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Innovation, Development And The In-House Patent Program
Law360, New York (December 10, 2012, 11:41 AM ET) -- Although many executives and managers accept
that it is desirable to develop a patent portfolio, they typically view the effort as a “cost of doing
business” that has little, if any, intrinsic value unless it is a direct source of revenue. I have a different
opinion, and in this article I hope to explain how a properly managed patent program can provide
significant benefits to a business, even in the absence of licensing revenue or other direct monetization
efforts.
Firstly, I should define what I mean by a “properly managed patent program.” By this I mean an in-house
patent program that is designed to efficiently identify innovative solutions to technical or business
problems and where desired, operate to convert them into an asset that can be used by the business to
obtain a benefit within its operating environment.
Such a program may include processes designed to accomplish one or more of the following tasks: (1)
identify potential innovations in the product line, product development pipeline, or those proposed by
employees independently of the product development cycle; (2) obtain an invention disclosure or idea
submission (a short form disclosure that can be used to assist in an initial vetting of potential
innovations) for one or more of those innovations; (3) determine the strategic value propositions (e.g.,
beneficial use cases) for a patent that is directed to each innovation for which a disclosure or submission
has been received; (4) interact with outside counsel to determine an appropriate protection plan for
each innovation for which a disclosure or submission has been received (a plan which may involve
reliance on trade secret or a defensive publication instead of a patent, trademark, or copyright
application); (5) allocate sufficient resources for the effective protection of each of a selected set of
innovations; and (6) manage relationships with outside counsel responsible for preparing patent,
trademark or copyright applications directed to those selected innovations to ensure that a desired
protection strategy is implemented.
Establishing an effective patent program requires allocation of sufficient internal resources and the
cooperation of executives and mid-level management. This can sometimes be difficult to obtain,
particularly if decision makers view patents as a type of cost that is a “necessary evil” and one that
provides little direct benefit. If a patent program is viewed in this way, managers may be reluctant to
commit the resources and time required to successfully convert ideas and innovations into business
assets.
They may also convey a lack of appreciation for those involved in administering the program to other
employees, thereby reducing the effectiveness of an in-house patent counsel. Since an effective inhouse counsel can be responsible for contributing significant additional value to a patent portfolio, such
an environment can end up “costing” the company money that they would have otherwise been able to
capture. This lost opportunity is one of the unfortunate side-effects of an improperly structured or
administered in-house patent program.
Thus, a key element of a successful patent program is buy-in from decision makers, many of whom may
be stakeholders in the success of the program (whether they realize it or not). This may require
convincing those decision makers that a patent program is more than a “sunk cost,” or whatever
euphemism they use to express their opinion that the program requires investment but doesn’t provide
a return (at least not in the short run). However, I believe that this attitude is wrong and potentially
detrimental to both an effective patent program and to the success of a company.
It is my belief that a properly constructed patent portfolio and a properly administered patent program
provide a significant return on investment, even in the absence of licensing revenue. The components of
this return can broadly be described as: (1) a tool for risk management; (2) the prevention of losses or
expenses that would otherwise be incurred in the absence of the portfolio; and (3) a tool for stimulating
innovation within a company, with the related benefits of new product features, a higher profile as an
innovator for purposes of marketing and public relations, and an increase in the value of the patent
portfolio (all of which are part of the “virtuous cycle” referred to in the title of this article).
This is because a properly constructed patent portfolio contains assets that provide a business with
something of value to competitors or to prospective collaborators. Typically this means that the patent
portfolio contains (or is expected to contain) patents that provide coverage of a product or service that
is of interest to another party, where that party is a part of (or would like to become part of) the same
industry as the owner of the portfolio. And, a properly administered patent program is essential to
producing a strategically valuable patent portfolio and extracting value from it.
Strategically valuable patents may provide protection for a feature of a product or service of the patent
owner, where the protected aspect differentiates the patent owner in the marketplace and provides
value for customers. If the patent provides protection for a feature that is not presently in a product or
service of the patent owner, then it may still have value because it covers a product or service of a
competitor, or represents a solution to a problem that is important to an industry. This is why a directed
R&D program can produce valuable innovations, even if those innovations are not intended to be part of
a current product or service. In addition, a directed or focused R&D program results in brainstorming
within a company that reinforces a desirable culture of innovation.
In each of these situations a strategically valuable patent may provide a source of leverage to its owner
because its value (as perceived by another party) may permit the owner to obtain a more favorable
result than would otherwise be achieved. This result might include the reduction of risk by settling or
avoiding a possible dispute (via a cross-licensing agreement in which a smaller payment is made by the
owner because of the perceived value of the owner’s portfolio), the prevention of a dispute that might
otherwise occur (such as a patent infringement action that is not brought against a company because of
the threat of counter-assertion provided by the company’s portfolio), a delay in the entry of a
competitor into the market (because of the perceived threat of an assertion of the portfolio), or
enabling a role in a project that might otherwise be unavailable to a company (because it can provide a
form of protection for certain aspects of the technology involved in the project).
A strategically valuable patent portfolio provides a business asset that has value to those with whom a
business competes or wishes to collaborate. It represents a “stack of chips” that a business can bring to
a table to enable participation in the “game” as well as a resource with which to invest in a project by
placing appropriate “bets.” In this sense, a patent portfolio may be considered part of the overall assets
of a company, along with its employees, technical know-how, buildings, equipment and products. And,
when a company is unable to generate sufficient revenue by executing its business plan, the patent
portfolio may represent one of the most (if not the most) valuable assets it has as it attempts to
restructure, be acquired, obtain investment, or otherwise improve its situation.
Because of its value, a properly constructed patent portfolio can be used to prevent a loss or reduce the
cost of participation in a project. In this way the portfolio can be used to save money that would
otherwise have to be spent to enable settlement of a dispute or enable active participation in a project
or group. For example, if a properly constructed patent portfolio prevents even one patent infringement
lawsuit because it dissuades a patentee from bringing suit due to fear of a counter-suit, it may have
already provided a return equal to several times its investment cost.
However, there is another benefit of a properly constructed patent portfolio and the patent program
which is used to generate the portfolio. This is the benefit of stimulating innovation and product
development within a company by the operation of a “virtuous cycle” of positive reinforcement
between the patent program, innovation and product development efforts.
This positive reinforcement mechanism arises because product development efforts, R&D and focused
forms of innovation brainstorming all generate solutions to problems. Some of the solutions may
eventually be incorporated into products or services. At the same time, these solutions are evaluated
and some may be converted into a business asset via the operation of the patent program. However, in
addition, the patent program acts to create and support a culture of innovation within a company and to
raise the profile of innovations as being an important component of the company and a contributor to
its success.
For example, patents are generally associated with innovation. So an increase in a company’s patent
portfolio is typically interpreted as evidence of innovation within a company. Some companies even
mention patented features in advertisements as a way of demonstrating that they are innovators
operating at the leading edge of technology, with the presumption being that patents reflect innovation
and innovation suggests improvement. For investors (including employees who have equity in a
company), patents provide an assurance that a company’s innovations are being protected so that value
can be obtained from those innovations in a form that is not limited to sale of a product.
A culture of innovation within a company provides a foundation for how employees view problems and
the resultant opportunities created when those employees generate creative solutions to problems
encountered by customers or the industry in general. This is because a culture of innovation acts to
stimulate employees to recognize problems within the industry and to propose solutions to those
problems. The solutions may become product features or the basis for a patent that covers an aspect of
a product or service that is expected to become important in the future.
In this way a patent program serves to stimulate innovation and not simply capture innovations that
result from the product development cycle. Stimulating innovation helps to unleash the creative aspects
of how employees approach the development of products and the delivery of services to customers,
thereby improving morale, providing additional ideas for product features or business models, and
enhancing the reputation of the company as an innovator. This can increase the appeal of its products,
assist in raising capital, and help to fill the product pipeline.
Since creative solutions to problems are an input to the patent process and because certain elements of
the patent program can act to stimulate innovations, there is a positive feedback loop between product
development, innovation and a patent program. A vibrant and properly supported patent program
conveys an important message to employees, investors and customers — the company is an innovator
that values creative solutions to technical and business problems. As such the company will generate
more innovations and more patents, while the operation of the patent program will not only convert
innovations into assets but also enhance the perceived value of innovation within the company, leading
to greater participation by employees and hence more innovations.
A figure illustrating the “virtuous cycle” between a patent program and the generation of innovations or
problem solutions within a company is available at this link. The general structure is that of a feedback
loop with the patent program being used both to convert ideas into business assets and to stimulate
further innovations, with some of those innovations being used to develop new products or improve
existing ones. The culture of innovation results at least in part from recognizing the importance of
creative solutions to the success of the business through encouraging and supporting employee
participation in the patent program. This can be accomplished by recognizing the value of innovators,
recognizing the strategic value of the patent portfolio, and marketing the company as an industry leader
in technology and innovation.
--By Alan D. Minsk, Lane Powell PC
Alan Minsk is a shareholder with Lane Powell in the firm’s Seattle office, where his practice is directed to
the development of strategically valuable patent portfolios for clients in the telecommunications (e.g.,
wireless data), mobile device, consumer electronics, e-commerce, cloud-computing and electronic
payment industries, among others. Prior to this position he was a partner with Kilpatrick Townsend &
Stockton LLP, in-house patent counsel for Openwave Systems, and vice president and patent counsel
for Intellectual Ventures LLC.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its
clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general
information purposes and is not intended to be and should not be taken as legal advice.
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