May 6, 2013
Patent Protection as
Investment and Insurance
Alan D. Minsk
Every entrepreneur is faced with
having to make difficult decisions
regarding resource allocation. Some
of these decisions are relatively
simple, or at least seem so at the time.
Typically, founders of a company
want to minimize cash outflow during
the early stages in order to conserve it
for use later when it may be needed
to support the company while it
seeks additional funding. This
makes sense, but efforts to reduce
the outflow of cash can also leave a
company without a key asset that it
may benefit from at a later time.
This sometimes-overlooked asset is
the value of the intellectual property
created by the company’s employees.
It is an asset that requires a certain
amount of advance planning and
investment in order to obtain, and
may be perceived as an unnecessary
and undesirable burden. However,
it is also an asset that can provide
a return on investment equal to
many times its cost, both in terms
of saving money and providing
business opportunities that would
not otherwise be available to the
company.
Because of the great potential value
of a company’s intellectual property, I
believe that a company should invest
in identifying and protecting its
intellectual property, but should view
the investment as a type of insurance
policy. That is, treat the investment as
a way of purchasing protection against
Alan D. Minsk
a business problem that may arise in
the future, or at least consider it as
a source of leverage that will make
handling the problem easier and less
expensive than it would be otherwise.
Because extracting value from
intellectual property is a dynamic
process (i.e., the intellectual
property can be developed in ways
that respond to changes in the
company’s competitive position
in the marketplace), it is unwise
to base decisions that affect the
resources devoted to intellectual
property solely on the perceived
value of the property when it is first
being evaluated. In order to explain
why this is so, it is helpful to discuss
some of the many ways in which a
filed patent application or an issued
patent may be of value to a company.
A patent application represents
a way of converting an innovation
into a business asset. This asset
has value to the business because
it can be used in multiple ways to
preserve or increase revenue. In
order to take advantage of this asset,
a company needs to be aware of
what characterizes an innovation,
and to install a process to identify
and capture those innovations.
The process can be informal, but it
is important to communicate the
value proposition(s) of the process to
management and employees so that
they will participate in good faith.
An interesting side effect of a
patenting program is that it can serve
to stimulate innovation and product
development within a company.
This occurs through the operation
of a “virtuous cycle” of positive
reinforcement between the patent
program, innovation, and product
development efforts. This “cycle” is
described more fully by the author in
a Law360 article entitled “Innovation,
Development and the In-House
Patent Program.”
The “cycle” 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,
with some being converted into a
business asset via the operation of
the patent program. However, in
addition to capturing the outputs
of product development or R&D,
the patent program acts to create
May 6, 2013
and support a culture of innovation
within a company. This raises the
profile of innovations as an important
component of the company and a
contributor to its success.
The “virtuous cycle” is one example
of how the presence of a functioning
patent program can provide benefits
to a company separate from those
represented by the number or content
of filed patent applications. It provides
a justification for at least some
investment in establishing a patent
program and for filing a limited number
of patent applications.
Another benefit of establishing a
patent program that is distinct from
the number or content of the actual
patent applications is that it provides
evidence to prospective investors
that a company is actively identifying
and protecting innovations. As
such, it may contribute to obtaining
investment or continued investment.
This is because the patent portfolio
provides a tool that can be used at
a later date to increase the value of
a company and/or to help resolve a
dispute with another company (and
thereby preserve value).
In this way a patent portfolio
provides a way for a company to
capture the output of an investment
in R&D or product development,
and to convert that output into a
form in which it may be used in
business negotiations to benefit
the company. Some investors may
therefore view the patent portfolio
as part of an “exit strategy” should
the business operations of the
company fail to provide a desired
return on investment.
These benefits of the patent portfolio
arise because of the multiple strategic
uses of a properly constructed patent
portfolio. An issued patent (and in
some cases, a pending application)
may have significant value to another
party. A properly designed patent
portfolio is one that contains assets
that have multiple value propositions,
some of which benefit the company
and some of which benefit other
players in the market.
If a company has (or is likely to
obtain) a patent that contains claims
that arguably cover a competitor’s
product or service, then the company
now has a bargaining chip that can
be used in negotiations with that
competitor. This may enable the
company to negotiate more desirable
terms in an agreement, to propose
a cross-license (with a reduction
in cash payment) in a situation in
which such a proposal would not
otherwise be accepted, to propose a
joint development agreement with
another company (because it now has
something additional to contribute
that may be used to protect the
combined effort), etc.
Although a properly constructed
patent portfolio has multiple value
propositions, many of these value
propositions may be unknown or not
even possible to anticipate at the time
a patent application is filed. This is
because the possible needs for, and
uses of, intellectual property rights will
typically vary as a company develops
a presence in the marketplace and its
goals or business model change.
Similarly, just as the company’s
goals or business model change, so
too do those of competitors, with new
potential competitors arising over
time. Just as the business environment
in which a company operates is a
dynamic one, so too are the needs for
and possible uses of a patent portfolio.
This presents a problem: obtaining
a patent may take two to three years,
during which time a company and
its competition may change business
models and strategies. It would appear
to be difficult (if not impossible) to
prepare in advance for what types
of patent claims will be needed at
the time they will be needed. In an
absolute sense this may be true, since
some of the relevant information is
not known at the time that certain
decisions are being made about how
to describe an invention and what
aspects to attempt to protect.
Fortunately there are techniques
that may be used to craft patent
applications that enable those
applications to be “tuned” to become
more valuable assets as further
information about the operating
environment and/or business model
of a company or its competition
becomes known. These techniques
include describing an invention as a
broadly worded solution to a technical
problem and deconstructing a generic
implementation of the invention into
a set of functional elements.
The bottom line is that a company
needs to install processes to identify
and evaluate all potential innovations,
with a goal of investing in protecting
the key product or service features
that differentiate it in the marketplace
and that are expected to drive revenue
or otherwise provide an advantage to
the company.
Alan D. Minsk is a patent attorney
and former in-house counsel for Unwired
Planet and Intellectual Ventures. He is
currently a partner with the law firm of
Lane Powell in the firm’s Seattle office.
His practice focuses on counseling clients
with regard to intellectual property issues
that arise during the course of their
business operations.
Reprinted with permission from the May 6, 2013 edition of CORPORATE COUNSEL © 2013 ALM Media Properties, LLC. This
article appears online only. All rights reserved. Further duplication
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