You have won acclaim for your expertise in IP strategy and success at monetising intangible assets. What is the secret of your success?
The secret to a successful monetisation strategy is to be flexible in selecting the approach. Over the course of my career, I’ve had the opportunity to employ multiple monetisation paths including litigation, aggregation, litigation finance, borrowing against intellectual property, M&A, divestiture/patent sales, auctions and multiple types of licensing (eg, patent licences, technology/know-how licences and brand licences). An issue we sometimes see is the advice that clients receive on monetisation approaches depends on the advisor. Litigators recommend litigation, aggregators recommend aggregation, brokers recommend a sale and so on, which definitely reflects the old adage that if the only tool you have is a hammer, everything tends to look like a nail. My approach is to model multiple potential monetisation options, including the pros, cons, risks, costs and timing of each, and then working with the client to determine which one will produce the win. Often we can recommend and implement multiple strategies and potentially sequence those to maximise value, but the key to all of this is flexibility. Of course, the final strategy depends on the condition of the portfolio and needs of the client.
How have client demands changed over the last decade – and how has this affected your business?
Clients are more knowledgeable with respect to intangible assets than they were when I started my career. The growing importance of intellectual property and its transition from an intangible asset representing goodwill on the balance sheet to a potential source of revenue has driven this change. Another factor has been the increase in coverage of IP law issues by media outlets and even an influx of publications specifically dedicated to IP issues. This has had a significant impact on our business because we no longer have to explain to companies that patents can be a source of revenue, or how they can save money by correctly sizing their portfolio or divesting non-core assets. Our business development cycle is much shorter and our conversations with potential clients more detailed, which leads to quicker decisions and ultimately better outcomes.
Which deal that you have worked on are you most proud of and why?
Certainly, the deals that involve the greatest financial value to the client are the ones that tend to stand out, but there are actually a couple of projects that are the source of some of my favourite stories (in addition to being significant wins for the client). The first was relatively early in my career when I was a litigator at a large law firm. I had the opportunity to coordinate discovery on a patent infringement suit between two Fortune 500 companies that involved 57 asserted patents, which is still believed to be the largest patent litigation in US history. The case involved a host of e-discovery issues, and back then the concept of producing electronic documents was relatively unheard of. I had a good understanding of the technical issues which afforded me the chance to argue many discovery motions in federal court - a rare opportunity for a young lawyer. It also was the source of the first words I ever spoke in a federal court: hilariously, “Windows, your honor”. The second was from my time leading IP litigation worldwide for Dow Chemical. During that time, we filed Dow’s first-ever International Trade Commission (ITC) 337 investigation alleging infringement of one of the company’s patents by a foreign competitor. The case involved all sorts of crazy facts including a lost laptop in a rest area on an Italian highway, USB drives that had accidentally been smashed and a host of other interesting things. As a result of the litigation, the ITC barred the import of a competitor’s product for 25 years, which is believed to be the longest ITC exclusion order ever issued.
What are your top recommendations for incorporating trade secrets into an IP strategy – and what are the pitfalls that rights holders need to avoid?
Trade secrets have become an increasingly important component of a robust IP strategy in recent years. The rising cost of obtaining and maintaining other forms of IP protection and the fact that employees are increasingly mobile - rarely spending their entire careers (or even a significant number of years) with one company - are causes for concern. However, the fact that protection for a trade secret can be indefinite provides the most significant competitive advantage for this type of intellectual property. Outside of the normal considerations of restricting access to the information, my top recommendation is that companies incorporate a step into their patent generation process to evaluate whether some or all of the information that might be incorporated into the claim would be more valuable if maintained as a trade secret instead. Detectability and the degree to which a trade secret could be uncovered by reverse engineering are some of the factors that should go into that discussion. While there are revenue generation advantages that come with patents, a company can potentially extend its IP protection by choosing a trade secret over a patent.
If you could change one thing about the current IP landscape, what would it be and do you think that it is likely to happen?
If I had a magic wand, I would add an equitable component to the scheme for protecting and leveraging intellectual property. At least in the United States, over the last 20plus years or more, intellectual property has exploded in importance. An entire industry has grown up around exploiting patents and generating revenue, which is largely collected from operating companies. The resulting litigation, as well as legislative changes driven by lobbying efforts, coupled with an increased interest in IP cases by the US Supreme Court, has resulted in changes that have had the effect of devaluing patents. For a variety of reasons, it is my view that we must reverse this trend to ensure that patents maintain value. On the monetisation side of the coin, entities are in the business of maximising profits and this is most often disconnected from the inventor or company that invested in the R&D that led to the patents. With regard to operating companies, the notion of respecting IP rights has given way to efficient infringement. Courts should be empowered to consider the equity of awarding a particular sized damage award as well as investigating who originally invested in the R&D. Equally, they should consider whether efficient infringement would be an equitable factor considered for the accused infringer. The aim would be to maintain an appropriate value for patents while incentivising companies to respect patent rights.
You recently had an article published on IAM concerning the importance of an IP strategy in what you describe as an evolving legal environment. What advice do you have for your clients on creating an IP strategy?
The advice I give to clients is that changes to the legal landscape coupled with the increasing costs of prosecution places a premium on pursuing patents that support a business or strategic purpose. In order to get an appropriate return on investment, companies should have a deliberate IP strategy with input, not only from technical and legal departments, but from various business-related stakeholders as well. The strategy should be based on a solid understanding of the competitive landscape. A good patent landscape should help companies to understand prior art, supply competitive intelligence on how the company’s portfolio compares to those of its competitors, suppliers and customers, and identify competitive investment, risks and trends that can be fed back into the company’s business and IP strategy. It also identifies white space and increases the likelihood of obtaining patents that have strategic value and monetisation potential.
You have been recognised as a leader in intellectual property valuation; what current trends are you seeing in that space?
We are seeing an increase in requests for an IP valuation. Rising interest rates have changed the cost of capital and the rates of return expected by investors. While this tightening is somewhat technology-dependent, funding is more difficult to obtain, particularly for pre-revenue or middle-market companies, and funders are increasingly requiring a valuation. In addition to providing these services, we are sometimes asked to lend against an IP valuation, and often find that these valuations are not reliable. A reliable valuation must match the purpose of the appraisal. Put another way, the liquidation value of the intellectual property is quite different to the net present value or fair-market value. Further, a reliable valuation should also evaluate the intellectual property itself. Many valuations we see assume that the patents are the best in history, but no one ever checks the basics, like whether the patents actually cover market differentiators that would provide a competitive advantage.
You are the first person from Hilco Streambank to be recognised in an IAM listing; what can you tell us about the company and its IP-related services?
Hilco Streambank was founded in 2000 to monetise intangible assets such as patents, technology, digital assets, proprietary data, brands and related assets that are valuable but often overlooked components of the balance sheet. I have known the Streambank team for several years and we have collaborated on a number of projects. What impressed me about Streambank was the team’s creativity, its ability to identify and reach decision makers, and the resulting capacity to create competitive bidding and maximise value to the client. Just over a year ago, we decided to join forces and I folded my team’s patent advisory, licensing and monetisation services into Hilco Streambank. It has been a wonderful and productive combination.
Senior Vice President
Karl Maersch is senior vice president of Hilco Streambank and heads IP strategy and patent monetisation. He started his career as a patent litigator at Jones Day and then led litigation, licensing and monetisation at Kodak and Dow Chemical. Mr Maersch has successfully headed consulting teams in providing stellar IP advisory services. Over the course of his in-house and consulting career, Mr Maersch’s clients have realised over US$4.5 billion in revenue from intellectual property.