Creating value through patents
In a paper given at the recent AWA Security Conference, Mark Miller and Devan V. Padmanabhan discussed how intellectual property (IP) creates value for converters
Let’s consider a tamper evident tape developed by a company that understands coating fluids onto substrates but has little knowledge of the raw film business.
In the converting industry, engineers and scientists group technology into product or process technology; the legal equivalents are utility and method patents. For example, with the tamper evident tape, if a new adhesive is developed that holds it to a package with an unexpected strength, a product (utility) patent could be applied to the invention of the chemistry involved.
In addition, if the multilayer film can survive a traditional roll-to-roll process with all the bends and twists without delaminating then a process (method) patent could be applied to the invention of the process of making or handling the film.
Once the new invention shows technical merit, working with a patent attorney will help provide the path to most value for the technology. Involving a patent attorney as a business partner early in the product or process development phase will allow the newly acquired property to be handled with the most care and create the most power in future transactions with the property.
Increasing technology value
With a patent attorney as a business partner helping you maneuver the minefield that is the intellectual property (IP) landscape you will be able to assess what moves will add value to your patent portfolio.
From blocking out competitors to maintaining a monopoly in the marketplace, the possibilities to increase the value of the technology are varied.
Potential pitfalls of portfolio strategy management include failure to pursue patent protection strategically with business goals in mind or to use patents effectively to meet business goals; and ineffective monetising of patents due to lack of legal counsel along the timeline of patent protection. For example, if a new adhesive chemistry is developed for the tamper evident tape but the focus of the patent claims are too narrow then your competition can work around the scope of the IP.
Whether the business goals include direct use of the patented technology, licensing the technology to others or litigation to enforce patent rights, the effective use of a company’s patent portfolio is the key to creating value with technology.
Patents are a powerful tool that can exclude competition from the marketplace by creating a legal monopoly for your product or process for 20 years.
IP management is a long term plan and patent portfolio strategy for maximising ROI requires a long term strategy. Patents typically require 3-5 years to obtain and even then it may take a few years to fully monetise. Thus, if you have a short term focus you may undervalue your patent portfolio. This may sound familiar to engineers indoctrinated in the Six Sigma methodology. Where many companies look at short term gains, patent portfolio strategy and Six Sigma looks at the return on investment over years and only after milestones have been reached and realistic time lines have occurred.
Not all patents directly realise revenue. A relatively small number are ‘core’ patents that directly protect a product or lead to the realisation of royalties or other revenue. Many more patents may not directly result in revenue but may nevertheless have value in supporting the ‘core’ patents. Other patents may have little or no value to the company that owns them because they are unrelated to the business. In our example of a tamper evident tape that was developed by a company that understands coating fluids onto substrates but has little knowledge of the raw film business, the ‘core’ patent would be associated with coating technology but not new film substrates. Core patents are like the core technology of a business: it is the technology that spans multiple product lines just as an adhesive that bonds well to a package can create new tamper evident tapes and box sealing tapes. Non-core technologies in our example would include the delamination resistant film which could be licensed to restricted vendors. A patent on a multilayer film may have no value to a coating company, lending itself to a sale of the IP to a film vendor. All examples create revenue but some are more direct than others.
We now know that there are many ways to make money on your IP just as you could on capital equipment property. You can chose to use it directly, contract the use out to others (even a competitor) or sell it on the open market. But what is the best way to maximise your return on investment? There are two tacks you should consider: patent prosecution and monetising your portfolio.
Companies should always be aware of business goals when developing a patent portfolio. What is the core technology focus? What do you want to produce? What value statement does the company bring to the market? Without such focus the company may be unable to maximise ROI. The company may pursue patents of little or no value or forgo patent protection for alternative products or potential improvements. Forgoing patent protection will permit competitors to design around core patents and threaten product lines.
To maximise the value of a patent portfolio you need to include patent attorneys or agents in the research and development process. Think of a patent attorney as a business partner. Ensure that the research and development team including market researchers are included in the patent drafting process. This will allow the IP to be broad yet focused. Focusing on the market need the product fills rather than simply on the product itself will help identify generations of patent protection including future developments in the technology and market. Cover alternative designs to avoid competitive design a-rounds. This point speaks to broad claim language in the patent to cover simple alterations to develop competitive manufacturing niches.
Cover potential improvements to protect future products and product lines. File ‘fence’ patents on potential improvements to competitive products. To be successful you need to concentrate externally and internally: what is your competitor doing and how can you hem them in? File continuation applications to incorporate claims that cover competitive products; this extends your monopoly beyond the original 20 years with a slight variation.
There are several options to monetise patents and maximise ROI: protect your products and ensure protection for improvements and future products, license the patents for a royalty stream, sell the patents or leverage key patents to force competitors to cross-license blocking patents. The options are to stop others from making money, make money from those behind in development or play in your competitors space with paid permission.
The key to maximising ROI is identifying the role and strength of the patents in your portfolio. ‘Core’ patents protect your products and hence your revenue stream. These patents should be maintained and protected. Supporting patents are those that protect and support your core patents. They should be maintained and can be licensed if appropriate. Alternative patents do not cover your products but may have value in the market. Alternative patents should be licensed or sold to realise ROI. Weak patents are those that are vulnerable to challenge or have little or no value in the market. Weak patents should be sold or abandoned.
To determine the current position of your patent portfolio a review of your IP and that of your competitor should be done. Constant patent review is key to competitive advantage. Consider this the Kaize
n approach to IP – continuous improvement.
Monetising your portfolio
The steps to monetising your patent portfolio include identifying potential infringers of your IP and enforce the patents through licensing or litigation. Remember, you are responsible for taking action to enforce your property rights. For valuable patents that are not currently in use, package and market them to potential licensees and purchasers.
IP as a business asset
There are three approaches to any IP decision: engineering, legal and business. If a competitor is close to infringing a technology an engineer would design around the patent, a lawyer would litigate the patent and the business person would license the patent to the competitor. No one answer is ‘right’ but each has a decision tree that is best traversed with the help of a patent attorney.
When utilising IP for a business advantage, make sure to approach your patent portfolio strategy with a plan to include a patent attorney as a business partner. Remember to consider IP as a business asset similar to any capital equipment you purchase when you consider how to create value through patents.
Mark Miller is president of Coating Tech Service www.coatingtechservice.com Devan V Pradabhan is a shareholder of
Winthrop & Weinsteine