity at hand. Analytical tools and subject matter experts can help you determine portfolio valuation, and the data these sources provide will inform your overall monetization approach for each opportunity. About the Author Martin Bijman is Director, Intellectual Property Products at TechInsights where he is responsible for ensuring customers find and receive the highest value products and services to help achieve their intellectual property goals. TechInsights patent and technology analysts reveal the innovation others can’t inside advanced technology products, proving patent value and enabling business and technology leaders to make fact-based IP and technology investment decisions. Image Credits: Techinsights Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window) Related "Four Stages To Monetizing A Patent Portfolio" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.