Recent years have seen a transformation in the patent ecosystem. On the patent brokerage side, the market experienced a slowdown, becoming a buyer’s market. Hence, entities considering IP acquisitions are placing even greater emphasis on patent quality and value. This diligence has affected transaction cycle times. The establishment of the US Patent and Trademarks Office’s Patent Trial and Appeal Board and the famous Alice Corp v CLS Bank International decision recalibrated the way that businesses evaluate and consider their IP programmes. As a result, non-US jurisdictions are becoming more popular for licensing activities. For computer-related patents in particular, jurisdictions such as Europe and China are becoming more popular post-Alice. Consequently, foreign IP filing is now a crucial element of IP programmes and evaluation of portfolio quality.
Historically, companies favoured quantity over quality and leveraged this in their programmes and negotiations. Indeed, a critical mass of patents in a portfolio (ie, sufficient to execute business objectives) will always be required. However, that critical mass must now be built with effectiveness in mind, which necessitates a clear focus on patent quality over quantity in any patent prosecution, IP transaction or monetisation programme.
What is patent quality?
Whether acquiring patents for strategic purposes, cross-licensing or direct licensing, organisations are scrutinising intellectual property more intensively and focusing on IP quality as a key differentiator in any deal or negotiation. When licensing, companies are refining the quality of the information packages they put together. Adopting a quality-over-quantity approach requires litigation-grade charts and evidence of use to establish credibility, facilitate fair and productive business negotiations and expedite process to settlement. This requires greater upfront preparation.
Patent quality is defined in many different ways. However, certain core components are key to effective patents.
Industry adoption and use
The adoption or use of an invention in the market provides significant value for the holder. However, it is also important to consider whether the invention could be used in the future (ie, in the next five to 10 years), as well as in adjacent markets or products. Some of the key questions for consideration are as follows:
- What are the relevant markets?
- How significant is the invention to the market or related products?
- Is the market poised for growth over the next five to 10 years?
- What types of player exist in the market and is the invention in question important or strategically significant to any of them?
- Are others presenting alternative solutions?
The technology landscape is changing and many technologies are converging across adjacent markets. Following the wireless and hand-held device patent wars of the last decade, many rights holders are looking for the next big monetisation opportunities. The Internet of Things is an area of interest to many, with emerging new applications requiring systems, services and components to communicate. Relevant and potentially applicable intellectual property is emerging in connection with communications protocols, systems and components (eg, sensors), as well as connected vehicles (eg, vehicular communications). Again, certain communications patents will be well positioned with respect to this emerging technology. New entrants into these technology areas should be mindful of the existing landscape, the maturity of the patent market and the savviness of existing players. Diligence addressing patent quality at the prosecution stage, as well as during any patent acquisition, will pay dividends in terms of future portfolio value and effectiveness.
Companies should consider system-based applications, rather than just focusing on component or integrated circuit-based applications. There are often ways to expand the scope of an invention to encompass a system, ecosystem or broader application – leading to a greater return in royalties. Care is necessary when devising and drafting claims to ensure that the full scope of the invention is addressed.
This is a key attribute of a quality patent. Clear, well-written claims, created with detectability in mind, constitute a significant differentiator for patents that can withstand the test of time and litigation. Patent counsel often assess portfolios which include solid and high-quality inventions, only to realise that some – or many – of the elements cannot be detected or shown. The ability to demonstrate indisputable evidence of use is a key indicator of patent quality. The question to address here is whether the patent holder can clearly show the patent’s use and link it to economic or financial value. Detectability considerations include the following:
- Can the claimed invention be detected from publicly available information such as datasheets, manuals, user guides and standards?
- Is it possible to acquire the product for reverse engineering or testing?
- Can the claimed invention be detected through reverse engineering of an end product? If so:
- how extensive is the effort required?
- what risks are associated with the required investigation?
Historically, the potential use or infringement of a patent has been the main driver of value. However, more recently, validity has become much more important. Organisations and patent holders are being more proactive in negotiations, demonstrating validity issues as part of value propositions. With the promulgation of the America Invents Act and the establishment of quicker, more cost-effective venues to challenge the validity of granted patents, the primary consideration for patent owners is now patent validity. They can no longer rely on the presumption of validity as they could in the past.
Understanding the magnitude of the patent quality problem
The top-left quadrant indicates the ‘sweet spot’ for patent licensing. The yellow stars indicate where firms can use a patent improvement programme to create a higher-quality portfolio
When we look at a typical portfolio, we can represent patents in the portfolio across four quadrants:
- used or not used; and
- verifiable or not verifiable (see Figure 1).
The top-left quadrant is the favoured ‘sweet spot’ for monetisation. Patent counsel may look at thousands of patents every year, and unfortunately they encounter very few in the top-left quadrant – 2% to 5% of the portfolio – and sometimes even less. It is not uncommon to see clients with a multi-thousand patent portfolio using only a few hundred; further, these portfolios require significant expenditure on maintenance and prosecution.
Evaluating the patent quality of your portfolio
The challenge is: how can companies identify additional assets to ensure that they are more successful and better positioned? Further, how can they identify patents that will drive value in a deal? Best practice is to employ a systematic phased approach that combines data analysis (to narrow down the patents for analysis) with expert opinion to identify key assets that will drive value in deals. Commonly, a company may find itself in one of the following circumstances:
- It has a specific technology of interest and has identified a set of patents for this technology.
- It has a technology area of interest and is trying to identify the market.
- It wants to monetise its portfolio, but does not know where to start.
Many organisations have turned to one of the various automated solutions and tools available on the market in a bid to assess and evaluate the value and quality of their IP portfolios. While some of these tools may be reliable and constitute a good starting point, they cannot replace human intelligence and manual analysis. Technical experts, skilled in the art, will always be the best at properly assessing a portfolio and understanding its strengths, weaknesses and white spaces, as well as how it is positioned with respect to the company’s products and strategy, the market or the competition.
Although companies frequently use their internal resources to perform these analyses, it is always recommended to seek a second perspective. Companies may have at their disposal well-established and sophisticated IP teams, as well as numerous engineering resources; however, they might lack exposure to the broader market, adjacent application areas (eg, x-ray technology versus non-destructive testing or security) and the technologies and products on the market or under development.
A proper, structured approach is important when evaluating a portfolio. Portfolio evaluation should never be a ‘one-off’ exercise, but rather an ongoing practice and activity, ensuring that the portfolio is kept up to date with the company’s goals and the evolving market.
Bars in green indicate where the company holds both patents and products in a given technology category. Blue bars represent where patents but not products are held. This type of analysis allows for easy visualisation of portfolio coverage, strength, weakness and white space
Use of a patent landscape is advisable – given the shifts in technology and emerging markets, patent holders should be performing proper due diligence on markets and related intellectual property, as well as competitive intelligence. The information extracted from such data helps companies to make effective and educated business decisions. An appropriate taxonomy structure created by experts in the subject matter, who can establish the proper link between portfolio and product and align it with the business objectives, is invaluable (see Figure 2).
Pending applications should be analysed and assessed for possible improvement or better positioning on the market. Here, it is imperative that a team of experts review such applications to ensure proper brainstorming and optimisation of claim scope and potentially unclaimed subject matter.
Ongoing due diligence and a proper segmentation and ranking system will allow for a sound evaluation of the quality of a portfolio and provide guidance on strategic business and IP decisions.
Finally, consider the geographic coverage of your portfolio. Perform a family analysis to understand what geographic areas are covered by the portfolio. US-only patents are no longer sufficient; IP-intensive companies without a global strategy will get left behind in the new internationalised economy. However, for those that can emulate the historical successes of US companies in building high-quality IP assets, but across multiple jurisdictions, there may be significant opportunities. Fortunately, jurisdiction-specific practice rules and international filing processes, along with targeted evidence-based patent development and improvement, provide a unique opportunity to develop quality intellectual property in the right jurisdictions.
Looking at the top 100 patent applicants from 2003 to 2012 (see Figure 3), it is clear that China and Japan are not leveraging multiple jurisdictions for filing in the same way as higher-performing IP nations such as the United States, Germany and Finland (ie, companies receiving higher IP royalty payments). To reiterate, it is no longer enough to file in the United States – it is also necessary to file in other major jurisdictions.
Detectability review for key technology/product areas
As stated above, detectability is a key issue for rights holders and licensing professionals. Each year, many good patents and inventions are let down by a lack of awareness of the state of the art in detectability. Despite elegance in crafting claim language, many applications and patents have key elements of the claim that are very difficult (eg, too costly or too challenging) to support in an actual product. A review of the claims during the prosecution stage with a focus on detectability will help to avoid these challenging situations and optimise the use, strength and quality of a patent. One contributing factor is that patent prosecution teams will often work independently of their licensing colleagues, without visibility of techniques for generating evidence of use. This lack of feedback can be a barrier to creating optimal-quality patent claims.
Detectability is therefore a key criterion for assessment of patents and portfolios. When scoring and ranking patents, good patent counsel evaluate how easily a particular claim or innovation can be demonstrated. They consider any available data or information, such as the literature or standards that may support the claims or any reverse engineering, tests or software testing that can be performed.
When building a licensing programme, particularly for complex technologies, take a phased approach to explore what evidence or use is required and can feasibly be obtained. Specific phases and checkpoints should be established to gauge and assess the potential possible success.
Analysis is performed on a repeating basis, ensuring a dynamic, well-structured portfolio that is current and responsive to business needs
Developing an evidence-based patent improvement programme
In order to maintain an actionable and sustainable portfolio, decision makers should build a repeatable process with respect to the development of their portfolio (see Figure 4).
Employ due diligence and research to understand the competitive landscape as well as how the portfolio is aligned or positioned on the market now and in the future. Types of recommended analysis include:
- product revenues (prices, volumes);
- technology implementations and roadmaps;
- regulatory changes; and
- patent landscapes.
Have a categorised and segmented portfolio. Multiple complementary classification systems are often employed on a portfolio so that patents can be sorted and identified (eg, by technology area and business unit) to reflect the various end uses of the portfolio. The output is a thorough assessment of intellectual property, classified to locate easily those which are actionable. This enables specific patents relevant to a particular programme or situation to be quickly identified and brought to bear.
Identify high-quality assets that will drive value in licensing programmes and negotiations. Use relevant evidence of use to assess potential applicability and amend claims for better positioning – ask yourself: “Is there technology in a given patent application to which I can direct my claims?”
Licensing team feedback
Portfolio managers and prosecution teams should work with internal licensing teams to evaluate portfolio effectiveness. Can the licensing team find and deploy the patents that it needs? Is there a fresh supply of new patents to use? Are only a small number of core patents used or is there broad suitability and use across the portfolio?
It is imperative to work with the prosecution team and internal experts, brainstorming to ensure that key and strategic technologies are being patented that can be turned into licensable technologies. The end goal is well-crafted claims, positioned to meet long-term business needs. Take care to ensure that these claims are supportable, and identify any validity issues or other matters which can be fed back to improve the portfolio. Also, adopt and maintain a continuation practice, amending claims to build sustainable intellectual property in the long term, looking at strategic global patenting and identifying opportunities to leverage other jurisdictions for patent improvements.
Unlike beauty, patent quality is not in the eye of the beholder. A well-managed portfolio, maintained through a structured and repeatable process, will ensure sustainability and the production and maintenance of quality intellectual property in today’s competitive environment, maximising return on investment. Looking at the market through a global lens and taking immediate steps to establish a synergetic, cross-functional IP team that works together to produce diverse and actionable IP assets will be crucial to a company’s success.
3000 Solandt Road
Ottawa ON K2K 2X2
Tel +1 613 599 6500
Fax +1 613 599 6501
George Matta is a principal in the IP services group at TechInsights. A specialist in IP strategy, portfolio development and licensing support, he has over 17 years of experience providing engineering and IP management expertise in the electronics, consumer, telecoms and automotive industries. Mr Matta has worked extensively with the technology practices of major law firms, in-house corporate counsel of major technology companies, external licensing agencies and university research centres. He holds a bachelor of science in electrical engineering from the University of Ottawa.