Monetizing a patent portfolio

 

What is a patent?

According to the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS"), to which 160 countries are signatories, a patent is an exclusive right for an "invention." An invention is generally defined as a physical article (including, e.g., a chemical) or a process that provides a new way of doing something, or which offers a new technical solution to a problem. Patents are generally enforceable for 20 years.

The part of this definition which is often problematic is the concept of an "exclusive right." A patent does not provide the patent owner with the right to make or sell her invention. Rather a patent provides the patent owner with the right to prevent others from making, using, selling, offering for sale, selling or importing the patented article or process. It is therefore possible that a patent owner is not able to sell her invention because another party owns a dominating patent. For example, I have invented a four-legged chair with a back and arms, and have obtained a patent for this chair. But I cannot sell the chair because someone else has already patented a stool having at least a seat and three legs. This patent for a stool encompasses my chair, which meets the minimum of a seat and three legs; and therefore I cannot sell my chair without permission from the owner of the stool patent. 

Also according to TRIPS, patents are assignable, transferable and available for licensing. And therein derives the right to monetize patents.

Why monetize a patent portfolio?

In short, companies exist to make money, and patents are a tool in the toolkit of revenue generation. Usually, sales of patented products are used to recoup the costs of the R&D that went into developing that product, and/or to fund a new round of R&D for the next innovative product.

A company's patent portfolio might additionally be looked at as a source of "free" revenue for the company. Most companies have patented technologies which they are not themselves exploiting; those patents and the underlying technologies may be attractive to another company which could make and sell (and therefore generate revenue) products using those technologies.

How can my company monetize a patent portfolio?

There are a few general ways to monetize a patent portfolio. First, and most obviously, the company which invented the new technology can make and sell products which embody that patented technology. (Actually, products do not have to be patented to be sold. There are other viable, and in certain cases preferable, methods of protecting intellectual property that do not require the public disclosure of the invention which a patent requires, most notably in the US, trade secrets.)

The second way a patent portfolio can be monetized is by allowing someone else to make and sell the patented product, and then collecting a royalty on such items. Such an agreement is usually accomplished through a license, which can be thought of as a covenant that the patent owner will not sue the entity which is making and selling the product. Licenses do not transfer ownership of the patent outright; the patent owner remains the same, it is only permission to use the technology which is transferred.

Ideally, terms for a license deal are worked out up-front, before any products using patented technology are produced or sold. Issues which are negotiated in such licenses include which patents are included in the license, what type and how much consideration (usually payment) the patent owner receives for the use of the technology, and the length of the agreement. Other issues might include whether the patent owner intends to license the same technology to others (exclusive or non-exclusive license), and if so, in what applications other licensees might use the technology (field of use).

In some cases, however, a company might sell a product which encompasses patented technology without obtaining permission for the use of that technology. In that case, the patent owner must first learn of the use of their technology, and then undertake to enforce their patent rights. The first step in enforcement is usually for the patent owner to communicate with the company which is selling the product, to inform them that they are using a patented technology without permission. Depending on the company's response to the communication, a license may be worked out immediately; or the issue may ultimately end up in litigation (which is usually both expensive and time-consuming). A patent owner might choose not to sue a potential infringer for various business reasons – perhaps because the infringer is a customer of the company which owns the patents, and the relationship is worth more to the patent owner than the revenue which would be gained from enforcing the patent.

A third way to monetize a patent portfolio is through an outright sale of patent assets. In these cases, the patent portfolio should be carefully analyzed to determine exactly how broad and strong the patents are, and a fair market value established for the purchase of these assets. The seller typically retains no rights in the patents after the sale, so this strategy should be undertaken with due consideration.

Conclusion

Monetizing a patent portfolio can be thought of as a way to reduce corporate waste. Presumably the company invested resources to create a patentable technology; if the technology is not generating revenue for the company, those resources were wasted. Monetizing that technology should be seriously considered, and a reasonable amount of effort should be expended to mitigate wastefulness by monetizing the portfolio.

 

About the author:

Prof. Dr. Karen Deak is the creator and Director of the MS in Patent Law program at the University of Notre Dame. Prof. Dr. Deak is also a trained geneticist and a registered US Patent Agent. She previously spent time in private practice helping clients with all aspects of the patent lifecycle.

***This article does not constitute legal advice. Individuals or entities should seek legal counsel for questions or issues specific to their situation. The views expressed in this article are those of the author alone and are not attributable to her current or former employers.

Further information: University of Notre Dame / MS in Patent Law / Prof. Dr. Deak