As I mentioned in my last post, I recently finished reading Rembrandts in the Attic by Kevin G. Rivette and David Kline. There were hundreds of ideas in the book about how to strategically manage your intellectual property assets for competitive advantage -far too many to write in a blog post. But there were eight that I found particularly compelling.
- Categorize patents – The authors recommended dividing patents into three different categories. First, identify those which are both being used in current product lines that are poised for relatively high growth. Second, make note of those which are not being used currently, but might be valuable to other companies. Third, list those which are not being used and are unlikely to provide much value to other companies.
- Abandon low value patents – Those patents which are not being used and are unlikely to provide much value to other companies are natural candidates to discontinue. Large companies such as Dow and Dupont donated selected patents to universities and nonprofit groups. The donation strategy not only eliminates the need to pay on-going maintenance fees, but it enables tax savings as well.
- License high value patents – Those patents which are in high growth segments and might be of value to other companies are likely candidates for licensing. The authors recommend creating a patent citation tree which enables you to visually represent the companies that are most frequently citing your patents in theirs. These are the companies which might be interested in acquiring your patents. Co-citation refers to the scenario when other firms repeatedly cite a cluster of your patents together. You should consider packaging those patents and marketing them as a group.
- Create a patent wall – By patenting not only an invention but the surrounding processes a company can effectively bracket the competition out of using a particular technology. For example with Gillette’s Sensor razor it not only patented the blades, but also the high speed photography techniques necessary for capturing microscopic images of the shaving process. With Gillette’s Mach 3 the company patented the cartridge loading system and the coating process for the blades.
- Start a Teardown lab – Some companies have invested in laboratories which “teardown” their competitor’s products to identify possible instances of patent infringement. There are several specialized organizations which will perform teardowns and intellectual property analysis as a service. Examples include UBM Tech Insights of Ottawa, Canada. UBM offers a wide variety of services including IP strategy formulation, IP monetization and IP defense or leveraging. For a fee, UBM will dissect an entire category of products to understand the bill of materials, manufacturing process and component costs. Using powerful electronic microscopes, teardown specialists can inspect the structural analysis of integrated circuits. Sophisticated software can be used to reverse engineer firmware embedded in the device as well.
- Create a holding company – Some companies have created a separate holding company for their intellectual property assets. The holding company has no products, no sales and no operations. As a result, it cannot possibly be infringing on someone else’s properties. The holding company can initiate patent infringement suits with very large companies, but without the typical concerns about endless litigation and countersuits.
- Securitize your patents – Any predictable income stream backed by tangible assets can be securitized. While home mortgages are the most popular type of securitization the same principals could be applied to the future royalties of a pharmaceutical or high tech company’s patent portfolios. In addition to securitization, companies can borrow against the value of their patent portfolios.
- Acquire patents from distressed companies– When confronted with a patent infringement lawsuit one strategy might be to acquire a small company with a related patent. Distressed companies on the verge of insolvency often auction their patents to the highest bidder in hopes of generating cash to repay their debts. The authors provide examples of how both Guidant and several small semiconductor companies have used this strategy.
- Tax-advantaged strategies – Some companies have placed the economic rights to intellectual property with a holding company located overseas. US companies can beneift from lower effective tax rates overseas. Such a strategy can result in millions of dollars in savings for those organizations heavily licensing their patents.