developing, managing, and monetizing a patent portfolio€¦ · developing, managing, and...

Developing Managing and Monetizing a Patent Portfolio

Penny Prater1 and James Kelley Speakers

2

John Thuermer3 Jacob Woolbright

4 and Gregory Grissett

5 Authors

I Introduction

Billion-dollar patent sales by companies like AOL and Motorola have generated renewed

interest in robust patent portfolios6 Although companies remain cautious of increasing expenses

while navigating the post-recession economy the increased interest in building robust portfolios

has spurred many companies to implement or revise portfolio management strategies Building a

valuable patent portfolio takes a company-wide effort but taking the time to do so can help the

company plan new products avoid costly litigation and generate income

Generally patent managers are responsible for building and maintaining a competitive

patent portfolio that secures the companyrsquos freedom to operate provides lucrative licensing

opportunities enhances the value proposition of its assets and protects the companyrsquos most

important technologies In lean economic times these patent managers must accomplish all of

these tasks while meeting aggressive budget constraints By committing to a well-thought out

and complete portfolio management plan these patent managers may quickly and efficiently

manage patent portfolios and reallocate precious funds for other important business goals

While each company should tailor its portfolio management strategy to meet its needs

the following discussion outlines various best practices that may aid any patent manager

II Understanding the Purpose for the Companyrsquos Patent Portfolio

Patents can have many purposes both offensive and defensive From a defensive

perspective a company may choose to assert its patents only when sued to fend off a lawsuit in

its early stages Likewise some companies may choose to create a defensive mass of patents to

deter patent owners from filing suit against the company in the first place The recent patent

wars in the mobile space are good examples of how patents can be used defensively A company

may also use the patent system to block competitors from obtaining broad patent protection

1 Senior Counsel at Chevron San Francisco California 2 Associate General Patent Counsel at Eli Lilly and Company Indianapolis Indiana 3 Patent Attorney at Benesch LLP Cleveland Ohio 4 Patent Attorney at Howard amp Howard PLLC Royal Oak Michigan 5 US Patent Attorney at Cabinet Beau de Lomeacutenie Paris France 6 Alex Wagner Huffington Post Google Buys Motorola The Patent Wars Ramp Up available at

httpwwwhuffingtonpostcom20110815google-motorola-mobility_n_927670html (last visited May 8 2012)

Michael J De La Merced The New York Times AOL Strikes $11 Billion Patent Deal With Microsoft available at

httpdealbooknytimescom20120409aol-strikes-1-1-billion-patent-deal-with-microsoft (last visited May 8

2012)

2

Offensively patents can be enforced with the goal of obtaining additional revenue or

defending market position through injunctive relief If properly monetized patents can provide

licensing revenue Alternatively many companies use patents as collateral for securing credit

lines to fund operations or further capital investments

Before undertaking the task of managing a patent portfolio they should strive to

understand the underlying purpose of the patent portfolio The purpose of the patent portfolio

should be articulated so that both business and legal teams can refer to it when making business

decisions The purpose can be considered the guiding principle against which every decision

concerning patent portfolio management is tested

Once the purpose of the portfolio has been developed companies should plan

brainstorming sessions to generate new ideas

III Brainstorming Sessions

Company culture plays a large role in how companies develop ideas Sometimes ideas

are driven by technical teams Other times the marketing function drives new ideas within a

company Regardless of which department or division drives innovation business need is the

strongest catalyst for generating new ideas Business need prompts companies to

1 Develop a market for an existing product eg such as creating field turf from

recycled tires

2 Create a product to fill a market need eg creating a new pharmaceutical compound

to treat a disease

3 Block a competitor in a specific field of use eg being the first electronics company

to manufacture a premium computer tablet and

4 To come up with new uses for an existing materials eg when 3Mrsquos Art Fry created

the post-it note by using an old adhesive on scrap paper

Because these types of ideas typically have business value harvesting ideas from brainstorming

sessions is an important step in building a patent portfolio

Brainstorming sessions are a great way to develop ideas for the purposes of patent

portfolio development Where possible a team having a diverse range of expertise should

conduct these brainstorming sessions In order to ensure that the team is not missing a crucial

aspect of the business model this team should include business managers subject matter experts

and of course patent attorneys Business managers may provide valuable perspective as to

which products or markets are growing and which have stagnated Subject matter experts may

contribute an insiders perspective on the future of a given product or technology area Finally

patent attorneys may provide critical perspective on patentability patent application

documentation requirements and what design-around opportunities exist vis-agrave-vis certain

blocking patents in the field By including members of all aspects of the business this team

3

ascertains which decision considering all factors makes the most sense moving forward7 This

team which some companies dub the ldquopatent committeerdquo or ldquoportfolio management teamrdquo can

be a formal group of people with significant interests in the IP development those that have

budgetary control or input and the IP generators

Certain information may facilitate the effectiveness of these brainstorming sessions A

high-level landscape search of patent and non-patent literature can provide a broad overview of a

given technology This broad overview may enable the discerning patent manager to determine

what opportunities for innovation exist in a given technology area The patent manager may be

able to identify whether competitors are pursuing protection in a certain technological field

whether a current research area is ripe for patent protection or whether a given area is crowded

IV Invention Disclosure Review and Analysis

An idea once culled from a brainstorming session should be developed further to gain

commercial value Determining the intended objective of a brainstorming idea is key because

the objective can provide additional insight into alternatives for accomplishing a particular goal

As the development process transforms an idea from a concept to a prototype inventors and

engineers should record their work in order to capture their various approaches to solving a

problem Even though a given model compound or formula may fail for a particular

commercial application the embodiment may have commercial value in a field of use

completely foreign to the inventor Furthermore even unsuccessful experiments or avenues of

development can provide insight into how the particular problem that confronted the engineer

was ultimately solved This type of information can be helpful in developing and protecting the

companyrsquos IP at a later time The point here is to encourage over-disclosure of information at

this stage Full records are helpful to form the foundation for a comprehensive set of invention

disclosures

As part of the brainstorming session the patent manager should consider whether an

invention present in the invention disclosure is ready for patenting If the invention disclosure is

so sparse that it cannot support a patent application the patent manager should consider whether

the disclosure simply needs additional development before rejecting the disclosure Likewise

the patent manager should consider whether additional data would improve the likelihood of

obtaining a patent If either of these inquiries results in the need for further information patent

managers should be cautious not to ignore future developments especially in light of the

transition to the first-to-file system in 2013 Thus in either of the above scenarios the patent

managers should enter a follow-up note in a docketing system to ensure these disclosures do not

languish in email inboxes

If the number of disclosures exceeds the companyrsquos projected filings for a year a

company looking to build a portfolio should not automatically limit itself to the projected

number of filings As an alternative to filing a set number of applications companies can

combine disclosures where two inventions are technologically similar and simply claim these

different embodiments in a single application Even though the company would have to pay

7 European Patent Office Patent Portfolio Management and Patent Evaluation FAQ available at

httpwwwepoorgsearchingessentialsbusinessvaluationfaqhtml (May 4 2012)

4

filing fees for subsequent applications the company would receive the benefit of paying for a

single disclosure and it would have additional time to determine whether the second or third

embodiments hold commercial valuable Additionally depending on the structure of the

company the department paying for application fees may be able to seek reimbursement from

the business unit that submitted the disclosure

Once the company has a sense of which disclosures are most important it can then move

toward deciding if when and where to file

V Filing Decisions

Once the company determines which inventions are ready for patenting they should

decide which inventions merit protection in the form of a patent application By applying a

consistent practical analysis on new invention disclosures the patent manager can build and

maintain a fortified patent portfolio under reasonable budget constraints These decisions

include deciding whether to file a patent application whether to file for international protection

for the invention disclosure and when to file the patent application Due to cost considerations

most companies choose not to submit a patent application for at least a portion of their invention

disclosures

In deciding whether to file an application some companies may choose not to file a

patent application and instead rely on trade secret protection Filing a patent application has a

few major negatives including the payment of certain fees inevitable public disclosure of

proprietary information and a limited term of protection8 Trade secret protection on the other

hand avoids these negative consequencesmdashthere are no filing and maintenance fees the

information is kept secret (assuming adequate steps are taken to maintain its secrecy) and the

protection potentially lasts forever While the lack of fees and potentially perpetual protection

are clearly company-friendly the benefit of retaining proprietary information as a trade secret

can be difficult to quantify

As mentioned above the body of invention disclosures typically includes a large number

of invention disclosures of nominal quality and a much smaller number of superior invention

disclosures as judged by the value of each invention disclosure to the company Because

pursuing patent applications is a costly endeavor the portfolio management team should decide

which invention disclosures merit patent protection and which do not

Because the decisions of the portfolio management team decide the fate of the companyrsquos

new products and processes the portfolio management team may directly impact the financial

gains and losses of their company Given this impact the portfolio management team should do

their best to understand the business technical and legal climate surrounding each and every

invention disclosure9 The portfolio management team should also determine how a new filing

would complement extend or reinforce the companyrsquos existing patent portfolio and how the

9 Mills E Eric Managing Global Patent Portfolios How Not to be a Crab available at

httpwwwwardandsmithcomarticlesmanaging-global-patent-portfolios-how-not-to-be-a-crab (May 4 2012)

5

new potential assets can be used The results of these analyses may also serve as basis for future

development and next-generation research

A Criteria for Deciding Whether to File a Patent Application(s)

Because filing decisions can have a tangible impact upon company performance the

patent manager should be simultaneously mindful of several factors that affect the value of any

patents that could issue Some exemplary considerations are provided below as a guide for

assessing whether the company should file a patent application

1 Is the Subject Technology Applicable to the Companyrsquos Markets

The patent manager should assess whether the subject technology is directed to at least

one of the companys markets Subject technology directed to companys core products should

receive higher priority than technology related to products that the company may pursue

somedayrdquo because patents on core products provide immediate security for offensive and

defensive use Patent managers are often inundated with impractical invention disclosures that

are often no more than a dream of some future product While patent managers should not

merely disregard such submissions they should judiciously filter through these disclosures

because the primary value of any patent portfolio relies on protecting currently relevant

technology

Furthermore the patent manager should assess whether the subject technology would

influence the buying decisions of consumers If the subject technology would influence the

buying decisions of consumers such a claim would likely be more valuable than a claim that

does not affect the buying decisions of a consumer This is because competitors are less likely to

pursue a product having unmarketable claim features Therefore if the subject technology

covers a feature that would lead to a significant competitive edge it may make sense to file an

application on the subject technology

In a similar inquiry the patent manager may also consider the profit margins of the

product covered by the subject technology It is often more important for the company to protect

its most lucrative product lines even through marginal protection than to cover a product that

the company sells for a modest margin Being mindful of the businessrsquos profit areas can reveal

which areas of patent protection are most valuable to a company

The patent manager may also consider the impact the product would have in the

companyrsquos markets and how long the prospective product would be on the market If the

technology will become outdated within a few years patenting such technology may have little

value to the company It might be worthwhile to consider US design patents and international

designs as these properties have short prosecution cycles and enjoy the benefit of useful

enforcement mechanisms eg injunctions10

Further it might be determined that such short-

10 Titan Tire Corp v Case New Holland Inc 566 F3d 1372 (Fed Cir 2009)

6

lived technologies may be best protected by trade secret protection11

Alternatively still it may

make sense to file a defensive publication so the company does not find itself in a situation

where the company is blocked from practicing its own invention by a competitorrsquos patents

Finally if the art is crowded and the subject technology appears to be a narrow improvement

over what already exists the patent manager may decide that filing is not beneficial

2 Will Filing An Application On The Subject Technology Block A

Competitor

Provided there are additional resources the patent manager should explore filing

applications to block others from commercializing competing products even if the subject

technology does not cover one of the companys products In deciding whether such a blocking

application should be pursued the patent manager should consider whether it appears likely that

a competitor would use the subject technology in the future These decisions can be researched

by reviewing the recent patent filings of the competitor and reviewing whether that market sector

has experienced growth in recent years One example of this type of analysis would have been

observing the significant growth of mobile devices and the aggressive development of patent

portfolios covering technologies that are embodied in such mobile devices

Blocking patents make it less attractive for a competitor to sue the patent holder because

it would be costly in the scenario where patent holder infringes a competitorrsquos patents and the

competitor infringes the patent holders patent If litigation is initiated in this scenario it can be

long costly and ultimately yield little monetary damages Many times the competitor instead

of conducting costly litigation would tolerate such a mutual infringement situation12

In some

industries however competitors may enforce patents against each other ultimately resulting in

the formation of cross-licenses

The value of a filing a blocking patent application will often be affected by the patentable

scope of such an application and whether the competitor has already filed on related

technologies Before attempting to file a blocking patent application the company should

research its competitorsrsquo portfolios to determine whether the company can obtain a blocking

patent that has value

3 What Claim Scope Is Reasonably Patentable For The Subject

Technology

When deciding whether to file an application on the subject technology the patent

manager should consider whether the subject technology has been publicly disclosed If the

technology has been disclosed the company may be banned from obtaining protection in

jurisdictions following the absolute novelty requirement13

Nonetheless depending on the

11 Dupre John L and Smith James M When to Choose Trade Secret Protection Over a Patent Intellectual Asset

Management available at httpwwwiam-magazinecomissuesarticleashxg=a8dcdf43-9d40-45cd-8ed6-19816b41a712 (May

4 2012) 12 Meurer Michael amp James E Bessen The Private Costs of Patent Litigation Boston University School of Law Working

Paper No 07-08 pg 15 (Feb 2008) 13 Weisz Edward M How to Preserve Absolute Novelty Managing Intellectual Property available at

httpwwwmanagingipcomArticle2041368How-to-preserve-absolute-noveltyhtml (Nov 1 2008)

7

market for the subject technology and when it was disclosed it may still be practical to pursue

patent protection in the US Furthermore if only portions of the subject technology were

publicly disclosed it may make sense to pursue claims of a more-limited scope for the subject

technology

Beyond whether the subject technology itself was publicly disclosed the patent manager

should consider what claim scope is reasonably available based on the state of the art A quick

patentability search can provide valuable information regarding whether the company could

obtain broad or narrow patent protection If the available claim scope is too narrow it may not

be worthwhile to file a patent application on the subject technology in light of the significant

expense of drafting filing and prosecuting a patent application

As a corollary to assessing the possible claim scope the patent manager should also

assess whether such scope may be easily designed around Does the art surrounding the subject

technology open itself up to a vast number of equally-effective alternatives If there are many

alternatives patent protection on a single design may be less valuable because a competitor may

select a different technology and avoid the scope of the claims

4 What Is The Likelihood Of Proving Infringement For A Patent On

The Subject Technology

Another consideration in assessing the value of a patent is to determine whether the

company could easily determine whether its competition infringes whatever claims issue

Claims that are amenable to visual analysis or simple experimental testing generally carry more

value than claims requiring significant in-depth analysis to determine infringement For

example if the company cannot readily verify whether one of its patents is infringed (ie it is

hidden in computer code or is detectable only through expensive composition testing) the value

of such a patent is diminished Thus such a patent is more difficult to assert without expensive

reverse engineering testing and possible discovery in litigation Thus patent managers should

be mindful as to whether a patent on the subject technology would include claims that would be

easily enforceable

5 How Does This Invention Disclosure Supplement the Existing Patent

Portfolio

The patent manager should also consider the scope of the companyrsquos existing patent

coverage surrounding the subject technology Because many patent managers manage a

portfolio having hundreds of patents and patent applications it may be difficult to recognize

cumulative invention disclosures One way that patent managers can do this is to code the patent

application and invention disclosures by specific business units product lines and inventor(s)

That way when the patent manager reviews the disclosure for filing the patent manager can let

patent manager know that there may be overlap with other pending patent applications The

patent manager and the inventor can then consider the extent of the overlap with existing

applications or patents if any and determine whether additional applications should be filed

8

In addition two or more patent applications that have related subject matter but do not

have a common priority claim could implicate US disclosure requirements For example prior

art cited in one patent application may be relevant to the other patent application and may need

to be cited in an information disclosure statement in the other patent application (and vice-versa)

For large patent portfolios if there is no easy way to identify which patent applications have

related-subject matter there is a risk in failing to cite relevant prior art in an information

disclosure statement in a patent application For patent portfolios that are prosecuted by multiple

outside firms this particular risk is more acute

Although it often makes sense to spread patent protection across a variety of subject

technologies there are significant costs associated with filing unnecessary patent applications

In certain undeveloped markets it may be sensible to pursue several filings for the subject

technology However in other areas where the existing patent portfolio has cemented adequate

protection on a closely related technology multiple parallel filings may not be necessary In

assessing whether to pursue multiple filings surrounding the subject technology it makes sense

to consider patent mapping tools which help the patent manager lay out the distribution of patent

filings across different technology areas14

Patent mapping tools may also illuminate certain

deficiencies in the portfolio that should be pursued more aggressively

6 Whether the Subject Technology was Being Jointly Developed

It is also important for patent managers to determine whether the subject technology was

developed in accordance with a joint development agreement In such a situation the issues of

inventorship and thus ownership are critical The importance of the detailed records referred to

above are even more important for inventions developed under a joint development agreement

If a joint development agreement is in place patent managers should be vigilant in protecting the

rights of the company However patent managers should also be cautious to adhere to the

agreement and not file applications on technology to which the other party is entitled to certain

rights

Although most parties who engage in joint development agreements begin with good

intentions certain precautions should be taken to protect the company in case the relationship

with the joint developer deteriorates or if the business environment changes For example

whenever there are development meetings where people not employed by the company will

participate it is a good idea to have someone reduce the meeting minutes to writing and have

the participants sign and initial the minutes if possible Before any specific meeting patent

managers should make sure the company records regarding the joint development are in order

Detailed records can help with the inventorship determination prior to filing and could also be

very helpful in the event inventorship is later challenged While resolving inventorship may lead

to a challenging situation where the inventorship should be determined across multiple

companies having good records is certainly a better situation than leaving the company

vulnerable in critical arena of patent protection and patent ownership15

14 European Patent Office FAQ - Patent Statistics and Patent Mapping available at

httpwwwepoorgsearchingessentialsbusinessstatsfaqhtmlfaq-264 (May 4 2012) 15 Slowinski et al Protecting Know-How and Trade Secrets in Collaborative RampD Relationships Strategic Alliance available

at httpwwwstrategicalliancecomarticlesprotectingknowhowhtm (May 4 2012)

9

B When to File the Patent Application

Patent managers also should decide when to file applications While this decision seems

easy at first glance numerous factors influence the timing of application filing For example

statutory bars defined under current 35 USC sect 102(b) are readily-identifiable dates that the

portfolio managers should observe Beyond a straightforward public disclosure use or

publication that would trigger a statutory bar portfolio managers should track commercialization

dates and experimental progress particularly if any experimentation takes place in public As

engineers develop an idea the portfolio managers should also consider if the invention is ldquoready

for patentingrdquo If the invention is ready for patenting any delay in filing could jeopardize the

companyrsquos rights At the same time however the patent manager should consider whether

further experimentation might produce additional embodiments that could be claimed in a single

application If further experimentation or development is likely to yield further embodiments

waiting to file might benefit the company On the other hand if the company competes in a fast-

moving industry delaying filing could again jeopardize the companyrsquos rights

Similarly given that the America Invents Actrsquos (ldquoAIArdquo) switch to a first-inventor-to-file

system places greater emphasis on earlier patent filing patent managers should determine

whether a preemptive inventor disclosure under the AIA is worthwhile While it is certainly

possible the delay could allow a competitor to independently file an application on the subject

technology while the portfolio managers evaluate their options In any event deciding when to

file remains a critical consideration that the patent manager should weigh in light of the AIA

C Where to File the Patent Application

1 Market Share

When deciding whether to file new patent applications the patent manager should

consider the market share of a particular technology in a particular jurisdiction Because foreign

filing can be very expensive patent managers should think carefully as to whether patent

protection is needed in each jurisdiction If there is no potential market in a certain jurisdiction

it may make sense to forego patent protection in that jurisdiction While the foreign filing

decision can be cost effectively delayed via the PCT process the decision is important as filing

and maintaining a single patent family worldwide can be prohibitively expensive

Typical locations include countries with well-developed or developing markets Canada

China (growing in importance) Brazil Europe (Great Britain France Germany Italy Spain)

Japan and of course the US

2 ImportExport Channels Producing the Invention and the Supply

Chain

10

How and where the invention is manufactured and distributed to consumers can also

affect filing decisions While US law offers limited protection for extraterritorial activities16

it

is often useful to obtain patent protection in the following locations

1 The country where the company manufactures the invention

2 The country where competitors could manufacture the invention

3 The country where the invention is distributed through ie in the country where

important distribution centers are located

4 The country where the invention could be used or combined with other products by

your companyrsquos customer17

and

5 The country or countries where competitors could implement or use the invention18

3 Location of Inventive Activities

Where an invention arises can also influence where the first patent application is filed

The US and many foreign governments have a regulatory framework designed to determine if

certain inventions give rise to a specific national interest More common is a particular

government concern for inventions made in their country that could implicate national security

concerns The US dispenses with this requirement by issuing foreign filing licenses for

inventions so that patent applications can be filed abroad19

A foreign filing license in the US

granted based on whether or not the invention raises national security concerns If there are no

national security concerns the license is granted Failing to comply with the US laws can result

in an invalid US patent

What is important to remember here is that many governments eg the US Great

Britain and France will also review a disclosure of an invention and grant a foreign filing

license without first filing a patent application in that particular countryrsquos patent office In the

US for example an ldquoexpedited foreign filing license requestrdquo can be filed with USPTO and

the foreign filing license can be acquired in 3 to 5 business days

Patent managers should also be mindful of export controls Export controls are

implicated during transmission of technology from a person in the US to foreign nationals

abroad or to a foreign national without permanent residence status in the US Thus for

inventions made or conceived in the US regardless of the nationality of the inventor(s) export

controls could be implicated Note the implication here routine communication of product

16 35 USC sectsect 271(f) and (g) 17 While most companies do not prefer to sue their customers having a patent that covers you customerrsquos activites would not hurt

your companyrsquos strategic position 18 NTP Inc v Research in Motion Ltd 418 F3d 1282 1317 (Fed Cir 2005)(holding 1 that use of a patented system and

therefore infringement thereof is the place where control of the system is exercised and beneficial use of the system obtained

and 2 that a process cannot be used within the United States as required by section 271(a) unless each of the steps is performed

within this country) 19 See 35 USC sect 181 et seq

11

development plans between US citizens and foreign nationals wherever they are located could

raise export control issues This may be something to discuss with export control counsel in

more depth

VI Post-Issuance Considerations

A Payment of Maintenance Fees

Every patent is subject to payment of maintenance fees Patent maintenance fees are

steep and for entities with hundreds or thousands of patents annual upkeep can cost millions of

dollars Instead of hanging onto obsolete or unused patents astute patent portfolio managers will

look to offload or monetize them

Patent managers should periodically review the patent portfolio and assess whether

maintenance fees should continue to be paid for each patent Naturally if a patent generates

more in licensing revenue than the cost of the maintenance fees these fees should be paid

Where a patent is used defensively or the continued maintenance serves some other business

objective the patent manager should determine whether competitors use that technology or if

licensing arrangements are possible However if the patent covers outdated technology the

patent manager should consider abandoning the patent Maintenance decisions can also be

similarly made for foreign patent properties

Unwanted patents can also be sold to a party to enforce the patents An increasing

number of patent brokers are popping up to match sellers and buyers and patent auctions are

finding growing participation in many industries

B Monetizing the Portfolio Licensing and Enforcement

Licensing a patent or patent portfolio requires both the application of classic business

principles and the robust use of the legal landscape concerning enforcing and licensing patents

This section will describe some practical business concepts that may be helpful in implementing

a licensing strategy This section will also review some more practical legal analysis that the

licensing process should involve This section will not address licensing in the context of

standard setting organizations which raises complex issues outside the scope of this paper

1 Creating a Business Care of Licensing

Licensing a patent or patent portfolio is an investment of money time and people

Because a well-developed infrastructure has been discussed as necessary component of

successful licensing programs20

developing a business plan for the licensing strategy is

sometimes overlooked but is a very useful almost necessary step Specifically clear business

20 Cassidy Bernard J How to Creating and Operate a Patent Licensing Program AIPLA 2010 Midwinter Institute

12

goalsmdashwhether financial or strategic or bothmdashshould be established Classic financial analysis

can then be used to determine costs and return on investment given the time effort and

resources that are identified as necessary to meet the stated objectives In short creating a

business plan provides a useful cost-benefit analysis and also identifies resources necessary to

carry out the specific objectives While this analysis is not typically the function for patent

manager patent manager can assess the cost related to patent due diligence licensing

negotiations and possible litigation costs all which will help form a critical part of the business

plan Creating a business plan can develop the resources begin the planning stages and identify

critical people that are needed to help meet the stated objectives In other words creating a

business plan forms the basis for infrastructure needed to implement a licensing strategy

2 Practical Considerations for Licensing a Patent

Patent managers should appreciate that licensing a patent under current US law requires

consideration of a patent enforcement strategy Thus a prudent licensing strategy will consider

licensing in conjunction with the possible litigation accompanying efforts to obtain the license

Under current law an ldquoinvitation to licenserdquo letter can be met with swift filing of a declaratory

judgment action in a jurisdiction that may be unfavorable for the patentee21

Of course a

potential licensee may not respond this way in every case Nevertheless a declaratory judgment

lawsuit is clearly a risk that the patent manager should assess at the onset of licensing activities

Thus when a company has decided to seek a license that company is also necessarily

considering the possibility of litigating that patent

Due diligence concerning the patent property and the potential licensee should be

conducted at the outset of a companyrsquos licensing activities Below is a list of preferred due

diligence activities that should be done to place the company in the best possible position to

negotiate effectively with a potential licensee The costs associated with each of these activates

can be developed and incorporated into the business plan discussed above

1 Conduct an infringement analysis as possible including the requisite steps of

construing claims reviewing the patent file history and analyzing the specific

activity or products of the licensee After completing the infringement analysis

discuss the arguments with litigation counsel licensing counsel and subject matter

experts in your company Develop strong infringement arguments

2 Conduct a validity study to assess the subject patentrsquos validity

3 Closely review the file history considering possible weaknesses in the patent

specifically focusing on unenforceability issues Consider the impact of the results

from point 2 on whether or not the inventor(s) applicantowner(s) and prosecuting

counsel satisfied their disclosure obligations Consider if there are any issues which

on their face do not rise to level of inequitable conduct could be issues that will cost

21 MedImmune Inc v Genentech Inc 549 US 118 127 (2007) (quoting Md Cas Co v Pac Coal amp Oil Co 312 US 270

273 (1941))

13

time and money to deal with adequately if litigation is initiated If such issues exist

the company should consider whether supplemental examination which curtails an

inequitable conduct defense is worthwhile Carefully consider all references cited in

all related patent applications Analyze any issues raised by this analysis with

litigation counsel and assess the risk of litigating the patent in light of these risks

4 Confirm that there are no ownership or inventorship questions

5 Pay all maintenance fees and consider whether your company was a small entity

when the patent issued and paid the first maintenance fee but may now be considered

a large entity

6 Develop a robust estimate of possible patent damages that your company might be

able to reasonably prove given the current evidentiary standards for determining

patent damages22

Involve litigation counsel financial experts and subject matter

experts on this exercise

7 Consider possible license terms including the type (exclusive or non-exclusive)

scope royalty type and structure and auditing and reporting requirements Consider

exclusivity carefully Does your company want to operate in the space in the future

If the answer is yes than an exclusive license does not preserve your companyrsquos right

to practice the technology covered by the licensed patent Consider the scope and

field of use of the license and whether enforcing such fields of uses are practical and

useful Royalties should be developed with due regard to possible damages but they

should be considered against the licensersquos other terms as well because financial terms

are related other terms of license eg an exclusive license should warrant a higher

royalty Consider the licenseersquos business model How do they make money If the

royalty is based on net sales what are net sales from their perspective What are net

sales from your companyrsquos perspective Further consider simple robust and

effective reporting and auditing provisions which lessen the licenseersquos reporting

burdens and makes your auditing requirements easier to dispense with There are

certainly many other issues to consider when the license agreement is being prepared

Finally remember and remind your business counterparts that a license can last 10

to 15 years and the licenseersquos success will result in increased revenues for your

company A burdensome license agreement will not facilitate a licenseersquos success

8 Develop a matrix of license terms based on 1) what your company would desire for

license terms (ie the best case scenario) 2) what the company is willing to accept

and 3) what the company will not accept Generally point 3 is the point at which

22 See Georgia-Pacific Corp v United States Plywood Corp 318 F Supp 1116 (SDNY 1970) mod and affrsquod 446 F2d 295

(2d Cir 1971) cert denied 404 US 870 (1971) Uniloc USA Inc v Microsoft Corp 632 F 3d 1292 (holding that ldquoas a matter

of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in

a hypothetical negotiationrdquo) Lucent Technologies Inc v Gateway Inc 580 F3d 1301 (Fed Cir 2009)(vacating a $358

million jury verdict remanding the case for further proceedings holding that the verdict did not rest on substantial evidence and

was grossly out of proportion with realizable profit that might be credited to the patented invention) ResQNetcom Inc v Lansa

Inc 594 F3d 860 (Fed Cir 2010 (plaintiffs in patent cases ldquomust carefully tie proof of damages to the claimed inventionrsquos

footprint in the market placerdquo)

14

litigation is warranted Develop a litigation budget to account for option 3 based on

specific phases of litigation and set aside reserves as needed for such a contingency

Develop the matrix and litigation budget with licensing and litigation counsel and the

business teams

9 Consider other possible patents for further consideration that might be candidates to

use for advantage during negotiations

10 Compile as much information as you can on the licensee including litigation activity

credit and financial information product information and marketing channels and

identify all contacts that you company may have with the licensee for potential

negotiations with the licensee

11 Finally consider how to begin discussions with the potential licensing Sending a

notice letter of some sort and at some time will be required unless you company has

contacts or good working relationships with the licensee already Consider whether

you should file a patent infringement complaint first and then begin negotiations in

earnest thereafter

No matter the companyrsquos position toward litigation generally or patent litigation

specifically implementing a patent licensing strategy should be developed with clear application

to the objectives the business Developing a business plan in light of the licensing and

enforcement due diligence tasks identified above can help align the licensing strategy with the

business goals and identify needed resources to carry out that strategy

VII Conclusion

Patent portfolios are crucial to protecting a companys intellectual property assets

Because the expense of patent filings continues to rise companies should organize a patent

manager that can organize the key aspects of portfolio management brainstorming invention

disclosure review and analysis filing decisions and monetization decisions Although building

a valuable patent portfolio is an expensive and time-consuming ordeal it can facilitate the

companys planning of new products avoid costly litigation and generate income for the

company

Recommended Reading List

Fahmi Tarek N ldquoAligning IP Portfolios with Business Objectivesrdquo Intellectual Property Issues

in Business Transactions 2010 p 83 Practising Law Institute

Schechter Peter C ldquoBuying and Selling Intellectual Property Why What and Howrdquo

Intellectual Property Issues in Business Transactions 2010 p85 Practising Law Institute

2

Offensively patents can be enforced with the goal of obtaining additional revenue or

defending market position through injunctive relief If properly monetized patents can provide

licensing revenue Alternatively many companies use patents as collateral for securing credit

lines to fund operations or further capital investments

Before undertaking the task of managing a patent portfolio they should strive to

understand the underlying purpose of the patent portfolio The purpose of the patent portfolio

should be articulated so that both business and legal teams can refer to it when making business

decisions The purpose can be considered the guiding principle against which every decision

concerning patent portfolio management is tested

Once the purpose of the portfolio has been developed companies should plan

brainstorming sessions to generate new ideas

III Brainstorming Sessions

Company culture plays a large role in how companies develop ideas Sometimes ideas

are driven by technical teams Other times the marketing function drives new ideas within a

company Regardless of which department or division drives innovation business need is the

strongest catalyst for generating new ideas Business need prompts companies to

1 Develop a market for an existing product eg such as creating field turf from

recycled tires

2 Create a product to fill a market need eg creating a new pharmaceutical compound

to treat a disease

3 Block a competitor in a specific field of use eg being the first electronics company

to manufacture a premium computer tablet and

4 To come up with new uses for an existing materials eg when 3Mrsquos Art Fry created

the post-it note by using an old adhesive on scrap paper

Because these types of ideas typically have business value harvesting ideas from brainstorming

sessions is an important step in building a patent portfolio

Brainstorming sessions are a great way to develop ideas for the purposes of patent

portfolio development Where possible a team having a diverse range of expertise should

conduct these brainstorming sessions In order to ensure that the team is not missing a crucial

aspect of the business model this team should include business managers subject matter experts

and of course patent attorneys Business managers may provide valuable perspective as to

which products or markets are growing and which have stagnated Subject matter experts may

contribute an insiders perspective on the future of a given product or technology area Finally

patent attorneys may provide critical perspective on patentability patent application

documentation requirements and what design-around opportunities exist vis-agrave-vis certain

blocking patents in the field By including members of all aspects of the business this team

3
























disclosures


















4








V Filing Decisions








disclosures























5

















technology





















6








Competitor















In some









Technology











7




technology























easily enforceable


Portfolio










8



























rights
















9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






3
























disclosures


















4








V Filing Decisions








disclosures























5

















technology





















6








Competitor















In some









Technology











7




technology























easily enforceable


Portfolio










8



























rights
















9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






4








V Filing Decisions








disclosures























5

















technology





















6








Competitor















In some









Technology











7




technology























easily enforceable


Portfolio










8



























rights
















9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






5

















technology





















6








Competitor















In some









Technology











7




technology























easily enforceable


Portfolio










8



























rights
















9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






6








Competitor















In some









Technology











7




technology























easily enforceable


Portfolio










8



























rights
















9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






7




technology























easily enforceable


Portfolio










8



























rights
















9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






8



























rights
















9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






9






















1 Market Share












Chain

10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






10



it








and




























11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






11



more depth
































12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






12

















Of course a






















273 (1941))

13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






13









a large entity



patent damages22
































14




business teams











earnest thereafter






VII Conclusion







company






14




business teams











earnest thereafter






VII Conclusion







company






developing, managing, and monetizing a patent portfolio€¦ · developing, managing, and...

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