Patent Portfolio Deployment

Bridging the R&D, Patent and Product Markets

Shang-Jyh Liu, Hoi Yan Anna Fong, Yuhong Tony Lan

• Publisher: WSPC
• Year: 2017
• ISBN:
  9789813142459
• Topic: Business
• Subtopic: R&D
• Index: Business

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Patents are powerful weapons in a company's legal arsenal, with both defensive and offensive capabilities. Patents protect a company's innovation from potential infringers, while at the same time support the company's efforts to exploit their innovation commercially in the global marketplace. This book explores the role of patents in today's knowledge economy. We discuss how patents have become a valuable commodity and have a lucrative market of their own. However, to profit from patent monetization, this Patent market must be closely linked to the R&D market and the Product Market.

This book offers a systematic approach to patent deployment to maximize profits beginning with data collection from patent, journal and business sources. Readers will be guided through analyses of the patent landscape to identify traps and opportunities for commercialization. This book argues that patents must be aggregated into portfolios to maximize their effectiveness and value in the modern economy. With strong patent portfolios, companies can be engaged in licensing and more sophisticated business models like forming patent alliances and collaborating with IP intermediaries. Finally, the book will provide an overview of the various ways of valuing patents and suggest some simplified approaches for management to value the company's patents.

--> Contents:

• The Rise of the Patent Industry
• Patent Portfolio Deployment in Modern Economy
• Deployment with Patent Analytics: Theory and Practice
• Non-Patent Literature and Journal Intelligence
• Patenting Strategies
• R&D Strategies
• Licensing, Litigation and Alliance Strategies
• Valuation

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Chapter 1

The Rise of the Patent Industry

1.1The Phenomena — The Surge of Patent Filings

A patent is an exclusive right granted by a sovereign state to an inventor or assignee for a limited period of time. This is granted in exchange for detailed public disclosure of an invention. This definition highlights two key functions of a patent: it is both a legal right, as well as a signal of technological invention.

With the advent of the knowledge economy, a patent, given its five exclusive rights of make, use, sell, offer to sell, and import, has evolved from an “infringement gatekeeper” to an effective instrument of industry power. In addition, the patent system has been institutionalized by legal statues worldwide to harmonize its protection and commercialization in all jurisdictions. Never before have any statutory rules been established globally on the scale enjoyed by patents (or other forms of intellectual properties). This further expands the industrial influence of patent rights.

As a signal of technological invention, patents worldwide have come together to form one of the largest technology databases, providing a great source of technological intelligence for analysis and exploitation. In addition, as patents include legal and commercial information, patent databases could also reveal valuable legal and commercial intelligence. Corporations and public agencies could employ such intelligence, including the technological, legal, and commercial aspects, to derive their business strategies.

Against the backdrop of patents becoming an instrument of industrial power and signal of technical invention, the media has reported that the patent-filing rate is growing exponentially on a global scale.¹ There are also numerous reports on a patent arms race (Chien, 2010; Chien & Lemley, 2012). The surge of patents has become an undeniable global phenomenon.

The driving force behind this patent surge is multidimensional. Research and development (R&D) activities today systematically generate inventions, increasing the number of potential candidates to be filed as patent applications. Moreover, technology products in the market are increasingly sophisticated, involving the integration of multiple features and functions, all of which require proper patent protection against infringers and competitors. Last but not least, patent laws across the world are undergoing rapid change, altering the patent practice and creating uncertainty. Thus, technology organizations need to file multiple patents for a single inventive concept to adapt to the changing legal regime.

However, the increasing number of patents worldwide does not promote the value of patents as a whole. Instead, “patent paradox” is found to depreciate the value of patents on average (Hall & Ziedonis, 2001). An individual patent scarcely stands firmly on its own, be it in terms of legal strength or economic returns, the causes of which have been discussed and speculated broadly (Guellec & de la Potterie, 2000; Parchomovsky & Wagner, 2005). Is there a failure of the valuation process of technology commercialization? Or is the poor performance an outcome of patent thickets being in a haphazard manner?

A careful interpretation of such a phenomenon shows that the key players in such a global trend are undergoing organizational restructuring to accumulate not only a huge number of individual patents, but also purposeful patent portfolios. In this chapter, we first review the advantages and disadvantages of the existing definitions of the patent portfolio and propose our own version of definition — without a proper definition that clearly addresses the characteristics and functions of the patent portfolio, it is impossible to master the art of deployment in modern knowledgebased economy.

1.2What is a Patent Portfolio?

According to the European Patent Office, a patent portfolio is the list of patents owned by an individual or a company.² This definition, while widely adopted, focuses on the ownership aspect, but provides little information on the exact nature and functions of a patent portfolio. Extending this basic definition, Parchomovsky and Wagner (2005) further proposed that a patent portfolio is an aggregation of a number of related patents that generate a value greater than the sum of its parts. In this book, we will argue that it is not merely an aggregation of related patents, but a strategic aggregation of individual patents into purposeful assets. More importantly, we believe that the essence of a patent portfolio is in its deployment (i.e., the underlying structure and the strategies behind making use of the portfolio). The value of patent portfolios can multiply many folds if one can identify the links to products sold and master the strategies and tactics behind the use of the portfolio. This involves both the formation and the exploitation of patent portfolios.

1.3Organizational Restructuring

The quality of human life has improved dramatically since the First Economic Revolution with the rise of property rights (North, 1990). The First Economic Revolution was a time when mankind switched from being hunters and gatherers to being farmers. Property rights arose during this time to facilitate trade. Organized trade helped to manage the transaction costs more efficiently. At that time, the legal system started to develop to protect physical property and spurred this Economic Revolution.

This continued for another 6,500 years or so until the Industrial Revolution kicked off in England in the mid-1700s. People started to leave the farms and began to work in factories. The new economy encouraged new knowledge accumulation and revolutionized property rights. Structured organizations and society started to take shape. These organizational structures helped society to run more efficiently. As the Second Economic Revolution continued and developed, the legal system also evolved and gave rise to patents. Its primary purpose at the time was to provide protection for industries.

The 21^st century signaled the coming of the Third Economic Revolution, which was propelled by the same need to manage transaction costs efficiently. This era has seen knowledge generation rate grow to unprecedented levels. During the Second Economic Revolution, vertically integrated companies dominated the full value chain from R&D to manufacturing, then marketing and sales to the final product. This changed after the Third Economic Revolution when the economy encouraged further segmentation of the value chain. While there may still be companies that are vertically integrated, more and more companies only focus on one particular segment of the value chain. Entities such as universities, research institutes, and even some individual inventors and intellectual property (IP) providers dominate the R&D segment. They focus on knowledge creation, resulting in new inventions. There are some companies that only focus on patent drafting and maintenance. There are also companies that take the IP from the inventors and use the technology to manufacture products. In particular, the Third Economic Revolution demands an efficient way to perform R&D to meet the demand of new products.

This has pushed the organizational restructuring to a higher level to the extent that some companies have spun off their R&D arms into new business units focusing solely on R&D. The inventions from R&D need to be passed onto the manufacturers. This encouraged the appearance of brokers for patent sales and the rise of the licensing business for patents. In this Third Economic Revolution, patents no longer play a supportive role to protect the inventions. They have become business units in their own right. The rise of this patent business has given rise to various types of patent entities: patent management companies, patent holding companies, patent brokering companies, patent service companies, non-practicing entities (NPEs), and patent aggregators, alliances and pooling to further increase the transaction efficiency. It has been demonstrated in recent years that the grouping of patents into portfolios allow them to be deployed more strategically. There is also a need for technical service providers to develop these portfolios strategically (see Figure 1.1).

Figure 1.1 Organizational restructuring of patent entities

1.4The Emergence of Patent Portfolios and Patent Market

Patent portfolios have emerged from macro and micro understandings of the changing knowledge-based economy. The organizational restructuring heralded the rise of a new industry. The Patent market is in effect, a response to the need to aggregate multiple patents to meet supply and demand in the value system.

1.4.1An industrial perspective

At a macro level, the knowledge-based economy can be divided into three markets: Innovation, Patent, and Product. According to the Antitrust Guidelines for Collaborations Among Competitors issued by the Federal Trade Commission and the U.S. Department of Justice (2000),³ the Innovation market “consists of the research and development directed to particular new or improved goods or processes and the close substitutes for that research and development.” The Patent market “consist[s] of the IP that is licensed and its close substitutes.” Finally, the Product market consists of any goods and services resulting from the implementation of the technology.

In each of these markets, patent portfolios resulted from the need to provide statutory protections to technological inventions. For example, in the Innovation market, the various corporations, research institutes, and universities easily generate voluminous inventions because everyone stands on the shoulders of giants. Nowadays, the numerous sources and integrations of inventions are common and inevitable. Such voluminous inventions would require a systematically built patent portfolio to safeguard their values.

In the Patent market, the supply and demand of intangible assets from institutions and corporations doing R&D and those producing the final products have encouraged new business models to provide trading platforms and consortia. Many new entities have arisen up to contribute to the flourishing patent market. NPEs are one result of new business models arising to facilitate such transactions.

The Patent market has developed a higher level of sophistication in recent years due to the increasing complexity of modern high-tech industry and the evolution of patent law to cater to the changing Patent market landscape. Patents are seldom operated individually today. Instead, they are often managed, licensed, litigated, and transacted as portfolios. Working with a patent portfolio offers higher value because it has a higher chance of surviving invalidation challenges by competitors in response to demands for licensing fees (Lanjouw & Schankerman, 2001; Somaya, 2012). Patent portfolios also provide additional insurance to the fast-changing legal regime that constantly reviews and refines the validity of patents. It is, therefore, advisable to have a portfolio of patents to protect the various aspects of the technology in case some of the patents are invalidated due to changes to substantive law (Cahoy, 2013). Besides strengthening the legal aspects of patents, patent portfolios extend the protection of a technology by aggregating similar inventions. In such a way, the added value of the patents to the products would be greater. This may provide a better basis for higher damages awards and/or licensing fees.

In addition, the standardization of technologies and the subsequent formation of alliances as well as the evolution of standard-essential patents (SEPs) have further expanded the patent system to a new industrial dimension. As such, the Patent market has more exciting activities with the appearance of the evolving Patent market.

In the Product market, patents continue to provide a reasonable protection to the technical features of products. The various product features could each constitute a patent portfolio too. Moreov...