Drivers of IP value – the most active companies in intellectual property revisited

While innovation remains a hot topic within the realm of business and the media, far too much emphasis is given to patent count. The idea that patents are king and that those with the largest patent portfolio are the most innovative is a gross oversight, failing to address the value that can be derived from actively managing IP portfolios in their entirety. The decision to maintain an IP portfolio or dispose of it, to assert a right or not, to sell or license a portfolio, is what really drives value.

The benefits associated with the activities that drive value have broader-reaching implications than many professionals may realise. Rather than focusing solely on the value derived from IP activity internally, rights holders and companies alike should be monitoring IP activity externally. It is only through thorough review of IP activity in the marketplace that companies can better understand the value of outside innovations and strategies. Whether it be a competitor or a potential acquisition target, the business intelligence gained by monitoring IP activity can directly affect future decisions and, ultimately, future profits.

In 2013 the first edition of what we call the ‘IP Elite – 50 Most Active Companies in IP’ (not related to IAM’s Asia IP Elite and China IP Elite) was released with the goal of dispelling the patent myth (ie, that the IP landscape is synonymous with the patent landscape). Published in IAM issue 61, “Drivers of IP value – the most active companies in intellectual property” accompanied that project, detailing ways in which rights holders can not only increase the value of their intellectual property, but also identify intelligence information necessary to maximise the value of their portfolio.

This second edition takes the drivers of IP value one step further by providing examples of IP portfolio management and the gathering of competitive intelligence.

Transparency through interconnected data

Strategies for gathering business intelligence have evolved over time with the emergence of various technologies and the growing availability of data. What remains constant is that the most successful companies utilise every tool available to protect their competitive advantage and triumph over the competition.

In order to effectively monitor IP activity, companies must first obtain solid data on which to base their decisions. While many believe that data is unavailable and hard to come by, the opposite is true. Sources of available documentation include licence agreements, patent filings, trademark filings and M&A disclosures – all of which are available for every industry and in most countries. Each piece is vital to gaining the business intelligence – and creating the transparency – necessary to succeed in today’s highly competitive business environment.

Figure 1. Interconnectivity of IP information

Information contained in these individual data sources can provide important insights into potential competitor strategies and innovations. However, when this data interconnects, a wealth of previously hidden information becomes visible. Figure 1 demonstrates the interconnectivity of the above-mentioned information sources. In order to understand these connections, one needs to understand first the value of these individual sources of IP information and second how the data can be connected to uncover hidden information. Taking the extra step to connect the data and utilise its collective insight can ultimately be the difference between success and failure.

Licence agreements

IP professionals generally understand that licence agreements exist in the public domain, but undervalue the vast amount of information that exists within these documents. Analysing the content of an agreement often reveals an interesting story. For example, licence agreements contain the deal structure and specific deal clauses (including territories where the intellectual property is being exploited), exclusivity rights, termination clauses and definitions of the deal agreed to between the parties for every industry. Additionally, the actual intellectual property being licensed (eg, patents or trademarks) is often disclosed within the agreements.

Licence agreement case study

As shown in Table 1, by analysing the licence agreements executed by Merck & Co Inc and its subsidiaries, who Merck & Co is receiving rights from, as well as to whom it is sending rights is revealed. Further, consider the highlighted asset transfer and licence agreement entered into with Guilford Pharmaceuticals Inc relating to chemical compound tirofiban hydrochloride. For this transaction, Merck & Co Inc received $80.3 million as an initial purchase price, with continuing royalties ranging from 5% to 20% through 2012 for sales within the United States. Along with the terms defined within the agreement, it can and should be noted that this compound goes by the trademark AGGRASTAT.

Patents

An overwhelming proportion of professionals undervalue patent filings, viewing them merely as a means to understand what innovations a company has developed. These professionals are overlooking other valuable patent-related information, such as assignments. In addition to viewing the innovations of a company, patent filings and assignments allow professionals to track where these innovations are being transferred, sectors where patents may be applied, specific claims around the novelty of the patents and, possibly most importantly, who owns the patents.

Patent case study

By analysing patents, professionals can find a wealth of information, including the sectors in which a company is innovating. As seen in Figure 2, the acquisition of patents from HP in 2014 expanded Qualcomm’s patent portfolio within sectors that it had not previously invested in heavily. As such, these patents opened up the possibility for Qualcomm to compete against companies long established within these sectors. This information alone can provide professionals with insight into Qualcomm’s future strategy, including predicting who it plans to compete against, who may be interested in entering into licensing arrangements with it and who has acquisition potential.

Figure 2. 2014 Qualcomm patent classes acquired

Trademarks

Trademarks have not historically been viewed as a viable source of competitive information. Many professionals, in fact, consider trademarks only as a means of detecting potential threats to their brand. In reality, trademarks provide a greater level of insight, allowing companies to learn not only the first-degree business dealings of their partners or potential partners, but also second and third-degree dealings. This information can not only predict brand threats, but also be used to help discover potential competitive conflicts and future competitor product plans.

Trademark case study

Understanding the brand strategies and holdings of companies is vital to competitive intelligence. As companies acquire other companies and the industry consolidates, it becomes important to understand who the ultimate owners of the trademarks are. As some companies assign all of their trademarks to one larger IP holding company, others may simply let these new subsidiaries operate and manage their own intellectual property. By tracking this information, professionals can get a detailed view of corporate structure, as well as the existence of any larger underlying strategy.

Figure 3. Berkshire Hathaway trademark count by sample pool of subsidiaries

As demonstrated by Figure 3, in the absence of assignment activity, professionals can look to other sources of information to gain competitive intelligence. In the case of Berkshire Hathaway Inc, the acquisition of many of its subsidiaries was virtually undetectable. Without viewing the acquisition data, it is nearly impossible to ascertain that Fruit of the Loom, Business Wire, Lubizol, Geico and Burlington Northern Santa Fe are actually subsidiaries of Berkshire Hathaway Inc, as the trademarks have remained within each company, never moving through assignment to Berkshire Hathaway Inc. This information is integral to understanding who a company is competing against.

Figure 4. LED M&A activity 2009-2013

Figure 5. Agreement type trends – pharmaceuticals

Figure 6. Exclusivity trends – pharmaceuticals

M&A

IP professionals look to M&A deals in order to understand the potential market values of companies. If the same professionals were to look at these deals more closely, they would also learn the identities of the shareholders of the target companies, the industries in which both companies operate, the intellectual property owned by the target, potential synergies between the acquirer’s products and the target’s, and potential insights into future areas the acquirer may be heading strategically. All of this information – plus the final value being paid – is available to provide further insight into any number of companies and industries.

M&A case study

As seen in Figure 4, acquisitions from 2009 to 2013 related to light-emitting diode (LED) technology has been an active M&A area, peaking in 2011. On a broad scale, understanding M&A activity trends can have a significant impact on a company’s decision to participate in future M&A activity within a sector.

By further analysing these acquisitions, valuable insights into the specific activities of individual companies can emerge. For example, in 2011 Cree Inc acquired Ruud Lighting Inc for approximately $525 million. Since then, Ruud Lighting Inc has assigned 18% of its patent portfolio to Cree Inc. The acquisition thus transformed Cree Inc into a competitor within the outdoor LED lighting product and technology market – a market in which it had previously been unable to compete. However, without understanding the corporate structure that follows a merger or acquisition, it could be easy to miss the broader portfolio that Cree Inc now owns.

IP connections – practical applications for connected data

As demonstrated above, individual sources of IP data provide a wealth of information on their own. What the above case studies also demonstrate is the importance of connections between this data. The following sections offer several practical applications demonstrating ways in which professionals and companies can utilise interconnected data, including competitive intelligence, commercialisation and valuation.

Competitive intelligence

As revealed through the individual case studies above, interconnected data is integral to a complete competitive intelligence analysis. Treated as one all-encompassing data set, IP connections open a world of discovery for companies looking to gather competitive intelligence.

In practice, interconnected data allows companies to discover who the competition is currently dealing with, where a company is innovating, where it is divesting and the strategic moves that a company is making regarding its intellectual property – all things that many companies spend a great deal of resources trying to hide from their competitors. As an example, Table 2 demonstrates the industry sectors which Nike Inc and its subsidiaries have been investing in and divesting out, related to their IP portfolios. With this information, companies are better able to discern trends and strategies not only for their competitors, but across entire industries as well.

Figure 7. Royalty rate trends – pharmaceuticals

Additionally, interconnected data allows companies to monitor the competition by providing the means to stay current regarding any threatening movements. Table 3 demonstrates how this is possible by displaying Nike Inc’s IP activity by IP type over the past few months. In this example, attention should be paid to the assignments taking place, as they may help a company to predict a competitor’s impending innovation strategy. The possibilities presented by connecting IP information are numerous and allow companies to make more informed decisions.

Figure 8. Territory trends – pharmaceuticals

Commercialisation

Commercialisation is an integral function which directly affects a company’s profitability. While it may manifest in a variety of ways (ie, technology transfer, licensing or buy/sell transactions), commercialisation is something that every company can struggle to accomplish without complete information. By connecting information sources, companies can streamline many of the tasks associated with commercialising a given technology. These tasks can include identifying potential partners, locating players in the market and reviewing deal terms involving the technology in question.

In order to accomplish these tasks, commercialisation specialists can utilise the information contained within licence agreements, as well as the connections found between licence agreements and patents. As demonstrated in Tables 4 to 6, analysing the entirety of available licence agreements, plus those associated with patents, allows professionals to compile detailed reports regarding any technology of interest. In the case of angiogenesis, a clear indication of the top licensees, existing licence agreements and licensed patents emerges. Together, this information begins to create a clear path to potential commercialisation partners, similar licensed technologies and comparable deal structures.

Digging further into the data, professionals can also begin to compile deal-structure trends across industries and technologies. Figures 5 to 8 begin to highlight these trends across the pharmaceutical industry – specifically,

the agreement types, exclusivity, royalty rates and territories. The level of transparency created through these reports is paramount to striking profitable deals.

Figure 9. Applying royalty rates to patent families

Valuation

Valuation professionals rely on licence agreements as a source of royalty rates and potential value information. These professionals are often tasked with valuing individual or portfolios of patents which may be unique from technologies that are licensed by other companies. By utilising publicly available information and interconnected data sets, valuation professionals can discover once-hidden pieces of information. In the past, it may have been nearly impossible to see how automobile glass, commercial buildings and mobile phones were related. By connecting patents, licence agreements and royalty information, professionals can see that a patent for automobile glass was licensed to a commercial building manufacturer to be used in high-rise buildings, and that later the royalties agreed to in the licence agreement were used to calculate the value of mobile phones built using the same glass.

Figure 9 demonstrates how starting with a specific patent can assist in applying a royalty rate to a group of patents. Valuation experts can utilise this interconnected data to identify defensible royalty rates that tie specifically to related patents versus relying on keyword-based searches. Without interconnected data, this would not be possible.