IP strategist: It might be time to revisit your IP strategy

In what may seem like the blink of an eye, several of the assumptions that the IP marketplace had traditionally come to rely upon have changed. While the most profound recalibration has without doubt taken place in the United States, its impact has been felt worldwide, as North America has been the main driver for the IP marketplace for the last decade.

A series of decisions handed down by the US Supreme Court and the Federal Circuit has now made it considerably harder for patent holders to enforce their rights, whether these relate to validity, infringement or damages – the three pillars of a healthy IP system. Further, since last June, the Supreme Court’s decision in Alice has had repercussions far beyond what most pundits initially expected. As a result, the very rationale for software patents is now being questioned and few of those patents challenged post-Alice have in fact survived. Meanwhile, seemingly out of nowhere, the new inter partes post-grant review created under the America Invents Act has become the weapon of choice for alleged infringers and the new US Patent Trial and Appeal Board (PTAB) has been happy to oblige, invalidating patents at a staggering rate of over 70% (close to 90% for covered business method patents). Worse, despite the fact that these developments have already significantly reduced the amount of patent litigation, the US Congress still appears bent on voting through a law that would make it even harder for certain patent holders to assert their rights in the future.

On the other hand, Europe is finally approaching – after a 40-year gestation – the finish line in establishing a unified patent system, which many experts suspect will make Germany the new epicentre of patent assertion. Further east, China and India are gradually putting in place their IP protection infrastructure, to the immediate benefit of local industry. Meanwhile, cyber-espionage and IP theft have become rampant worldwide and the bad actors always seem to be one step ahead of their victims.

Now that patents have become an uncertain currency and few secrets can withstand a sophisticated hacking attack, most IP strategies that were established a few years ago are probably ripe for a reset – whether you are a Fortune 500, a non-practising entity (NPE) or a small inventor.

Fortune 500

If you manage the intellectual property of a large corporation, the chances are that you already own thousands of patents and continue to file at a healthy rate. In reality, you rarely assert your own patents (at least not directly). Because large tech companies are almost always on the receiving end of a patent assertion, some of them have lobbied hard – and quite successfully – to make enforcement tougher. Accordingly, they must now recalibrate their own filing strategy to emphasise quality over quantity, keep more patent families alive (in the United States at least) and tweak their approach to claim drafting against the ever-changing case law. They must also commit to massive pruning of their patent portfolios, which now carry a lot of dead weight, in order to allocate more resources to fewer strategic assets. In addition, they may have to rely more on trade secret protection than previously, which brings forth the conundrum of encouraging more sharing of confidential information internally in order to foster innovation. This in turn makes trade secrets more vulnerable to IP leakage and theft. Therefore, hard choices between ease of collaboration and protection of valuable information need to be made. We are starting to see a lot more projects where so-called ‘clean room’ development and non-networked storage devices are the norm.

NPEs

Not only has it become more expensive and more complicated for NPEs to license or assert patents, but the potential rewards – even in rare cases of victory – seem to be decreasing steadily. In addition, there is now a concrete risk of having to pay the other side a substantial amount of money in case of a loss. As a result, there are fewer NPEs and some of the publicly traded IP companies are retreating completely from the patent assertion model. However, this can also be an opportunity; it is a buyers’ market and NPEs are in the business of acquiring patents, after all. Therefore, those that can afford the Warren Buffet approach of ‘buy low and hold’ might be rewarded later on for their patience when the market picks up steam again, which it will do inevitably. Until then, NPEs should focus on acquiring assets with a longer shelf life and, where possible, buy the companies which own the patents in order to avoid being labelled trolls in court. Alternatively, they can simply license rather than buy and then assert on behalf of the patent holder. They also ought to develop inexpensive ways to fend off the barrage of inter partes reviewsthat they are bound to face while waiting for better days.

Inventors

The current environment has not been kind to small patent holders either, which feel – quite rightly – that the deck has now been stacked against them. Since most inventors do not necessarily intend to build a business, they need options; and they have been left with very few of these. To reap the fruit of their innovations, inventors must either resign themselves to becoming business owners or settle for a more modest, but much less risky reward through patent sales, which have the distinct benefit of transferring all the risks to a buyer, which will be much better suited to dealing with a fight.

In short, intellectual property is no different from any other asset class. New market conditions call for a fresh strategy either to capitalise on a friendly environment or to cut one’s losses and build ammunition for the next chapter.