an analytical framework for determining the value of patents to an ongoing business by steven w....

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.

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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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Industry-Recognized Innovation and Leadership

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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?


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


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


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


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?


Graph of Patent ValueThe Value of Most Patents

Zero or IncrementalGreat Value


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


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


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


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?


Patents on FDA approved

devices or drug

Patents on breakthrough

technology

Examples of Important Patents


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?


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?


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?


Software companies

Information companies

Retail businesses

Service businesses

Financial services

Companies that Don’t Need Patents


Medical Tech

Drugs/Life Sciences

High technology

Technology leaders

Companies that Require Patents


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


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


Because a company’s position in the patent landscape is often a reflection of its technology position, its worth

looking at.

Patent Landscape


• 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


• Patent statistics for a Technology Area• Filing Trends and Timelines for “Social Networking”



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


• VCR or “Video Cassette Recorder” Technology

versus DVD or “Digital Versatile/Video Disk” Technology



• Assignee Statistics• Assignees by Volume of US Patents for "Social Networking"



• Assignee Statistics• Assignees by Volume of Patents and Revenue for "Social Networking"



• Assignee Statistics• Assignees by Volume of Patents, Vision, and Resources for "Social

Networking"



• Assignee Statistics• Assignees by Date of Activity for "Social Networking"

– who has earliest patents– who has most recent patents


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.


Company is technology leader.

Technology is emerging.

Many opportunities for good patents, more freedom to operate.

Blue Ocean Patent Scenario


Company is technology follower.

Technology is mature.

Few opportunities for good patents, less freedom to operate.

Red Ocean Patent Scenario


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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an analytical framework for determining the value of patents to an ongoing business by steven w....

Documents

lundberg schwegman

lundberg woessner

value of patents

graph of patent value

little value

value enhancement

patent landscape

nonpatent barriers