INNPERSPECTIVE

A Series of Industry Focused Articles
Read about the latest trends and updates in the intellectual property industry from the Innography perspective.

Competitive Intelligence: Getting Ahead of the Development Curve

Tuesday 29, June 2010 by Tyron Stading

Today companies are being forced to cope with rising litigation risk because the business environment is simply more litigious. This increased litigiousness has produced a more rigorous due diligence requirement that involves a greater focus on the way intelligence is gathered and the processes associated with it. Part of this rigorous protocol is to monitor the IP landscape generally and competitive targets specifically (companies, products and technologies), before a decision is made to pursue one or more candidates.

You can monitor technology in a variety of ways as it is being developed. At the inception of a technology, research platforms such as Innography can provide only limited assistance because patents aren’t typically filed until about halfway through the product lifecycle.

The lifecycle of the product usually begins with basic research and progresses through a developmental stage until it is mature enough to patent. After the technology is mature and protected, marketing plans begin to emerge as it is applied to products and finally introduced to the market.

Because Innography analytic results rely in part on patent data, there isn’t a way to use it to thoroughly evaluate the technology between inception and patent prosecution. Innography can assist with evaluating the company, along with its current product and patent portfolio during that phase. But much of the competitive intelligence (CI) research must be performed in more conventional ways.

In the beginning, it can be monitored using resources such as research papers and grey literature. This method is a very important complement to research that can be performed using a research platform like Innography. Using Innography, you can see what companies are investing in which technologies, which can be very good technology investment indicators. It can point you to materials that indicate which type of investments in future technologies are being made today.

As the technology becomes well defined and is deemed to be viable, you can rely on R&D Alliances and joint ventures such as open innovation networks to understand the developmental progress. At this point, the focus of your CI gathering should shift from understanding the technology, to a complete understanding of the company who is investing in its development.

Finally, as the technology comes online and patents are filed and granted, you can begin to understand with greater clarity which of your CI targets represent the best investment and least risk. This is where your IP business intelligence platform becomes critical.

You need to be able to overlay the IP data with business and legal data to give it a business context. It is important to know, for example, whether the new technology really is new and whether its patent is similar to other patents held by litigious companies. In such a case, they might already be aware of the patent and are simply waiting for an acquisition or licensing deal so that they can sue someone with much deeper pockets than the inventor.

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What Makes Your Patent Valuable

Friday 23, April 2010 by Tyron Stading

The two February articles covered the concept of IP valuation — the benefits of understanding the value of your IP and the different models in use today for quantifying that value. There’s a missing piece to the equation though: exactly which attributes make your IP valuable?

First, it is important to understand that specific attributes of your IP don’t necessarily make it valuable, but you can look for indicators that are consistently correlated to types of value. There are multiple definitions of value depending on the focus of your organization. For example, maintenance, litigation, licensing, defense and strategy each have their own value that is unique to your team or company.

Within the context of that focus area, you should try to understand statistical patterns that are correlated to valuable outcomes, as you define them. Based on the desired outcome, you can leverage attributes of your IP to find other IP that also demonstrate those same patterns. The following example illustrates one outcome for litigation value that Innography can help you evaluate.

An academic paper produced by faculty members at University of California at Berkley, Stanford, University of Texas, and George Mason University School of Law entitled Valuable Patents analyzes key indicators that suggest the relative value of patents in a legal context. The authors argue that “…some patents are intrinsically more valuable than others.”  and that the relative value can be objectively measured, litigation being a key indicator. They also determined that there are at least seven attributes that can suggest whether a patent is relatively valuable :

  • They tend to be young, i.e. litigated soon after they are obtained.
  • They tend to be owned by domestic rather than foreign companies.
  • They tend to be issued to individuals or small companies, not large companies.
  • They cite more prior art than non-litigated patents, and in turn are more likely to be cited by others.
  • They spend longer in prosecution than ordinary patents.
  • They contain more claims than ordinary patents.
  • They come disproportionately from certain industries. Patents in the mechanical, computer and medical device industries are significantly more likely to be litigated than patents in the chemical and semiconductor industries.

The value of identifying these attributes is that they can be objectively measured. You can know, for example, how old a patent is and how many times it has been litigated. Likewise, a patent is either owned by an American company or it is not and you can know definitively how many times a patent is cited and how many patents it cites.

The authors acknowledge this fact as a breakthrough finding in the introduction:

“Finally, the existence of objectively verifiable predictors of the value of a patent should revolutionize the “black art” of patent valuation.”

At Innography, we refer to this type of relative valuation as patent strength, and we’ve built a patent strength rating feature into the Innography service. When people are introduced to the application, it’s common for them to ask what we mean by patent strength and how we go about deciding that one patent is stronger than another.

What we’ve done, which is unique in the industry, is to devise an algorithm inspired by the Valuable Patents scholarly paper for evaluating the relative strength of a patent. We have identified specific attributes, some of which are listed in the paper, and we objectively measure them for each patent. Innography then scores the patent based on the combined value of each attribute using this unique Innography algorithm. Patents with higher scores are ranked higher than patents with lower scores.

Innography then visually rank the patents, so that both the strongest and the weakest patents can be quickly identified. It also breaks the ranking down to indicate specific areas of strength or weakness within individual patents:

Innography provides legal strength indicators based on litigation patterns. There are other metrics that can also be leveraged for maintenance, licensing, product protection, and so on. The key takeaway is that regardless of the outcome you’re seeking, valuation metrics are much more mature than they once were and they can give you insights that are beyond human capabilities.

These statistical patterns can give way to new opportunities such as

  • Increasing licensing rates – Picking the highest potential licensable patents.
  • Decreasing litigation risk – Identifying risk and preemptively taking steps to avoid it.
  • Decreasing maintenance fees – Pruning patents that should be dropped from maintenance.

Regardless of the outcome or valuation, the science has produced tremendous results and should become a core part of your business. Gauging the relative strength of a patent is no longer science fiction; it is science fact and it can enable significant ROI you wouldn’t have without it.

Click here for more information on Patent Analysis.

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The Rise of False Marking Litigation

Wednesday 24, March 2010 by Tyron Stading

There is a new litigation trend brewing on the horizon: false marking. Much like the increase in litigation in early 2000 from patent trolls, this is now a new source that’s driving increases in litigation. Because of a recent court decision, it is extremely profitable to sue companies who have falsely marked products as patented. The following chart shows the massive increase in cases in the first three months of 2010 already.

False Marks Litigation Trend 1998 – 2010

For operating companies, this has serious implications for product projection strategies, maintenance decisions, and product management.

Background
U.S. Patent Law explicitly permits marking products to indicate they are in some way protected by a patent. There are a number of reasons a company might decide to expend the effort of marking a product to indicate a patented technology, process, or material was used in producing it. It might be determined, for example, that as a marketing tactic, the mark provides a competitive advantage by causing the perception that the product is superior.

Another obvious reason to mark a product is that it puts your competitors on notice that they are barred from copying anything unique about your product without your written permission. A careful reading of the statute (35 U.S.C. Section 271), however, reveals something that might not be quite so obvious initially.

The statute also explicitly prevents a patent holder from being awarded compensatory damages if the product is not marked and someone infringes on the patent. The functional effect is that your product should be marked for business reasons that go beyond a simple marketing tactic. In the event you discover that someone is infringing on your IP, you are limited to collecting for damages only after the competitor was put on notice. Those facts by themselves seem relatively simple to understand—but they are complicated by another section of the law known as False Marking. USC 35 Section 292 makes it unlawful to mark a product as being protected by a patent if it is not.

The law has also recently been interpreted in such a way as to make it a very expensive violation. At one time the law was interpreted on a per product basis; it was a single violation to distribute any number of the same product with a false mark. The law limits the fine to $500.00 per violation, which is not a significant incentive to a large company and, consequently, they tended to ignore the legally required due diligence. On December 28, 2009, however, a U.S. appellate court for the Federal Circuit held that fines should be imposed on a per article basis, a much greater incentive to pay attention to product markings.
This new ruling has produced the steep rise in false marking litigation as shown in the previous diagram.

The Impact to Operating Companies
The upshot is that there is a very real business need to mark your products—but it’s critical to monitor and manage your IP very closely in the process to ensure you don’t fall victim to a False Marking lawsuit. That can be a very tall order, though, because you need to translate between what is patented and what technologies your product contains. That means you need to have an understanding of which products are associated with which patents in your portfolio.

There are three areas that can impact an operating company:

  • Product protection strategies: You need to clearly identify what products are your biggest sources of revenue and align patents to protect them. 25% of product owners also own patents, resulting in significant patent infringement. Marking can be an effective tool of preventing duplication, but you need to think about your entire IP strategy (products, trademarks, patents, etc), especially around enforcement and infringement detection.
  • Patent maintenance decisions: As patent maintenance comes due, companies are making decisions about whether to renew patents. There is a large financial incentive to not renew patents to avoid maintenance fees, but it comes at a potential cost because of the lost patent protection. Incorporating patent-to-product association into the maintenance process becomes imperative, especially given the new threat of a false marking lawsuit.
  • Product management: A number of important questions require answers as you develop your product management strategy: 
    • As new products are developed or repackaged, what IP is protecting them?
    • How do you put your IP into a product-related taxonomy?
    • How are you designing packaging to compete with other’s IP and products?
    • Do team members (developers, product managers, legal researchers, etc.) have the IP and product data they need when they need it?

Today, there is really only one practical way to address these critical areas: Innography.

Innography enables the understanding of trademarked product and patent associations. Rather than trying to catalog all your products with their patent marks, you can quickly search your trademarks (which represent your product pool) and with a single click, determine what patents are in play. This helps with protection strategies, maintenance decisions, and general product management, and can be helpful to understand marking issues before a competitor threatens a false marking lawsuit.

While the Senate is reviewing legislation around false markings, it appears that it will only limit lawsuits to be brought by competitors, instead of including individuals as well. No matter how it shapes up in 2010, it is clear that a new trend of lawsuits has appeared and it has deep implications for product management strategies.

Click here for more information on Patent Analysis.

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How Much Is My Intellectual Property Worth? Setting a Value on Your IP

Sunday 28, February 2010 by Tyron Stading

The second article in a series of two.

Having acknowledged in the previous article that no standardized way exists to fully and accurately assess the monetary worth of your IP, it is also true that you should have a sense of its real value. Several valuation models exist (some of which are more scientific than others) that are widely accepted. Here are just a few:

  • Fair value measurements – Here you are basically asking, “What would a third party be willing to pay?”  This analysis uses objective measurements such as price per engineer who created the technology, price per patent, licensing fee per brand recognition rate and price per unit generated from IP assets. This method is relatively simple and easy to use, but it might not produce enough data points to accurately reflect how much your IP is actually worth.
  • Present value of expected future cash flows – This approach is based on discounted cash flows.  Essentially, you examine past revenue that can be tied to your IP such as licensing fees, royalties and product sales revenue. You then use that data as a basis for forecasting future revenues. The resulting forecast is discounted by the costs associated with the IP, which can include things like maintenance fees, defense costs and any potential future investments in the existing IP. This method is more accurate than the fair value measurement, but it can produce considerable uncertainty regarding the revenue forecast.
  • Option pricing models – Option pricing models are so called because they were originally developed to assess the value of stock options. In this case a patent is treated as an option on future technology. The most popular model is the Black-Scholes model, which—when adapted for patents—considers things such as remaining development costs, the market value of the underlying products and variance of product value return. This method is much more scientific than either of the previous methods, which is desirable. There are a number of examples, however, in which the initial analysis has been contradicted by reality because some of the assumptions were simplified so as to make the method easier to wield.
  • Conjoint and relative utility analysis – This approach also brings science to bear in the assessment of your IP. Using a standard questionnaire and a mathematical equation, products and technologies can be evaluated to determine a monetary value. The biggest drawback of this type of assessment is that it can be complicated and assessing an entire patent pool can take considerably longer than other methods.
  • Cost of development – If a company has recently completed a new technology investment, analyzing its cost can suggest its value. This is a valuable tool in the disciplines of competitive intelligence and M&A because you can use the economic principle of substitution to understand the value of your competitor’s IP. The use of this model alone, however, does not necessarily reveal what someone would be willing to pay for the IP because it doesn’t account for the potential return on the investment.
  • Cost of replacement – This approach is useful primarily when a company is considering the sale of a brand or trademark. During the assessment the analyst considers infrastructure costs (the cost to change any physical assets that contain the brand name), marketing costs (such as collateral) and revenue decline.
  • Price minus book value – This is a very common approach. It is very simple to use but is the least accurate method of any listed here. Using this method, you simply subtract the book value of a company from its market value, and the presumption is that the difference is the value of all intangible assets. The problem with this approach is that it is predicated on several assumptions that don’t stand up to the realities of the market and how companies actually conduct business. The resulting analysis should be thought of as a rough estimate.

So how does Innography fit into this notion of IP valuation? Quite simply, no matter what method you use, the resulting assessment is no better than the data you feed it — and that’s what drives a lot of what we do at Innography.

We share the vision of a standardized valuation model for IP because we believe that IP is an integral part of your business. Until recently, that hasn’t been widely recognized. It’s an extension of the concept of business intelligence, a concept that’s been around for a while and which is playing an ever-increasingly critical role in business strategy.

Data as a Service (DaaS as it’s come to be known) has become an entire industry just as Software as a Service (SaaS) has. Merely accessing the data, though, is not sufficient to drive real business intelligence; that’s accomplished by analyzing the data, something else that’s becoming widely recognized as a necessary component of business strategy.

To analyze the data it has to all be correlated to give it context — and all the data has to be considered to gain a full understanding. Without those data driven analytics it’s impossible to implement a true business intelligence system. More than that, though, Innography is going to be the business intelligence platform for delivering those analytics when a standard model emerges.
At Innography we believe a standard valuation model is necessary and we are in the process bringing that idea to the industry.

Click here for information on Patent Licensing.

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