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

Findings presented back in issue 61 of IAM dispelled the myth that patent count is all that is needed for a strong and valuable IP portfolio. This year, a repeat of that research is taken further by providing examples of IP portfolio management and the gathering of competitive intelligence

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.

Practical applications for interconnected data

  • Following the flow of interconnected data can lead professionals to conclusions once buried across individual sources of information.
  • For competitive intelligence, interconnected data allows companies to discover who the competition is currently dealing with, where a company is innovating, where a company is divesting and the strategic moves a company is making regarding its intellectual property.
  • For commercialisation, interconnected data allows professionals to more efficiently complete tasks such as identifying potential partners, locating players in the market and reviewing deals terms involving a specific technology.
  • For valuation, interconnected data helps valuation experts to find the best comparables for benchmarking. 

Figure 1. Interconnectivity of IP information

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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.

Table 1. Merck & Co Inc licensing activity

Merck & Co Inc entity

Licensing partner

Effective date

Agreement title

Merck & Co Inc

Alnylam Pharmaceuticals Inc

3/7/2006

Amended and restated research collaboration and licence agreement

MSD Consumer Care Inc (formerly known as Schering-Plough Healthcare Products, Inc)

Santarus Inc

23/9/2011

Amendment no 4 to OTC licence agreement

Merck Sharp & Dohme Corp

Scynexis Inc

24/5/2013

Termination and licence agreement

Merck & Co Inc

Guilford Pharmaceuticals Inc

28/10/2003

Asset transfer and licence agreement

Schering Corporation

Opko Health Inc

12/10/2009

Asset purchase agreement

Organon USA Inc

Amphastar Pharmaceuticals Inc

26/6/2003

Toll manufacturing agreement

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

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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

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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.

 

 

Methodology

The list of the 50 Most Active Companies in IP 2013 aims to shed light on companies that are actively participating in this area. Recognition should be given to those driving value by utilising various IP activities and IP information, thereby showing true innovative spirit in today’s IP frontier. The companies on this list are actively managing their portfolios, utilising the true IP landscape and not merely claiming patent rights for their intellectual property.

The data used to compile our ‘IP Elite – 50 Most Active Companies in IP’ was pulled exclusively from ktMINE repositories. Specifically, licence agreement filings, patent filings, patent assignment filings, trademark filings, trademark assignment filings and M&A deals and rumours were used to tally the score – the aforementioned value-driving tools and activities for 2013.

Focusing on value-driving tools and activities, our analysts utilised a proprietary method of assigning points using information such as licensing in and out and acquisition or divestiture of IP assets to tally a company’s score. While volume was considered, an expanded set of activity rules was assigned for each IP type. The following provides a more detailed look at what activity data was analysed and how our analysts assigned scores.

Licence agreement filings

Points assigned to licence agreements were based on the agreement’s filing date. By using filing date, as opposed to the effective date, we were better able to ascertain the materiality of the activity. Companies with high activity scores in licensing activity filed agreements, were referenced in agreements or both in 2013. Higher consideration was given to those participating in both activities.

Patent and assignment filings

Points assigned to patent filings were based on application, publication and issue dates. Assigning points for each date rewards companies that not only applied for rights but were also granted them. Not all patents complete this cycle; many do not pass through the examination process and therefore provide no real value. Companies with high scores in patenting activity were named as inventor and/or original assignee in 2013.

Points assigned to patent assignments were based on date of assignment. In order to reward companies for actively utilising their patent portfolio, transfer activities involved with patenting must be considered. Companies with high scores in patent assignment activity were assigned patents, assigning patents or both in 2013. Higher consideration was given to those participating in both activities.

Trademarking and assignment filings

Points assigned to trademark filings were based on registration and issue dates. Much like patents, by using both registration and issue date, we can assign value for completion of the trademark process.

Points assigned to trademark assignments were based on the date of assignment. Companies with high scores in trademark assignment activity were assigned trademarks, assigning trademarks or both in 2013. Higher consideration was given to those participating in both activities.

M&A deals and rumours

Points assigned to M&A deals and rumours were based on rumour, announcement and completion dates. Due to the nature of many M&A deals, full details of an actual deal may not be divulged until long after the deal is done. Companies with high scores in M&A activity were named a target, acquirer, vendor or a combination of the three in 2013. Higher consideration was given to those participating in all three activities.

Figure 4. LED M&A activity 2009-2013

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Figure 5. Agreement type trends – pharmaceuticals

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Figure 6. Exclusivity trends – pharmaceuticals

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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.

Table 2. Nike – IP activity by industry sector

→  Inbound

Outbound  →

Apparel

Data processing: measuring, calibrating or testing

Recording, communication or information retrieval equipment

Exercise devices

Optics

Data processing: financial, business practice, management or cost/price determination

Boots, shoes and leggings

Games using tangible projectile

Equipment for production, distribution or transformation of energy

Prostheses

Figure 7. Royalty rate trends – pharmaceuticals

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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.

 

 

 

 

 

 

 

 

 

Table 3. Nike - recent IP activity

Date

Assignment history

Asset assigned

20/5/2014

Humble Jason P, McCullagh Cory B → Nike Inc

Assigned one US patent 14031410

13/5/2014

Avar Eric P, Jones David Patrick → Nike Inc

Assigned one US patent 13045571

13/5/2014

Nike International Ltd → Nike Inc

Assigned one US patent 10668036

8/5/2014

Fredrick Colleen → Nike Inc

Assigned one US patent 29475097

8/5/2014

Nike USA Inc → Nike Inc

Assigned one US patent 13905803

7/5/2014

Homsi Kristopher L, Winsper Paul T → Nike Inc

Assigned one US patent 13909832

28/4/2014

Boyd Edward Lang, Ishihara James Alec, Yoo Yeongkyu → Nike Inc

Assigned one US patent 14173026

24/4/2014

Chaisumrej Thienchai, Haugbro Gjermund, Vietnam Ching Luh Shoes Co Ltd, Wan Tee L → Nike Inc

Assigned one US patent 13833140

16/4/2014

Nike Bauer Hockey Corp → Nike Inc

Assigned one US patent 12469349

16/4/2014

Nike Inc → Nike Bauer Hockey USA Inc

Assigned one US patent 12469349

2/4/2014

Avar Eric P, Xanthos George → Nike Inc

Assigned one US patent 29472180

Table 4. Top licensees – angiogenesis

Licensees

Cardiovascular Biotherapeutics Inc

Biochem Pharma Inc

Biochem Vaccines Inc

Tanaud International BV

Yissum Research Development Company of the Hebrew University of Jerusalem

Children’s Medical Center Corporation

Table 5. Licence agreements – angiogenesis

Filing company

Filing date

Filing type

SIC code

MIV Therapeutics Inc

3/9/2002

10KSB

3841

Arqule Inc

26/4/2007

8-K

2834

MIV Therapeutics Inc

28/8/2003

10KSB

3841

Celgene Corp

30/3/2003

10-K

2834

Cardiovascular Biotherapeutics Inc

21/3/2006

8-K

2834

Table 6. Licensed patents – angiogenesis

Patent title

Patent number

Publication number

Application number

Methods and compositions for inhibition of angiogenesis with EM-138

6,977,268

--

10/026,037

Methods for treating blood-borne tumours with thalidomide

8,143,283

--

09/704,054

Methods of stimulating angiogenesis in a patient by administering vascular endothelial growth factor 2

7,186,688

--

09/107,997

Methods and compositions for inhibition of angiogenesis

6,071,948

--

08/950,673

Methods and compositions for inhibition of angiogenesis

5,712,291

--

08/468,792

Methods and compositions for inhibition of angiogenesis with EM-138

6,469,045

--

09/545,139

Use of nitrogen substituted thalidomide analogues for the treatment of macular degeneration

7,153,867

2003-0139451

10/213,294

Figure 8. Territory trends – pharmaceuticals

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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

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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.

 

Table 7. 50 most active companies in IP during 2013

Company

Country

Alcatel-Lucent

France

Alcatel-Lucent USA Inc

United States

Arris Enterprises Inc

United States

Arris Group Inc

United States

Avaya Inc

United States

Bank of America NA

United States

Bank of America NA as administrative agent

United States

Bank of America NA as agent

United States

Bank of America NA as collateral agent

United States

Bank of New York Mellon Trust Company NA

United States

Barclays Bank plc as administrative agent

United Kingdom

Carestream Dental LLC

United States

Carestream Health Inc

United States

Citibank NA as notes collateral agent

United States

Citicorp North America Inc as senior DIP agent

United States

Credit Suisse AG

Switzerland

Credit Suisse AG Cayman Islands Branch

Cayman Islands

Creo Manufacturing America LLC

United States

Eastman Kodak Company

United States

Evault inc f/k/a i365 Inc

United States

Far East Development Ltd

United States

FPC Inc

United States

Freescale Semiconductor Inc

United States

General Instrument Corporation

United States

General Instrument Holdings Inc

United States

Hewlett-Packard Development Company LP

United States

JPMorgan Chase Bank NA

United States

JPMorgan Chase Bank NA as administrative agent

United States

Kodak Americas ltd

Peru

Kodak Aviation Leasing llc

United States

Kodak Imaging Network Inc

United States

Kodak Near East Inc

United Arab Emirates

Kodak Philippines Ltd

Philippines

Kodak Portuguesa Limited

Portugal

Kodak Realty Inc

United States

Laser-Pacific Media Corporation

United States

NPEC Inc

United States

Pakon Inc

United States

Palm Inc

United States

Qualex Inc

United States

Quantum Medical Imaging LLC

United States

Seagate Technology International

Cayman Islands

Seagate Technology LLC

United States

Seagate Technology US Holdings Inc

United States

Trophy Dental Inc

United States

Unisys Corporation

United States

Wells Fargo Bank National Association as collateral agent and second priority representative

United States

Wilmington Trust National Association

United States

Wilmington Trust National Association as agent

United States

Wilmington Trust National Association as Junior DIP agent

United States

Action plan

True value comes from the active and effective management of all IP assets. Rights holders should focus on drivers of IP value, both internally and externally, in order to gain integral business intelligence.

  • Transparency through interconnected data – IP data is widely believed to be non-existent, when in reality available sources include licence agreements, patent filings, trademark filings and M&A disclosures, all available for every industry and in most countries. Information contained within individual data sources can provide insights into potential competitor strategies and innovations, but when interconnected can reveal previously unseen insights.
  • Licence agreements – licence agreements provide transparency into how companies make deals, who they make deals with, how much they are willing to pay or receive for these rights, and what types of IP companies are bringing in or sending out.
  • Patents – patents and assignments can be used to discover what companies are inventing, where the inventions are being transferred, where the patent may be utilised and even what related inventions came before or after an invention.
  • Trademarks – historically, trademarks have been vastly underrated as a viable source of competitive information, but when used in conjunction with other sources of IP information sources, they can be an extremely valuable resource.
  • M&A – looking closely at M&A deals can reveal the shareholders of the target, 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 the future areas that the acquirer may be heading strategically.

David Jarczyk is president and CEO of ktMINE, Chicago. John J Wiora is an expert analyst with the firm; Danielle M Lambert is its director of marketing

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