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Focus on Core Innovations: Keys to Making Your Patent Portfolio Work for You

Part 2 of a 3 part series
Shareholder Matt Ellsworth and Floyd Anderson of Avago take a business approach to defining the core innovations of a company to help maximize overall value.

Companies looking to maximize their patent portfolios should consider analyzing their internal systems and processes to follow best practices. The first step in an analysis is to understand how the value of a patent portfolio is actually determined — how does my colleague, the accountant, arrive at that magical sale price for a company and to what extent does the patent portfolio contribute to that sale price?

The answer is rooted in what patents confer, i.e., negative rights.  A patent is only valuable if it enables the owner to benefit from restricting another’s ability to make, use, or sell something. A very broad patent on something that competitor(s) won’t want to make, use, or sell, is essentially worthless.  Conversely, a patent with very narrow claims covering something specific that competitors want to make, use, or sell — or that covers something the marketplace is demanding — will have a much greater value. The trick, like any good optimization problem, is to find the inflection point where the costs of the portfolio are balanced against the factors that maximize the portfolio’s value.

There are many ways to increase a portfolio’s value: a large volume of patents, a key patent that protects core or innovative technology, a strategy that protects innovations across geographies and more. The premise is that with enough bullets, any target can be hit.

One of the most common methods for protecting a company’s innovations is by having a large number of patents. Large patent volume is essential for those companies that want to create a defensive patent portfolio — one designed to dissuade patent assertions by competitors.  With a large enough patent portfolio, the likelihood of being able to defend a patent assertion from a competitor with a successful cross license of that patent is increased.  And without a defensive portfolio, a company may be an easier target for its competitors.

A large portfolio may also dissuade competitors from entering the space. For example, when one of my clients analyzes a large portfolio and discovers only a few potential infringement hits, he may proceed to invalidity analysis, or design around analysis; whereas, if he gets a significant number of potential infringement hits he may not proceed any further.

Other ways to maximize value include ensuring the inclusion of high quality patents, and of fundamental patents and patent applications that are at various ages and across various geographies.

A fundamental patent is a patent covering the first generation of a technology, i.e., that which has never before been seen.  While it is true that most innovations are improvements on old/existing technology, there are some patents that were the first of their kind. Samuel Colt’s first revolver patent is a prime example. It was revolutionary because the gun did not require reloading after each firing, and his original patents in England, France, and the U.S. enabled him to achieve a legal monopoly on revolver production until 1857.  All subsequent revolver patents were built on Colt’s fundamental innovation.  Other examples include the first patent on a laser and a first patent on a new prescription drug.

Companies lucky enough to have a fundamental patent in their portfolios should count their lucky stars and begin working on improvements to that fundamental patent in anticipation of its expiration date.  However, fundamental patents are difficult to come by, and they always carry a risk: a company must file patent applications on innovations that have no proof of success.

Regardless of whether a company has a fundamental patent, one key strategy for any portfolio is the inclusion of patents with varying ages that cover varying geographies.   A patent confers a legal monopoly for a fixed period of time.  Thus, a company may have a highly valuable portfolio today, but if it does not keep up with new patent filings, that portfolio will become outdated and expire (e.g., Nichia has fundamental patents on the white LED in Japan that will expire soon, and competitors are ready to jump in.)

The concept of keeping patents and applications of various ages is relatively easy for bigger companies that have a large number of people continuously innovating.  In fact, most large companies have some sort of defined process to make sure that innovations are continuously captured and analyzed as potential patent candidates.  The ongoing implementation of such a process ensures that a patent portfolio does not become stale or outdated.  However, smaller companies must be more deliberate in their efforts to ensure that new innovations are captured and, if appropriate, turned into patent applications. This can be accomplished by implementing an innovation capturing process or by having a regular (e.g., annual, quarterly, monthly, etc.) audit performed on all technologies and developments.

Additionally, while it can be expensive to obtain patent protection in multiple countries (see costs below), the benefits of an effective global monopoly protection for a technology may easily outweigh the costs. Part of a global analysis includes accounting for the quality of the legal system in the countries where protection is sought.  In some jurisdictions the patent application process can run 10 years with less than satisfying results. For example, in Europe, the majority of patent litigation takes place in Germany due in large part to the quality of the legal system around patents.

About the authors:

Sheridan Ross Shareholder Matt Ellsworth handles many complex electrical and software technologies including telephony, RFID, access control, semiconductors, optics, Artificial Intelligence, communication networks, communication protocols, encryption, web-based business, information storage systems, feedback and control systems, power transmission, power machinery, high current electronics, and low current electronics. Mr. Ellsworth also has experience in non-electrical related technologies such as mechanical patents and business method patents. Read more about Matt here.

Floyd Anderson is Vice President and Chief Patent Counsel at Avago Technologies, a leading supplier of analog interface components for communications, industrial and consumer applications. He took his current position as the head of the Intellectual Property Department at Avago after transferring from Agilent Technologies. Anderson set up the IP function at Avago and currently manages an international team responsible for the patent portfolio, for licensing transactions, managing numerous IP litigations, and providing general IP legal support.

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