INNPERSPECTIVE

A Series of Industry Focused Articles
Read about the latest trends and updates in the intellectual property industry from the Innography perspective.

Streamline Your Licensing Process

Wednesday 01, September 2010 by Tyron Stading

Licensing professionals understand just how challenging the licensing process can be.  Because it can be so challenging I put together nine questions that are important to answer at each phase of the process before moving forward to the next step.

  • Can the idea in question make money?

The overwhelming majority of patents never come to market.  Most experts put the number at about two to three percent. At the idea stage it can be challenging to do the proper due diligence to determine whether an idea is commercially viable. Your best bet is to understand the technology landscape to determine where investments are currently being made before the investment is made.

This is exactly the kind of task Innography has optimized. Simple searches can produce IP business landscapes to help you understand who is investing in what technologies.

  • What IP do I have, how valuable is it and are there any portfolio gaps?

You must understand what you own before you can license it; unfortunately, you might not know it as well as you need to. Understanding your IP is more than a matter of just keeping it in a list.

Characteristics such as scoring by patent strength, number of times it is cited, and the number of times it has been litigated are just some of the metrics to help prioritize potential value to others.  Innography can automatically rate patents by strength and it uses proprietary citation mining to find related opportunities. The software also provides a complete litigation history on every patent.

These are all things you could and should do, but many licensing professionals don’t because they don’t have the time or resources if they don’t have a tool like Innography. It is not a question of time savings, but the insights you get from using that time wisely.

  • Do I really Know My Licensing Prospects?

Many licensing professionals think they know their licensing targets, but like their portfolio don’t have a complete understanding of their business. You need to ask questions like what technologies do they have that I might not know about? How litigious are they? How well-positioned are they compared to their competition?

Without answers to questions such as these, you aren’t prepared to develop a successful licensing strategy.

  • Do I know about all the potential licensing prospects, and which are the most highly qualified?

Many licensing professionals plan their strategy around the best known companies, because they assume these are the most relevant targets. The problem is that doing so unnecessarily limits your target set.

There are typically hundreds of companies that are potential licensing targets most people either don’t know about or don’t realize that they are targets for a particular technology. Tools like Innography can produce IP landscapes that can reveal previously unknown targets, broadening your pool of candidates and increasing your pipeline for additional revenue.

  • Do I have a defined licensing process?

Licensing professionals need to be focused on successfully finding and closing acquisitions and licensing agreements. Re-inventing the process each time is an unnecessary distraction that will limit your success. Your licensing efforts will be more coherent and successful if you can define a single process that you always use every time you need to bring technology in or want to license it out.

  • Does my licensing approach emulate the sales process?

Technology licensing is essentially a sales process. While it may not be glamorous to think of it this way, it can bring you greater efficiency in doing so. Sales processes have very structured processes and metrics to move leads into realized licenses. Using automated tools like Salesforce.com and conventional sales metrics can bring stronger revenue potential to your organization.

  • Is the licensing practice managed by the correct organization?

Licensing is essentially selling and your practice should therefore be managed by the same organization that manages sales. Out licensing should be managed as a profit center, and in-licensing should be managed in the same way you manage M&A.

You can’t properly align financial objectives and employee objectives if your licensing professionals report into your legal department, as is the case with many companies. Patents are perceived many times, only as legal instruments, when in fact they should be perceived as assets that generate revenue and mitigate financial risk.

  • Am I making smart build vs. buy decisions?

Sometimes it’s important to hold your cards close to the vest with regard to your business development strategy.  But if you limit your development capability to in-house resources, you are also limiting your ability to accurately forecast market trends and prolonging your time to market.

You need to take advantage of open innovation networks. Although this will require you to reveal aspects of your strategy, it will also help you to guide its development in an intelligent way. In many cases you will also benefit from being able to in license technologies rather than to develop them, which is less expensive and enables you to get to market faster.

  • Is my IP reasonably priced?

To have a successful licensing strategy you must understand the reality that the value of your IP might be very different to you than to your potential licensee. There are multiple definitions for value in an IP domain, but finding the motivation for a purchase will help define the market place. Often times a holder will overvalue the patent when there might be a better opportunity to just get the deal done. Understanding the context of value for a potential licensee will help align your respective interests.

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Mergers and Acquisitions Due Diligence:
Seven Critical Steps You Can’t Afford to Overlook

Friday 13, August 2010 by Ryan Rozich

The topic of Mergers and Acquisitions (M&A) has become much more important to many companies today than it has been in the past. The economy appears to be on the mend, and companies are scrambling to find ways to expand quickly. Companies are also being forced to cope with rising litigation risk because the business environment is
simply more litigious.

It is not unusual for companies to hold back the acquisition offer until an IP audit is performed and cleared. The litigious nature of business today has even created a relatively new product in the insurance industry. If the company being acquired wants the acquisition offer immediately rather than waiting for clearance, they must purchase an insurance policy that shifts the risk from the acquiring company to the issuing company.

This increased litigiousness has also produced a more rigorous due diligence requirement that involves more focus on the way intelligence is gathered and the processes associated with it. The process is much more regimented than it once was, requiring companies to ask
the following questions:

  • What IP does the acquisition candidate own?

The acquisition candidate should provide an IP portfolio catalog. The individual patents and trademarks should then be examined to determine any potential liability, which can manifest itself in several ways.

First, you want to make sure you acquire all the Intellectual property when the contract is consummated.  You can’t rely entirely on the portfolio list provided by the target acquisition.  The proper due diligence requires you to verify that the list is complete. The only way to confirm a complete list is to use an analytics tool like Innography. This begs the question, though, “why is a complete list important?”

There are really two reasons to be concerned about the IP in the acquisition: exclusivity and exposure. Exclusivity is important because it has a direct bearing on the value of the acquisition. IP is essentially a technology monopoly, and the degree to which it is exclusive determines, in part, its value. Here are just a few things that you want to examine before the portfolio transfer is executed:

  • International patent family members
  • Continuations in part
  • Patents without current assignee data
  • Recently acquired patents that might
    have been overlooked
  • Patent divestitures that are undocumented
  • What geographical markets are covered in their portfolio?

It’s no secret that company valuations are complex, but a variable you can’t overlook when evaluating an acquisition target is the geographical composition of their IP portfolio. Geographical concentrations suggest future revenue sources. When technologies and processes are patented in a specific jurisdiction, products associated with that IP can be sold exclusively by you in that jurisdiction. In other words if you decide to sell in that jurisdiction you will have 100% of the market.

Understanding that a certain percentage of your IP is based in a specific region assists with segmented revenue forecasting. Combining this data with an understanding of local economic conditions can greatly increase your forecast confidence.

  • How much of the IP portfolio was acquired compared to that developed internally?

One of the many things your IP portfolio represents is know-how. The inventor of the technology protected by a patent is the ultimate subject matter expert for that technology. You would typically rely on that inventor to extend the technology and to develop complementary technologies to enhance your market position in that arena.

If the acquisition target has acquired a significant amount of technology from outside the company, it is possible that there are no subject matter experts to fully exploit the IP the company holds. Even if the technology was developed internally, inventors can also leave the company. The key take-away is that you need to inventory the human resources within the acquisition target to make sure you get the greatest return on your investment.

  • In emerging markets, who’s likely to be my competition?

Emerging markets tend to be risky for many reasons, and entering them makes good market intelligence a must. One of your best sources of market intelligence is your competition. You need to understand in which technologies they are investing. The initial challenge is identifying your competition.

One way to solve both problems is to determine who is investing in technologies similar to your potential acquisition for the market you want to enter. Doing so is just a starting point but as you discover potential competitors you have the opportunity to also get a more complete understanding of their technology investment strategy. This should give you clues as to where you should direct your own development resources and it will assist with revenue forecasting.

  • If a contract for the current target doesn’t materialize, what is my next best acquisition candidate?

Mergers and acquisitions are typically motivated for specific reasons that go beyond the fact that the two companies seem to be a good fit. Often the candidate was discovered as a result of trying to solve some business problem or meet
some business need.

Your first candidate of choice might seem initially attractive. However, as you perform your due diligence you will sometimes find that there is inadequate long term value or too much risk to enable a viable consummation. If that’s the case, you have not solved the problem or filled the business need. It is therefore sensible to have a plan for that contingency.

  • What is the litigation risk if I acquire this company?

The most fundamental aspect of your due diligence is determining your exposure to litigation. Sometimes acquiring a company can put a bull’s-eye on your back. Obviously, researching past litigation in which the candidate has been involved is a useful activity, but that’s just the beginning. You need a clear understanding, for example, of whether the acquisition might actually trigger litigation.

Litigious companies sometimes target other small companies for infringement, but to wait until someone with deep pockets acquires them. It might be that a lawsuit against the small company would not be worthwhile because collecting the damages a lawsuit would yield would bankrupt the defendant. The practice of targeting companies is a growing trend, driven by non-practicing entities. Many of these companies acquire IP for the sole purpose of infringement litigation and do not produce or sell anything, instead relying solely on litigation
damages for revenue.

  • Are there patents on the IP landscape that might block markets I want to enter as a result of this acquisition?

A big concern of any acquisition is freedom to operate. A specific company might seem very attractive if it has product you need because it will enable your entry into a desirable market. If that is an objective of the acquisition it is important to minimize the probability that another company might block your entry with an infringement claim.

As part of your due diligence you should understand before the acquisition is consummated whether that is a possibility. If so, you must determine whether the claim is likely to prevail and have a contingency plan to thwart the claim if you decide that the exposure is minimal enough to proceed.

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Competitive Intelligence: Getting Ahead of the Development Curve

Tuesday 29, June 2010 by Tyron Stading

Today companies are being forced to cope with rising litigation risk because the business environment is simply more litigious. This increased litigiousness has produced a more rigorous due diligence requirement that involves a greater focus on the way intelligence is gathered and the processes associated with it. Part of this rigorous protocol is to monitor the IP landscape generally and competitive targets specifically (companies, products and technologies), before a decision is made to pursue one or more candidates.

You can monitor technology in a variety of ways as it is being developed. At the inception of a technology, research platforms such as Innography can provide only limited assistance because patents aren’t typically filed until about halfway through the product lifecycle.

The lifecycle of the product usually begins with basic research and progresses through a developmental stage until it is mature enough to patent. After the technology is mature and protected, marketing plans begin to emerge as it is applied to products and finally introduced to the market.

Because Innography analytic results rely in part on patent data, there isn’t a way to use it to thoroughly evaluate the technology between inception and patent prosecution. Innography can assist with evaluating the company, along with its current product and patent portfolio during that phase. But much of the competitive intelligence (CI) research must be performed in more conventional ways.

In the beginning, it can be monitored using resources such as research papers and grey literature. This method is a very important complement to research that can be performed using a research platform like Innography. Using Innography, you can see what companies are investing in which technologies, which can be very good technology investment indicators. It can point you to materials that indicate which type of investments in future technologies are being made today.

As the technology becomes well defined and is deemed to be viable, you can rely on R&D Alliances and joint ventures such as open innovation networks to understand the developmental progress. At this point, the focus of your CI gathering should shift from understanding the technology, to a complete understanding of the company who is investing in its development.

Finally, as the technology comes online and patents are filed and granted, you can begin to understand with greater clarity which of your CI targets represent the best investment and least risk. This is where your IP business intelligence platform becomes critical.

You need to be able to overlay the IP data with business and legal data to give it a business context. It is important to know, for example, whether the new technology really is new and whether its patent is similar to other patents held by litigious companies. In such a case, they might already be aware of the patent and are simply waiting for an acquisition or licensing deal so that they can sue someone with much deeper pockets than the inventor.

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What Makes Your Patent Valuable

Friday 23, April 2010 by Tyron Stading

The two February articles covered the concept of IP valuation — the benefits of understanding the value of your IP and the different models in use today for quantifying that value. There’s a missing piece to the equation though: exactly which attributes make your IP valuable?

First, it is important to understand that specific attributes of your IP don’t necessarily make it valuable, but you can look for indicators that are consistently correlated to types of value. There are multiple definitions of value depending on the focus of your organization. For example, maintenance, litigation, licensing, defense and strategy each have their own value that is unique to your team or company.

Within the context of that focus area, you should try to understand statistical patterns that are correlated to valuable outcomes, as you define them. Based on the desired outcome, you can leverage attributes of your IP to find other IP that also demonstrate those same patterns. The following example illustrates one outcome for litigation value that Innography can help you evaluate.

An academic paper produced by faculty members at University of California at Berkley, Stanford, University of Texas, and George Mason University School of Law entitled Valuable Patents analyzes key indicators that suggest the relative value of patents in a legal context. The authors argue that “…some patents are intrinsically more valuable than others.”  and that the relative value can be objectively measured, litigation being a key indicator. They also determined that there are at least seven attributes that can suggest whether a patent is relatively valuable :

  • They tend to be young, i.e. litigated soon after they are obtained.
  • They tend to be owned by domestic rather than foreign companies.
  • They tend to be issued to individuals or small companies, not large companies.
  • They cite more prior art than non-litigated patents, and in turn are more likely to be cited by others.
  • They spend longer in prosecution than ordinary patents.
  • They contain more claims than ordinary patents.
  • They come disproportionately from certain industries. Patents in the mechanical, computer and medical device industries are significantly more likely to be litigated than patents in the chemical and semiconductor industries.

The value of identifying these attributes is that they can be objectively measured. You can know, for example, how old a patent is and how many times it has been litigated. Likewise, a patent is either owned by an American company or it is not and you can know definitively how many times a patent is cited and how many patents it cites.

The authors acknowledge this fact as a breakthrough finding in the introduction:

“Finally, the existence of objectively verifiable predictors of the value of a patent should revolutionize the “black art” of patent valuation.”

At Innography, we refer to this type of relative valuation as patent strength, and we’ve built a patent strength rating feature into the Innography service. When people are introduced to the application, it’s common for them to ask what we mean by patent strength and how we go about deciding that one patent is stronger than another.

What we’ve done, which is unique in the industry, is to devise an algorithm inspired by the Valuable Patents scholarly paper for evaluating the relative strength of a patent. We have identified specific attributes, some of which are listed in the paper, and we objectively measure them for each patent. Innography then scores the patent based on the combined value of each attribute using this unique Innography algorithm. Patents with higher scores are ranked higher than patents with lower scores.

Innography then visually rank the patents, so that both the strongest and the weakest patents can be quickly identified. It also breaks the ranking down to indicate specific areas of strength or weakness within individual patents:

Innography provides legal strength indicators based on litigation patterns. There are other metrics that can also be leveraged for maintenance, licensing, product protection, and so on. The key takeaway is that regardless of the outcome you’re seeking, valuation metrics are much more mature than they once were and they can give you insights that are beyond human capabilities.

These statistical patterns can give way to new opportunities such as

  • Increasing licensing rates – Picking the highest potential licensable patents.
  • Decreasing litigation risk – Identifying risk and preemptively taking steps to avoid it.
  • Decreasing maintenance fees – Pruning patents that should be dropped from maintenance.

Regardless of the outcome or valuation, the science has produced tremendous results and should become a core part of your business. Gauging the relative strength of a patent is no longer science fiction; it is science fact and it can enable significant ROI you wouldn’t have without it.

Click here for more information on Patent Analysis.

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