The value of streamlined portfolios

Reproduced from: http://www.cpaglobal.com/newlegalreview/4545/optimum_patent_efficiency_valu


Accurate patent valuation can be a huge strategic aid. A well-managed corporate IP department can fund all of its activities through a licensing and monetisation scheme alone, and valuation is key to building that level of efficiency. It can also help to underpin decision-making processes. With a properly assessed patent portfolio in hand, a company is able to put a fair price on every licence agreement or sale and turn its IP department into a centre of profit rather than cost.
In practical terms, companies with accurately valued patent portfolios will also be ahead of the regulation game. Sarbanes-Oxley stipulates that IP holdings should be taken into account in company valuations prior to buyouts. And statements 141 and 142 from the US Financial Accounting Standards Board (FASB) require companies to accurately measure and report on the values of any intangible assets they acquire.

Companies that choose to evaluate their own patent portfolios may not always produce clear and accurate results. Finding the expertise would not be a problem: a multi-disciplinary analysis team could be brought together from across a company’s various departments, and would typically comprise technologists, business strategists, lawyers and even marketers.

However, there could be several obstacles preventing that team from successfully aligning the company’s patent portfolio with its overall business strategy:

•    IP-to-business alignment may not always be a top priority for the company. In this case, the team would be assembled only on a sporadic basis, and would not always be on hand to assess patent values with constant vigilance.

•    An in-house valuation team may nurture a bias to one set of technologies at the expense of monetisation openings in other areas of the business.

•    Team members who have taken personal roles in the development of certain patents may be too attached to them to judge them objectively.

•    Skill levels in the relevant technologies may vary across the team.

•    The company will not necessarily have access to the tools and methodologies required to carry out some of the more complex valuation tasks. These may include procedures such as triage (scoring and ranking) of a large portfolio.

Moving targets

Another major hurdle is the dynamic nature of IP values. Rahul Jindal, Assistant Vice President of patent optimisation at leading IP services company CPA Global, told NewLegal Review: ‘Patent scores are not constant measures of quality or potential. They will change with time due to several economic, technological or legal reasons. Technological obsolescence can quickly erode the value of patents in sectors that are fading.’

Rather than fixing portfolios with static price tags, scoring helps companies to monitor the range of moving targets that their patents represent. This enables IP managers to make more effective decisions about how to position their holdings.

Where weaknesses in a portfolio are highlighted, these can be resolved through in-licensing, IP acquisition or additional patenting. Valuable patents that are not aligned to a company’s core products or strategic plans – but may have lucrative applications in other industries – can be targeted for monetisation or sale. And non-core patents can be subdivided, either for recycling in other pieces of IP, or for abandonment.

Jindal notes that CPA Global’s proprietary patent scoring system provides clear indicators for those kinds of decisions. In order to produce the most detailed and useful readings for strategic purposes, the system examines patent portfolios in the context of around 60 parameters including forward citations; backward citations; filing trends in each patent domain; the age of the holdings and the size of the entities that own them. Geared towards continuous portfolio management, the system can be used to benchmark a company’s patent holdings against those of its competitors, and identify quality IP for acquisition.

Another strategic key benefit of patent valuation is gaining information and insight to prevent the untimely abandonment of patents.

Orphan rescue

While a streamlined patent portfolio is part and parcel of IP portfolio management best practices, companies must take care not to abandon dormant assets without thoroughly considering their future potential. Untimely abandonment can occur when patents are assessed solely on the strength of whether they fit with individual strategies, rather than where they stand among a broader patent population.

‘Our scoring system is an important safety net and reality check,’ said CPA Global’s Vice President, patent monetisation, James Pohlman. In Pohlman’s view, this reality check ensures ‘that clients considering abandoning certain patents are not selling or otherwise orphaning assets that remain potential revenue sources. CPA Global offers recommendations on which patent assets to sell, analysing the potential sale from the perspective both of our clients and would-be buyers in the marketplace’.

Orphaning patent assets without due consideration is a hazard for any business, but Pohlman stresses that a dormant patent can still have a meaningful place in a company’s portfolio – or produce significant revenue from its sale. ‘Just because a company feels certain holdings are not worth the renewal fee or are not litigation-worthy,’ he said, ‘it does not by any stretch mean they are valueless.’

While many patent scoring systems use semantic analysis-based ‘clusters’, CPA Global’s system produces clearer and more detailed readings by comparing within technical domains – a broad, homogenous comparison set. In addition, it takes account of discrepancies in patent data, which can skew the results in other systems, and can also be customised to integrate with companies’ internal processes.

Its purpose is not to replace human expert analysis, but to enhance its thoroughness and efficiency.

Cherry picking

As companies seek to boost their market positions, it is likely that they will acquire older patents in their sectors in order to consolidate their portfolios. ‘We expect to see a major upsurge in so-called cherry-picking of patent assets in the next few years,’ said Pohlman, ‘particularly in such areas as life sciences and nanotechnology, green technology, entertainment and manufacturing.’

Companies predicted to take part in this kind of activity include patent pools hunting for pieces of strategically relevant IP; startups aiming to build up their portfolios in order to leverage venture capital; ‘catch-and-release’ brokers looking to acquire and resell patents; and more experienced companies that are keen to protect core IP assets by surrounding them with a ‘firewall’ of secondary patents.

To help its clients identify opportunities to participate in this complex trading environment, CPA Global has partnered with ICAP Ocean Tomo, the IP brokerage division of ICAP, the world’s leading interdealer broker. ICAP Ocean Tomo will be on hand to advise CPA Global clients on the most advantageous routes for bringing their IP assets to market.

And that could be a big advantage in a crowded ‘cherry orchard’, with companies trying to find out which critical patents are available, how they are valued and how they will develop in the future, so that they can pick wisely.