By: John Cronin, CEO ipCapital Group & Joe Beyers, Senior Advisor ipCapital Group
Introduction
In the past decade, the landscape of patent licensing has undergone profound changes, leading to a notable decrease in patent monetization expertise. A significant driver of this change has been the America Invents Act (AIA) and the Inter Partes Review (IPR) process, which have collectively shifted corporate strategies away from in-house inbound licensing. As a result, there’s a reduced demand for certain types of licensing expertise. The patent value cycle has also seen a downward trend, prompting many patent licensing brokers to leave the industry. This departure reduces the number of professionals in the field and signifies a loss of valuable experience and knowledge.
Further challenges contributing to the decline include a reduction in contingency fees for patent licensing brokers, driven by a decrease in the value of patent licensing transactions. This trend discourages new entrants and diminishes the financial incentives for maintaining high levels of expertise. Moreover, the SEC’s regulations requiring brokerage licenses for patent licensing brokers have necessitated a deeper understanding of legal and financial aspects, underscoring the need for specialized knowledge. The decline in lucrative litigation cases, as seen in the VirnetX era, and the challenges companies face in accurately pricing IP value further emphasize the critical need for skilled patent licensing professionals. They are essential for navigating the complexities of the current market, understanding legal and regulatory nuances, and effectively managing and monetizing patent portfolios.
Patent Monetization Expertise is Almost Gone
The need for patent licensing expertise, particularly in the context of patent monetization, has become increasingly important over the last decade due to several factors:
Impact of AIA IPR and Reduced In-House Licensing: The introduction of the America Invents Act (AIA) and the Inter Partes Review (IPR) process has significantly shifted the patent licensing landscape. Large companies are less inclined to engage in in-house inbound licensing, opting instead to take the risk of being sued. This change has reduced the demand for certain types of licensing expertise within these organizations.
Changes in the Patent Value Cycle: Over the past years, there has been a downward trend in the patent value cycle. As a result, many patent licensing brokers, who once thrived in a more robust market, have left the practice. This exodus signifies a loss of accumulated expertise and experience in the field.
Reduction in Contingency Fees in Patent Licensing Brokerage: The decline in the value of patent licensing transactions has led to a significant reduction in contingency fees for patent licensing brokers. This trend potentially discourages new entrants into the field and diminishes the financial incentives for maintaining high levels of expertise.
SEC Regulations on Brokerage Licenses: The U.S. Securities and Exchange Commission (SEC) has enforced regulations on patent licensing brokers representing “brokerage fees” without a proper brokerage license. This regulatory environment necessitates a deeper understanding of the legal and financial aspects of patent licensing, further emphasizing the need for specialized expertise.
Shift in Litigation Firm Investments: There has been stagnant pressure from litigation firms to invest in patent litigation. The decline of highly profitable cases, such as those seen in the VirnetX era, suggests a changing landscape where strategic expertise in patent licensing is becoming more crucial than relying solely on litigation.
Challenges in IP Valuation: Companies often struggle with accurately pricing the value of intellectual property (IP). This task requires specialized knowledge and understanding of both the market and the legal intricacies of IP rights. This complexity underscores the necessity for expert guidance in patent licensing.
Given these factors, the role of skilled patent licensing professionals has become more critical. They are needed to navigate the complexities of the current market, understand the legal and regulatory nuances, and effectively manage and monetize patent portfolios. The expertise in patent licensing is not only about negotiating and drafting agreements but also involves strategic decision-making in line with the evolving legal, financial, and technological landscapes. This expertise supports companies in maximizing the value of their IP assets, ensuring compliance with regulations, and making informed decisions about patent transactions and litigation strategies.
Ten Reasons for Patent Licensing
Quality Coverage: High-quality patent portfolios protect the entire product line, making it difficult for others to develop substitute products. Broad patents can also increase monetization potential. Less than 10% of patents are later determined to be materially significant, and less than 2 or 3 % of patents derive over 90% of patent licensing revenue. So, there is a strong need for expertise in knowing how to value the portfolio areas so that monetization efforts start with a higher probability of success.
Survive Litigation: Strong patents help companies survive litigation by standing the tests of invalidity and novelty. Weak patents are quickly challenged and can lead to significant financial losses. Any misstep can undermine critical litigation and requires essential legal and strategy expertise. It’s important to be guided on how to avoid litigation during the patent monetization steps to ensure that your litigation position isn’t weakened but strengthened!
Technology Negotiations: A strong patent portfolio is valuable in business negotiations, especially during the sale or shutdown of divisions, as it adds to the company’s overall worth. What is helpful is to use an experienced lead negotiator.
Improved ROI: A solid patent portfolio enhances the return on investment by improving licensing opportunities, which is crucial for technology-driven sectors, and balancing the cost of IP development. The cost of an extensive patent portfolio can be prohibitive – upfront and ongoing. Significant expertise is critical to choosing the suitable investment to capture an invention, the geographic region, and the timing when the right time is chosen to terminate or abandon ongoing patent investments.
Monetization: Effective patent licensing strategies allow companies to monetize their intellectual property, creating a significant IP-related revenue stream. There are six ways to make money with patents [1] , and it stands to reason that a patent portfolio should always be directly creating dollar incomes.
Competitive Edge: Patents can provide a competitive advantage in the marketplace, preventing others from using the same technology. This advantage can result in improved revenue and profits. Alternatively, companies can maintain a competitive advantage by licensing patents to competitors with a disadvantaged cost model due to the cost of their license. Based on historical deals that have been done, there are many ways to strategize the best ways to get a competitive advantage, as there are numerous monetization models and tactics to consider.
Attracting Market Investments: Companies with strong patent portfolios are more attractive to investors, as patents represent valuable assets and limited future revenue risks. Essential patents can materially increase the valuation of a company or acquisition investment. Alternatively, companies with weak or minimal patent portfolios with zero activity in monetizing their IP show the market that the IP must be weak. Sophisticated monetization expertise can help set up a PR strategy to get the message out to the market.
Global Expansion: Patents are essential for protecting products and services in international markets. As in a global economy, understanding the implications of patents worldwide is critical. The consequences of leveraging the patent rights to stop others from making, building, or selling products can be dramatic to a business. Knowledge of patent monetization globally will help this. When IBM started in the 1990s to monetize its portfolio (going from $20 Million/yr to $2 Billion/yr), its licensing steps of which countries to go to first, then second, etc., was a key to the overall success. Expertise helps in strategizing the global opportunity.
Research and Development Incentive: Patents incentivize further research and development by ensuring exclusive benefits from innovations. This increased product revenue results in additional margins that can be funneled into expanded research and development. A high percentage of Patent Licensing direct revenue can also be provided to enhance research and development. Intellectual Asset Management (IAM) is the process that helps link R&D to the IP function. Patent Monetization is directly tied to IAM processes and procedures.
Preventing Infringement: Effective patent licensing helps prevent infringement disputes and the associated costs. It has reduced future infringement by patenting future inventions to competitors acquiring potential future patents that may result in future assertions or provide defensive cross-licenses between major related competitors. Many models have developed on both sides of the patent infringement landscape, so expertise may be needed to traverse the landscape.
[1] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 10 – 6 Ways of Making Money with Patents
Skills Needed for Effective Patent Licensing
Understanding Patent Value: Knowledge of factors influencing patent value, including claim strength, market size, and related product and service revenues.
Navigating Complexity: Managing the complexity of the patent sales process and legal strength and risks of patent assets. The management of a patent licensing process can be very complex. This includes the patent development and support processes. This includes the management of the licensing initiation process. Then, it includes the coordination of the licensing monetization and revenue collection process.
Valuation Skills: Accurately valuing assets for potential licensing. Valuation of patents is not the same as standard real estate licensing. The real value is highly dependent on the licensee and can easily be unexpectedly driven to a low or zero number. The total risk/return can vary; success depends on expertise and skill. IP Valuation requires skill to ensure the valuation is acceptable to the market and in negotiations. [2]
Market Analysis: Understanding the buying market to prioritize high-value IP and potentially sell under-utilized IP assets. Optimizing transactions of patents may involve patent licensing, patent selling, or patent acquisitions. All three are critical processes and involve optimal analysis of the essential patents for the business.
Clear Patent Strategy: Developing a strategy for protecting, monetizing, and expensing intellectual property. Ensuring the IP Monetization Strategy includes risk assessment, legal, technology, and business strategy is essential.
Claim Interpretation: Interpreting patent claims for infringement proof requires subjective and practiced skills. Understanding the nuances of patent claims is a skill that requires a complicated combination of legal, technical, and business acumen. What may be viewed as a slight difference can result in a very strong or weak (or worthless) patent. Simple examples may include the difference between “ink” vs. “fluid” or “adhesive” vs. “glue” or the definition of the interpretation of the word “simultaneously,” etc.
Evidence Matching: Key elements to Evidence for successful licensing focused on enforcement and an appropriate ROI and risk. One of the critical elements to initiate a potential patent litigation against a third party is to study the Evidence of the Use process extensively. This is an analysis of a potential infringement of a patent to a third party. This includes a description of the claims that describe the actions of the potential infringement product to show an indication that the actions can be easily shown publicly and a determination that the legal elements are solid. [3]
Exposure Analysis: Assessing the feasibility of a patent assertion against a specific target and anticipating responses, mainly counter assertions. In a patent licensing situation, a firm can cost more than the actual return in an assertion against a third party. This can be based on a failure to receive any licensing income, or that the cost of the assertion may be more than the amount of the license received, or that the result of the received licensing is less (or zero) from the asserted company that a more considerable license had to pay to by the third party company.
[2] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 18 – How Much is a Patent Worth?
[3] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 15 – Evidence of Use: Detecting Patent Infringement
Issues in Gaining IP Monetization Expertise
Lack of Time and Resources: Identifying potential infringements and licensing opportunities can be difficult and arise quickly and unexpectedly. The best way to deal with these situations is to have expert resources available quickly and to access a bench team of flexible resources to ramp up quickly if needed.
Lack of Expertise: Insufficient knowledge to exploit licensing markets in adjacent industries and the optimal overall IP-related ROI. A successful patent Licensing program can be heavily impacted by the technology expertise of an IP professional.
Insufficient Relationships: Challenges in initiating, conducting, and concluding licensing negotiations can be very complex. They are driven by technology, business, legal, and strategy issues. Having expertise that has routinely dealt with the C-Level decision makers is essential. Many times, what you have done and who you know helps smooth out any doubts in the monetization process.
Changing Patent Landscape: The increased importance of IP and its changing role in today’s economy require updated strategies and understanding. The IP patent license ecosystem is continually evolving. New laws are drafted, and current laws are invalidated. New precedents are identified, and new judges are appointed. Patent licensing experts need to keep up to date on these changes.
Tools Needed in Patent Licensing
IP Landscape: Understanding the IP landscape helps identify potential licensing opportunities and understand infringement risks. To honestly know your business, you need to understand your IP Landscape. How do your business, market, product, and technology fit into the world’s intellectual property system? Find out in today’s episode. [4]
IP Strategy: A well-defined IP strategy aligns patent activities with business goals. Intellectual property (IP) strategy and intellectual asset management require leveraging data, best practices, and game-winning strategy throughout your process. IP strategy can leverage your business, unlike any other type of asset.[5]
IP Analytics: Insights into technology trends, competitor activities, and market opportunities. IP Analytics. Which allows you to use data from the patent office to find unique and valuable insights. IP analysis can provide new directions for R&D, positioning your company against (or protecting your company from) a competitor and increasing your company’s value in a merger or acquisition.[6]
Evidence of Use: Demonstrating practical application and infringement of patents in licensing negotiations. When should patent owners consider getting an ‘Evidence of Use’ (EoU) opinion? Evidence of use is a process of collecting material Evidence that an outside party may practice the technology claimed in a patent. [7]
Freedom to Operate (FTO): Ensuring that company products do not infringe on others’ patents. Freedom to operate (FTO), what it is, and the many strategies you can use to gain leverage for your company. Learn secrets very few companies know, and more importantly, learn how to protect your company from patent lawsuits. FTO will also inform you about your competitors to build better products and services at meager costs.[8]
Invent Around: Developing alternative technologies that do not infringe on existing patents. Is a patent stopping your business from moving forward or increasing market share? Do you have a new technology or patent that you think will be valuable, but you’re worried your competitors might be able to figure out how to get the same benefits without you? The magic of inventing around patents is for you. Any patent can be invented to avoid needing a license to a patent, infringing on a patent, or to strengthen your portfolio so that it is harder for competitors to get around you.[9]
Invention on Demand in White Space: Identifying and filling gaps in untapped areas with new inventions. What if there was a way to create more inventions in less time with lower costs that empowered your team to be more creative and gave your business leverage over competitors and partners? Revolutionize Your Business with the Power of Invention On Demand – Say Goodbye to Limits and Hello to Limitless Possibilities![10]
You have enabled Publications for Prior Art: Establishing prior art to prevent competitors from patenting similar technology. Often erroneously called “defensive publications,” Enabled Publications offer a secret and powerful weapon in your IP arsenal. Learn about enabled publications, what they can do, how to document them, and how to use them to create the cheapest and most potent “weapon” in the IP strategy. Learn this, and you will likely improve the value of your current and future IP portfolio enormously and again, as crazy as it may sound, at a meager cost.[11]
IP Story: Developing a narrative around the IP portfolio to make patents more attractive to potential licensees. Developing intellectual property can be difficult and costly, so how do you communicate IP’s value to a business and market? While data and analysis can be critical technical tools, it is much easier for most busy investors and executives to believe a compelling story. In this episode, John will teach you how to tell your IP Story to get the most value from your intellectual property, like patents and trade secrets.[12]
[4] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 30 – The IP Landscape: Know Your Business
[5] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 21 – IP Strategy for Businesses and Inventors
[6] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 31 – IP Analytics: Data-Based Patent Strategy
[7] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 15 – Evidence of Use: Detecting Patent Infringement
[8] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 14 – Avoid Patent Infringement with Freedom to Operate
[9] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 28 – How to Invent Around Any Patent or Technology
[10] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 32 – Get More Patents with Invention On Demand
[11] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 12 – The Secret Weapon of IP: Enabled Publications
[12] https://www.ipcg.com/thought-leadership/invent-anything-podcast/ Episode 24 – Telling Your IP Story to Investors and the Market
Insights into successful patent licensing
Diverse License Agreements: Patent licensing includes co-exclusive, sole, and compulsory licenses, often with sub-licensing rights. URL: https://www.inquartik.com
Approaches to Licensing: “Carrot” and “stick” methods represent two main approaches to patent licensing, focusing on persuasion or legal threats, respectively. URL: https://www.upcounsel.com/patent-licensing
Evolution of Licensing Strategies: The strategy for patent licensing has shifted from legal confrontations to emphasizing the industrial utility, quality, and market value of patents. URL: https://www.iam-media.com/back-to-the-future-in-patent-licensing
Role of Claim Charts in Negotiations: Initial claim charts with broad Evidence can offer flexibility during negotiations, adapting to various implementations. URL: https://www.iam-media.com/key-steps-to-developing-a-successful-licensing-programme
Targeting High-Value Products: Focusing on high economic value products is vital when asserting patents to ensure the investment in patent creation and proof is justified. URL: https://www.iam-media.com/key-steps-to-developing-a-successful-licensing-programme
Evidence and Chain of Custody: Successful licensing programs require well-prepared and defendable Evidence, with a thorough chain of custody crucial. URL: https://www.iam-media.com/key-steps-to-developing-a-successful-licensing-programme
Conducting an Exposure Analysis: An exposure analysis is essential to assess a patent assertion’s feasibility and anticipate potential counter-responses. URL: https://www.iam-media.com/key-steps-to-developing-a-successful-licensing-programme
Understanding Licensing Rights and Agreements: Licensing rights allow others to use a patented innovation, with varying agreement terms from simple fees to complex arrangements. URL: https://www.upcounsel.com/patent-licensing
Strategies for Finding Licensees: Finding potential licensees involves participating in trade shows, advertising, using patent websites, and working with brokers. URL: https://www.upcounsel.com/patent-licensing
Conclusion
In conclusion, the dwindling pool of patent monetization expertise is not just a passing trend but a critical concern that echoes across industries and marketplaces. Regulatory changes, market dynamics, and evolving corporate strategies have created a landscape where nuanced understanding and strategic agility in patent licensing are more valuable than ever. This scarcity of expertise highlights an urgent need for renewed focus and investment in cultivating the next generation of patent professionals. These individuals must grasp the complexities of patent law and market dynamics and possess the insight to navigate an increasingly challenging and litigious IP environment.
The revival of patent monetization expertise hinges on fostering a deeper, more holistic understanding of the IP landscape. As the world continues to advance technologically, the role of skilled patent professionals will become ever more critical in shaping the future of innovation. They are the unsung architects of progress, ensuring that ideas are protected and effectively leveraged for growth and development. In this rapidly evolving world, mastering patent licensing is not just a professional asset but a cornerstone for future innovation and economic advancement.