28 Oct
2021

Managing your patents as an asset, not a cost

What? How? Why?

The ‘what?’ is the protection of commercially valuable knowledge. Patents protect an invention from being exploited by a third party who infringes the patent without the permission of the patent owner. A patent is a monopoly right that enables the patent owner to seek to prevent an act of infringement but does not entitle the patent owner to do anything else. It is therefore intangible in its effect.

The ‘how?’ is obtaining a patent to realise this monopoly. The drafting and prosecution of an application for a patent is a highly skilled process done by seasoned professionals with an all-too rare combination of technical and linguistic skills. But we should not get carried away with the thought that patents are the be-all and end-all of intellectual property. In many cases, trade secrets, for example, provide appropriate protection – they cost little or nothing except good record-keeping practices, as it is simply a case of keeping the know-how to yourself. The trade-off in the patent process requires you to disclose your invention sufficiently well for the relevant skilled person to know what its contribution is. In return, the seeker of the patent protection may get that monopoly if the idea is a sufficient advance over what was already known. Such disclosure in a patent may not be best thing in all circumstances. For example, there is a misconception widely held that the inhibitor to the manufacture of covid-19 vaccines by third parties was patents. In fact, the significant factor was the reluctance of the drug developers to disclose their production know-how for making RNA vaccines in general: once the ‘know-how cat is out of the bag’ all subsequent RNA vaccine manufacture would be that much easier. Patents are simply the right monopolistic tool for the particular job.

Given the highly skilled people that inhabit the patenting world, it is perhaps surprising that what is not addressed often enough in patenting is the ‘why?’. This is at the commercial end of the game where it has been said that the average patent practitioner is sometimes ill-suited to the task. Like any other part of a business strategy, the ‘why?’ is crucial to the establishment of a sound patent portfolio management policy. Without it, a patent portfolio tends to gather dust (and ballooning renewal fees) until someone in finance asks why the costs are being incurred for no tangible return. This can create tension in a business, with the IP department being seen as a drain on company resources without adding obvious value to the bottom line. In some cases, the IP department policing its patents can be seen as a very expensive burglar deterrent, but what can be difficult is providing senior business leaders with evidence of the benefit of having deterred the break-in in the first place. This is the bane of the patent manager’s life: they often cannot justify their existence by being able to point to an instance of prevention attributable to a patent monopoly. By definition, a patent stops things rather than enables them.

What is needed is clarity of purpose and, importantly, communication and engagement between the IP department and the rest of the business. None of this is rocket science but it tends to get overlooked due to the intangible nature of a patent as an asset – the patent manager understands their own goals and objectives, but do the other parts of the business, or indeed, does the C-suite?

So, why patent?

The basic purpose of a patent is the ringfencing of an aspect of a technology to maintain or create competitive advantage in a market sector. The greater the innovative advance over what was known, the bigger the notional area that is fenced off by the patent. Therefore, the basic reason to seek a patent for an invention is to create the monopoly that potentially prevents competitors from exploiting the same technical advantage. But that is by no means the end of it. Intellectual property, of which patents are only one element, can significantly enhance the value of a nascent company looking for funding or to be sold – understanding how exactly to craft this often-overlooked value lever requires an IP professional to focus carefully on the ‘why?’. Also, more and more established companies are looking at their patent portfolios to see how they can be made to work for the bottom line. Often referred to as monetisation, what used to be dismissed as the work of patent trolls is now the domain of many blue-chip companies whose patent portfolios have sat there for years incurring maintenance fees with nobody asking ‘why?’. These examples are the basis of valid strategies on their own or each as part of a hybrid. What matters is that a robust strategy is defined and, most importantly, communicated.

The strategy

Let us take the example of strategic patent portfolio development for monetisation through licensing. You may have decided (with some justification) that the cost of getting and keeping patents is high and needs to work to help sustain future protection efforts. Therefore, the ‘why?’ is to exploit your company’s IP assets to the direct benefit of the bottom line. There are two elements to this:

  • the existing portfolio; and
  • the pipeline of innovation.

To seek a return on your patent investment you need to define a technology sector that is relevant to your portfolio. Better to be asymmetric in the sense that the target technology is not in your field as you do not want to invite a counter-action. Also, think about the ease of identifying infringement. Far better to identify the case from a tear-down of a product than forensic reverse engineering of layers of semiconductor material.

It is also important to secure the right ‘right’, meaning an assertible patent right that maps onto a credible target. More than that, a carefully crafted filing strategy, driven by true understanding of the capabilities of a business’s innovation potential, can lead to identification of patent ‘white space’ and offer a first-mover advantage to the organisation that has the understanding and vision to exploit previously uncharted territory in a given sector.

Investment in a talented patent manager and engagement with sufficiently commercial outside counsel can pay dividends by not only bulls-eyeing the protection for a particular innovation, but ringfencing innovation so that competitors cannot take even one step towards your market position years down the line. Evidence of your competitors’ inability to fast-follow (or even follow at all) can be used by the patent manager to demonstrate the value and credibility of the IP department and create an understanding within the business of why the IP department should be fully integrated with all appropriate aspects of the business – this is as much part of the strategy as anything else.

The process

Not all patents are of equal strength. Some are weak because, while they may have been granted by a patent office, they may not withstand the scrutiny of a full investigation of their validity post-grant. Others may just be too narrow or irrelevant to the strategy. The point is to take a hard look at the portfolio with the target sector in mind and rank them for strength and relevance. Do not be too granular about it, because at this level it is not an exact science and must be tested against actual products anyway. Keep it to high, medium and low for both strength and relevance. Then maintain a database of the assets – we say ‘maintain’ as opposed to ‘create’ as this is an iterative process based on your own assets as well as the developing experience of the market. Think about how you might finesse the promising patents. While a patent is meant to be a future-proof definition of the inventive concept, it is a fact of life that words can creep in during prosecution that, with hindsight, might have been better rendered. This ‘finessing’ may be by way of revisiting the patent family through further patent applications (known as a ‘divisional’ of an existing patent application and other such mechanisms pre-grant and even post-grant) or developing the concepts by way of additional patent applications (eg, in response to a shift in the strategy and direction of a competitor – do not innovate in a vacuum). For example, a previously low-ranked asset may become more valuable following a new player entering the market. As such, it is important to remain vigilant and have a good overview of the sector as it evolves. This again highlights the importance of the patent manager being plugged into the rest of the business and engaging with creative counsel who avoid the ‘paint by numbers’ approach to process management and strategy implementation.

In addition to the maintenance of rankings in your asset database, the patent manager should also consider risk mitigation associated with third parties (eg, suppliers). It is the nature of things that large organisations rely on suppliers for components key to their products and services. Again, ensuring that you have the right ‘right’ may involve tying off loose ends regarding potential challenges to ownership where third parties are involved in the key aspects of your business. This ensures that assertion of those high-ranked assets does not become encumbered.

Further, think about acquiring patent assets to complement what you have. Like any piece of property, intellectual property can be bought and sold. There is a ready market in patents, particularly in the tech-savvy centres of the United States, but frankly most are duds. That does not mean that all assets for sale – or not actually on the market – are beyond consideration.

The team

It is not unknown for some very big companies to have assigned the management of the patent portfolio to a fading engineer whom the business has not got the heart to let go but cannot be confident that they will contribute well to any future engineering project. If the company is lucky, the person will ‘get’ patents and find a new lease of work life. More often they will struggle to understand the concepts, resent the reassignment, not think in terms of a strategy and bring the portfolio down to a manageable, but essentially stodgy, game of ‘file and forget’ – all with the acquiescence of the board. An investment in patents is not just a case of throwing money at your chosen patent firm (as much as some firms would like it to be otherwise). These days, the in-house career for patent professionals is full of highly talented people who also bring exceptional experience of the in-house role that cannot be replicated. As much as patent firms will attempt to convince you that they understand what it is like to be in-house – they do not. To this specific end, it is advisable to make a point of hiring a diverse group of professionals from in-house roles as well as private practice so that the business can feed off the in-house insight. In short, hire for the role. If you are at all unsure of what to look for, ask your preferred patent firm to help with the sifting and interviewing.  

Who needs to know?

The short answer is everybody to the extent possible. The strategy cannot be developed and implemented without total buy-in from the C-suite and the understanding of virtually everybody else involved in the development of ideas in the company.

This is a significant investment and clarity across the executive function is key. In consultation with those experienced enough to know, allocate resources for a medium-term investment in the identified strategy. The chief technology officer will be leading the charge, but the chief financial officer and the CEO need to be involved to enable and encourage.

The potential innovators need to ‘think patent’. This should be engrained in the culture of the business, without being overwhelming. Incentives help. It is remarkable how rewarding the kudos and a few hundred pounds is for the engineer whose idea put forward on an invention disclosure form is made the subject of a patent application. Likewise, it is equally remarkable how similarly rewarding they will find it when that idea is the subject of a granted patent that is framed and mounted in the entrance hall of the head office. Not all ideas get through, but if the strategy is communicated it is quite common for ideas to be submitted for evaluation that are not strictly part of a product development project, but just the result of a bit of sideways thinking once the person is aware of the strategy and the issues.

Review

The portfolio and the market should be the subject of constant review for mutual relevance. But not just that: having developed the strategy, the C-suite must review it at a high level so that they are involved and remain bought in. The job of the in-house patent manager is to explain as much as it is to manage the portfolio.

Once you have reviewed, be willing to update either the strategy or the tactics based on experience. Nothing is cast in stone, certainly not the market. The portfolio needs to be managed accordingly.

Repeat

Think in terms of at least quarterly strategic gatherings of all stakeholders. By degrees, it is possible to winnow the attendees to those who need to be there but start broadly and refine over time. In fact, encourage your patent manager to drive this so that they are seen to be in the driving seat. Ask the challenging questions at an early stage so the project does not run into a siding before it is too late.

Very similar comments apply to the company looking to increase its value for sale or a market offering. While it is often the case that sophisticated potential investors will scrutinise your intellectual property properly, a lot leave it at a level that is surprisingly superficial. Nevertheless, a patent management strategy that can be cogently explained will go a long way to raising confidence in the company overall. Be prepared for the former. From notes on a napkin to the initial public offering, the smart investor will pick through your intellectual property and processes. Make sure there are no loose ends regarding who owns what. If the intellectual property is recognised as significant it will add significant value – the investor may well want to monetise it.

Further reading

This is food for thought. Follow-on aspects, such as realising a return on your investment in patents via an effective licensing strategy is beyond the scope of this chapter. Done well, it is the enabler of the strategy. Done badly, or without its own investment, it will sink your investment.

Comment

Far from being a necessary evil, the field of intellectual property can be very rewarding for the company that treats it with the respect that it deserves. It is not a short-term gain but can serve to establish a company in a technical space and can add to the bottom line in the process. Enjoy the journey!