An Analytical Framework for
Determining the Value of Patents to an
Ongoing Business
BySteven W. Lundberg
Schwegman, Lundberg & Woessner, P.A.
Copyright 2009 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved.
National Practice and Presence• 80 Patent Attorneys• Deep industry expertise, all technologies• Procurement, Opinions, Diligence• Assertion, Threat Response• Portfolio Analysis, Strategy, and Management
A Brief Introduction to SLW
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Demanding and Patent-Savvy Clients
Boston Scientific, eBay, Cisco, Micron, Intel, Apple, Honeywell, Cray Research, Fairchild Semiconductor, Silicon Graphics, Columbia University, University of Minnesota, University of Wisconsin, Iowa State University, Cornell, and University of Missouri, among others.
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Recognized Quality and Cost-Effectiveness
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Recognized Global Expertise
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Industry-Recognized Innovation and Leadership
• Invented at SLW• Spun out• Sold in 2005• Used worldwide
• Invented at SLW
• Spun out
Other Projects: ClaimTracker
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Questions Answered Today
What are patents really worth?
When do patents really matter?
What can I learn from a patent landscape?
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Raw Count of Patents in Force 1980-2009
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
1980 1990 2000 2009
Patents in Force
Count
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To provide a barrier to
competition for an
ongoing business.
As a licensing asset to generate royalties , as a cross-licensing tool, or as a deterrent to would be aggressors.
Primary Uses for Patents
Copyright 2010 Schwegman, Lundberg & Woessner. P.A. All Rights Reserved.
Used as a barrier to competition, value
or importance of a patent is relative to other natural or non-patent barriers.
A patent only functions to enhance the value of a company’s technology/pricing power – if it doesn’t do that or isn’t needed, its useless.
Value for Ongoing Business
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BEWARE!
The vast majority of patents
narrowly cover
increments or species of technology
that have little value and
therefore the enhancement
is of little value unless it is
large in scale.
How Much Value Enhancement?
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Graph of Patent ValueThe Value of Most Patents
Zero or IncrementalGreat Value
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A patent is a “last resort” barrier to entry – its best not to be entirely dependent on patents.
Almost all successful businesses
enjoy many non-patent barriers. to entry
Patents are Rarely Critical
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Non-Patent Barriers to EntryAdvertising/Branding Investment
Control of resources Network effect
Cost advantages Research and development
Customer loyalty Inelastic demand
Distributor agreements Supplier agreements
Economy of scale Sunk costs
Government regulations Vertical integration
Trademarks/Copyrights Trade Secrets
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Sometimes patents are of great value or importance to a business, and greatly enhance the value of the business or technology.
But when are they of value?
BUT Don’t Forget Exceptions
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When even strong non-patent barriers to entry are insufficient to provide an acceptable technology ROI;
or
When patents are powerful enough to provide pricing power/market control on a valuable technology.
When are Patents Most Valuable?
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Patents on FDA approved
devices or drug
Patents on breakthrough
technology
Examples of Important Patents
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For new technology requiring FDA approval, patents only have to cover the approved device or drug to be effective protection.
Here the ability to design around is restricted by Government regulation.
Can a Narrow Patent be Valuable?
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For an ongoing business, the value of a company’s patents depends on whether the patents cover the company’s most valuable technology.
If the patents don’t cover key technology, then may be worthless, unless its difficult to tell what is worthless and what isn’t.
What Value do Patents Have?
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If a company has valuable technology, its patent portfolio should reflect that value relative to other companies in the market.
If a company’s portfolio is poor relative to competition, it raises concerns about the company’s technology position.
What Can I Learn From Patents?
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Software companies
Information companies
Retail businesses
Service businesses
Financial services
Companies that Don’t Need Patents
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Medical Tech
Drugs/Life Sciences
High technology
Technology leaders
Companies that Require Patents
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Very large and dynamic portfolios – e.g., more than 5,000 patents – have unique benefits due to several factors:•“Incremental” protection is powerful if in large scale• These portfolios are difficult to decipher•If new patents are added each year, there is fear factor
For Large Portfolios
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A company also needs freedom to operate (FTO) in its technology space.
This base needs to be covered to be safe, but usually only presents an issue with emerging growth companies or start-ups.
One More Thing: FTO
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Because a company’s position in the patent landscape is often a reflection of its technology position, its worth
looking at.
Patent Landscape
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• Patent statistics for a Technology Area• Total Patent Counts
• For example, “Social Networking” • In contrast,
“Social Networking” v. “Stents”
Basic Landscaping Methodologies
US Patents US Patent Applications0
2000
4000
6000
8000
10000
12000
Social NetworkingStents
US Patents US Patent Applications0
200400600800
1000120014001600
Social Networking
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• Patent statistics for a Technology Area• Filing Trends and Timelines for “Social Networking”
Basic Landscaping Methodologies
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Social Media M&A/Private Investing
In 2008 and 2009 there was over $2.2 B
in M&A activity or private investing in Social Media
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• VCR or “Video Cassette Recorder” Technology
versus DVD or “Digital Versatile/Video Disk” Technology
Basic Landscaping Methodologies
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• Assignee Statistics• Assignees by Volume of US Patents for "Social Networking"
Basic Landscaping Methodologies
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• Assignee Statistics• Assignees by Volume of Patents and Revenue for "Social Networking"
Basic Landscaping Methodologies
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• Assignee Statistics• Assignees by Volume of Patents, Vision, and Resources for "Social
Networking"
Basic Landscaping Methodologies
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• Assignee Statistics• Assignees by Date of Activity for "Social Networking"
– who has earliest patents– who has most recent patents
Basic Landscaping Methodologies
1997 1998 1999 2000 2002 2003 2004 2005 2006 2007 20080
2
4
6
8
10
12
14
16
18
Priority of US Patents by Assignee
Yahoo! Inc.Microsoft CorporationIBM CorporationIAC SEARCH MEDIA, INC.Google Inc.Friendster, Inc.AMAZON.COM, INC.
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Company is technology leader.
Technology is emerging.
Many opportunities for good patents, more freedom to operate.
Blue Ocean Patent Scenario
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Company is technology follower.
Technology is mature.
Few opportunities for good patents, less freedom to operate.
Red Ocean Patent Scenario
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A company’s patent position tells a story that is worth looking at
If a company is a technology leader, patent portfolio should be strong If a company has a poor patent portfolio, it may indicate the company has a weak technology position All things being equal, a company with good patents is a better investment than one without patents
Four Take-Away Principles
Thank you for your participation.
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