“Why bother with patents?”
Inside Counsel 07/16/14 Gavin J. Milczarek-Desai
Some new clients over the years have asked me, a bit sheepishly, “What good are our patents?” A confession of sorts follows. “I know that patents are important to acquire. But aside from going after a clear infringer, all we seem to do is fill a file folder with our patents without further thought except when it's time to pay a maintenance fee.” The confession complete, I answer the question with a question — how does your company generate revenue? A discussion ensues about the ways patents can protect or augment those drivers of revenue.
Of course, the key takeaway from these discussions is that patents should be obtained with business objectives in mind. Five of the most common objectives include:
- Keeping competitors out of some markets and/or increasing market share. While broad patents are desirable because they act as a barrier to entry, more focused patents can also deter competitors when alternatives are functionally or otherwise inferior. Focused patents can also lessen a competitor's market share by covering profitable improvements to their products or by preventing them from using competition-enhancing advances.
- Protecting core technology and R&D investments. Research and development often involves the expenditure of much time and financial resources. Allowing a competitor to simply skip that investment by not obtaining patents for innovations that can't easily be kept secret puts a company at a disadvantage (to say the least).
- Minimize infringement risks and maximizing freedom to operate. This aspect of patenting is often overlooked in my experience. Infringement risks can be lessened by filing for patents frequently to establish priority to an invention before competitors do. Increased freedom to operate also can be accomplished by filing “early and often” to prevent others from patenting and by leveraging a large patent portfolio to obtain cross-licensing arrangements with competitors. Having a patent committee with members in development, sales and management review frequent patent disclosures can lessen infringement risk by facilitating the sharing of marketplace information and otherwise making a company more patent savvy.
- Generating licensing or sale revenue. Whether through settlements obtained by enforcing patents, licensing non-competitors, or selling patents for unused inventions, revenue from license agreements and sales of patents directly monetize a patent portfolio.
- Marketing and advertising purposes. Novelty is a psychological driver of consumer behavior. Appropriate use of “Patent Pending” or a slogan such as “So unique it's patented” in marketing can drive sales, whether by creating an impression of innovation for technology companies or by creating a mindset of the next “big new thing” for consumer product companies.
So how does a company build a patent portfolio aligned with one or more of these objectives? Clients have found it helpful in my experience to classify a patent portfolio strategy according to one of three primary business objectives.
The Fortress (protecting core technology and R&D investments)
Essential for start-up technology companies but often applicable to any small business, this strategy focuses on building a relatively small portfolio of high-quality patents that are focused on obtaining both broad and improvement-directed patent coverage on a company's core research and development effort, as well as on the resulting products and/or services that will generate revenue. Higher quality patents have higher value to potential investors, licensees and/or acquirers.
The Blockade (barrier to entry and increasing market share)
A medium-sized portfolio that focuses on patents covering both the company's products/services (ala the Fortress) and those of the competition. Thus, this strategy provides both defensive protection for a company and the ability to block competitors from making, using or selling improvements to their own products and innovations. A mixture of broader, higher quality patents with lesser patents useful for encouraging settlement (versus the cost and uncertainty of litigation) is typical.
The Deterrent (minimize infringement risks and ensure freedom to operate)
This strategy focuses on building a large portfolio of patents of varying quality on anything and everything that might be advantageous to patent in a given industry. Building the portfolio by acquiring patents from others, especially if those patents cover competitor products, supplements internal patenting. The idea is that use of the portfolio is not so much to exclude competition or increase market share as much as to leverage it in negotiations and infringement litigation due to the threat of “assured mutual destruction” given the cost and uncertainty of litigation (e.g., a likelihood that one or more patents could be asserted against a competitor as counter claims to negotiate freedom to operate).
While obviously simplified for the purpose of this article, and not exclusive to the objective listed, the patent portfolio strategies outlined above nonetheless can serve as a springboard to focus thinking on “what good” a company's patents are and can be.