What led you to found your own IP firm and what advice do you have for anyone considering taking a similar step?
After 15 years, I left Microsoft in 2009. At the time, I was looking for different challenges and to be closer to the business side of intellectual property rather than the legal work. At Microsoft, I had been in both legal and business roles and really enjoyed putting the former to the service of the latter. In 2010, I had an early opportunity to assist others in closing patent transactions they initiated but had stagnated – I really enjoyed the deal-making process and the negotiations it entailed. One thing led to another, and a few patent owners contacted me directly. The rest as they say is history and I have not looked back even though the patent market is definitely not what it used to be a decade ago. Today, I would probably advise a younger version of myself to explore other avenues. The patent market has evolved in such a way that very few thrive in the current environment. As a result, established relationships and reputation really drive opportunity, which can be a challenge for new entrants.
How would you characterise the current IP transactions market?
To this date, I have directly brokered the sale or license of close to 5,000 patents. Often, completed deals involve fewer than five assets, so this represents in aggregate a large string of regular transactions and in turn puts our finger directly on the pulse of the market. Currently, the IP transactions market is still mired in the uncertainty created by the US Supreme court with Alice. It is hard to sell a legal title like a patent when no one knows if it will be invalidated downstream when challenged. The America Invents Act has also done considerable damage in the United States by introducing a vehicle – inter-partes review - that has proved extremely effective at killing duly issued patents. So, this leaves us with a rather soft market, where too many sellers chase too few buyers, and those buyers are chasing the ‘perfect’ patent, one that will survive all the above challenges. These complexities make the matchmaking rather difficult. On a bright note, some countries are ramping up their IP systems (eg, China). Therefore, patents in some European and Asian countries, which used to have very limited value compared to their US counterparts, are now coveted in transactions.
You are on the boards of several clean-tech start-ups – how do you expect this sector to evolve as the impacts of climate change become ever more apparent?
I believe we are seeing the real emergence of clean-tech 2.0, with massive investment flowing into the sector. It is definitely not too soon, as we are living on borrowed time in many ways with climate change. Let us be honest, we need all the help the clean-tech sector can give to help stabilise and ideally reverse the current trends. So, while I am extremely optimistic that the sector will accelerate its growth, I am less so when it comes to our ability to actually deploy advancements in time to stop the damage done to our planet.
You were previously general manager of IP licensing at Microsoft – what have been some of the biggest changes from working in-house to leading your own firm?
When you work for a large organisation with almost unlimited resources, such as Microsoft, you take for granted that a subject matter expert is more than likely just down the hall. This is an unattainable luxury in a small firm, and you must adapt and apply new knowledge while building and leveraging an external network in order to properly assist your clients. We, for example, see three to five new portfolios almost every day pertaining to various technology domains; so, the need to grasp a tremendous array of technical and legal concepts rapidly in order to assess a given potential opportunity can sometimes be rather challenging. On the other hand, I rarely feel like I am working, and nothing beats the autonomy of being your own boss and choosing the projects that I work on. You also have way fewer meetings and office politics are all but nil. However, I have noticed over the years that being an entrepreneur is not for everyone and it is important to be honest about our strengths, weaknesses and tolerance to risk. Some people will inherently prefer a more structured environment while others thrive with independence.
What, in your opinion, are the key steps of any patent monetisation process?
First, it is important to understand what you are trying to monetise. When it comes to patents, 99% of those are probably not going to be transacted or otherwise monetised, because they are either not practised by anyone (including the inventor) and/or are likely to be declared invalid. Thus, our job often starts with honestly assessing the likelihood of a potential market for the assets we review. There is a fair amount of due diligence that goes into this step alone.
Second, you must understand the value proposition to buyers or potential licensees. Most inventors have a rosier view of their patents’ worth compared to the rest of the world, and managing expectations for valuation and timing is very important.
Third, and this is where we are in a unique position to shine, knowing who is looking for what is paramount to successful matchmaking. We maintain detailed lists of what our buyers are interested in reviewing (under non-disclosure agreements). This allows us to rapidly supply assets that we know will be of interest to them. Once they confirm that they like a certain opportunity, the rest is really a matter of negotiations, client relationship management and knowing/preventing the many pitfalls that can derail a complex transaction.
How do you manage expectations and maintain close working relationships with clients when the stakes are so high?
Honesty, transparency and relevant data are all critical components when managing clients’ expectations. Further, regular communication ensures that clients are kept apprised of relevant updates. I believe we have been successful over the years because we are very candid with our clients about how we see an opportunity. We also only embark on those projects that we believe we can monetise to their satisfaction, given our own personal investment each time. We see our work with clients as a partnership where our interests are fully aligned. We believe in thinking outside the box and are creative in finding solutions. Our clients recognise our commitment to both their success and our ongoing relationship.
What common mistakes do parties make when embarking on a licensing negotiation – and how can they best avoid them?
Many patent owners, inexperienced in the nuances of licensing discussions, make the mistake of simply reaching out to a potential licensee without understanding the impacts of this choice. They are either too specific (and threatening) or not specific enough, in which case the prospect does not really understand the value proposition at hand. It is also important to understand from the onset whether the potential buyer/licensee is being presented with a business risk (ie, potential infringement) or an opportunity (eg, a complementary technology to its current offerings). Your approach in either scenario is different and in most all cases the audience changes depending on the goal. If the aim is an amicable discussion, then you should avoid putting a company on the defensive by using threatening language. In our case, we are able to have meaningful licensing discussions with a number of companies because they understand that we are not a direct threat to them as a broker. Our role is to offer a company a business opportunity to acquire or license assets of value that they may practise themselves. We go to great lengths to redact our materials in a way that does not trigger any legal threshold and we exchange the redacted specifics verbally, which is appreciated. Remember that what motivates a company to transact is the risk that these assets might fall into the hands of their competitors or another buyer who will likely assert those against them.
If you could change one thing about the North American licensing market, what would it be – and do you think that it is likely to happen?
I was at Microsoft during the heyday of the patent market in the late 1990s through 2009 and I saw first-hand that the patent system was disjointed, the delicate balance of power disrupted and unstable. Anyone with a patent could threaten to block the release of the next version of our software, which led to many settlements for the wrong reasons, not necessarily because their claims had merit. Fast forward to today and the balance of power is again disrupted but in the opposite direction, where thousands of good patents are being invalidated either by an overzealous PTAB or by way of summary motions on the ground that these inventions are simply abstract ideas (the Alice doctrine). This situation has emboldened large companies that are generally on the receiving end of these claims to systematically deny all of them instead of dealing with the legitimate ones through reasonable negotiations and letting the court system deal with the others. The problem is that the victims now are no longer large companies with billions of dollars in cash to defend themselves, but small inventors and SMEs, which simply cannot fight on an even playing field. It is like we took the slingshot from David and gave it to Goliath.
What has been your career highlight to date?
I have been doing some variation of IP-related work for almost 35 years and have been blessed to work as a litigator in a top-notch law firm, be the general counsel of an innovative technology company and spend 15 years at Microsoft during what was, at the time, arguably the most sophisticated IP legal department in the world. So, while the highlights are too numerous to count, nothing compares to the satisfaction of building an organisation from the ground up. To hire, mentor and grow a team and watch individuals spreads their wings, remains my favourite. But a close second is having clients - even when you cannot always deliver the results they want - refer you to others. I pride myself on always doing what I say I am going to do; people can take me at my word. And if you consistently do what you say, even when it would be more profitable or expedient not to, your reputation precedes you. You then join that small group of people that get to do what they are good at, but with a sense of purpose. This may explain why several private rankings have Tangible IP listed as the best patent brokerage firm.
What are the top three skills for a world-class negotiator – and how can these be honed?
Some people are born negotiators and some others, even those who negotiate for a living, will never be that good at it. Perhaps there is a certain level of nature versus nurture at play, just as we see with most things. Having said this, good negotiators are honest, courteous, organised, patient and most importantly, relentless. They must listen well, understand the psychology of a negotiation, and not take no for an answer. In the IP world, you also need to understand the sensitivities, optics, approvals process and policies in place that may add several layers of complexity when dealing with larger organisations. Most of these skills can be honed over time with practice and mentoring, but there will always be some who make this look effortless.
Louis Carbonneau is the founder and CEO of Tangible IP LLC, a leading patent brokerage and strategic IP advisory firm. Since founding the organisation a decade ago, Mr Carbonneau has brokered the sale or license of close to 5,000 patents and has helped numerous companies of all sizes through strategic IP advisory engagements. He is the author of IP Market Updates, a regular newsletter read by around 20,000 people in the IP business community worldwide.