These strategies assess the true value of IP assets in a timely manner. Knowing the value of an IP asset enables licensing executives to negotiate favorable out-licensing and in-licensing agreements. IAI tracks metrics for the following parameters:
A key question facing executives when they are about to license-out an intellectual property portfolio is “What’s the true value of these assets and who should I license them to so that I further my business objectives?”
Answering this question in a timely and accurate manner is vitally important. The ability to quickly find value in an intellectual property portfolio, and successfully negotiate its sale for the benefit of a company, is a critical competency for any organization—and a significant competitive advantage.
Three key criteria are typically used when determining the commercial value of an acquired patent portfolio. The first relates to the validity and enforcement potential of the acquired patents. Once validity and enforceability of a patent portfolio have been ascertained, the second criterion is the technical strength and business utility of the portfolio.
Given that a portfolio is valid and enforceable, and has technical strength and business utility, the third criterion for establishing value is whether or not the geographic markets covered by the patents include countries that have large commercial markets in which to sell the technology at high-volume and profit.
The final key to the value of patents is how broadly applicable they are to the commercialization of products in many diverse industries, as well as whether the technology is distinct from a performance or cost standpoint in one or more specific markets. Naturally, patents with commercial potential have significant value compared to those that may have interesting scientific elements but little commercial utility.
When preparing for negotiations, it is important to understand which patent attributes are likely to play a central role in the negotiations, versus other attributes that are not a point of distinction or value.
Several entities have engaged in creating patent scores, patent strength, and patent rating algorithms that apply a single value to a patent or patent portfolio asset. Although useful, such tools have been found wanting when it comes to the specifics of preparing for negotiations. This is because these tools have high correlation coefficients with respect to value, but the predictive ability of such algorithms, the R squared term, is often low.
One way to overcome this deficiency is by visually displaying the key variables of a particular patent or portfolio. This visual display does a better job of showing strengths and weaknesses in terms of each of the three criteria, as well as providing a balance between detail and complexity, thus resulting in fast and thoughtful decision-making.
Visualization is most easily done by creating a radar or spider diagram. In such a diagram, each axis is a rating score of one of many attributes important to the value of a patent. For example, the center of the diagram relates to the lowest score or value, oftentimes zero, and the outer perimeter scale refers to the maximal value found for that particular attribute. Scores of the source portfolio and the portfolios of other comparison patents (each from specific assignees) are ranked between zero and the maximal value on any one axis.
In addition to comparing a company’s portfolio to be licensed-out to other portfolios, statistical measures of value can also be applied. The teachings of Edward Deming and the Quality movement are very helpful here. The “average plus three standard deviations” was often set as a limit to discern when a manufacturing process was statistically out of control and required immediate action.
In studying intellectual property portfolios, it has been found that the “average plus two standard deviations” is a useful commercial cutoff point for understanding when a portfolio has exceptional performance, versus being merely above average. These are the portfolio attributes that are worthy of special mention during the licensing negotiation process.
Scores derived from the company’s portfolio and the portfolios of other comparison patents (each from specific assignees) are ranked between zero and the maximal value on any one axis of a radar diagram.
There are times when the average value is quite low compared to the maximal, and other times when it is quite high. The company’s portfolio can easily be compared to the average of all portfolios by displaying it as a dark red line with white dots, as seen in the figure.
To easily spot exceptional performance, the statistical limit for this performance is shown as a light orange area. Likewise, the average value of all assignees scores is shown in the diagram by the dark orange area.
For example, the litigation frequency, re-examination frequency, and the opposition frequency of the source portfolio are truly exceptional when compared to those of other assignees. During any negotiation, these “battle-tested” elements are the points upon which a skilled negotiator could build value.
Here the individual axes rely heavily on citation counts, reference counts, and examiner codes. Looking at the pattern in this figure, there are no exceptional attributes.
However, there are over a half dozen attributes in the B+ range. This is important for negotiation. The sports analogy is that if you have one axis with outstanding performance, it would be like having Michael Jordan on your NBA team, or Lionel Messi on your soccer team
When you have a portfolio with one outstanding attribute, you design the whole offensive strategy around that strength. If the portfolio, or sports team, does not have a single patent or player around which to build a strategy, you can still build a successful negotiation or a successful team around solid B+ performance from a number of individuals.
Going back to Edward Deming and the Quality movement, if you have a trend line of over seven points increasing in value, even though it has not yet approached the statistical control limit, this is an indicator that something outstanding is happening. The intellectual property corollary to this is that if you find five or more single axes that are in the B+ range, you should build the licensing negotiation strategy around this pattern of B+ performance.
From the figure, we see that a key strength of the company’s portfolio is the number of sharks and predators following it. Sharks are entities that have over 35% of the follow-on citations of a patent, while predators have between 15% and 35% of the follow-on citations. Also unique in this portfolio are the number of international patent classifications, indicating a diversity of technology and uses that the patents cover. In addition, the portfolio scores a B+ for originality from both a scientific publication and a patent standpoint. Completing the picture is the above-average performance of the portfolio on the generality (cited by) scale.
In summary, this portfolio is well suited for licensing-out. There are entities following the portfolio that may want a license to the portfolio’s core grandfather art. The indication of the portfolio’s originality and suggests that it may be licensable in a variety of different industries. Taking all these elements together, this is a valuable portfolio to license.
In this figure, we see the markets that are covered by patents in this portfolio.
To obtain a good return on patent licensing, it is helpful to be able to license the technology in the major commercial markets of the world.
In this case, there are over five B+ areas in which the portfolio is unique. The ability to license in the United States, Japan, China, Germany, France, and Australia increases the worth of this portfolio.
One means to identify potential licensing opportunities is to look at the total number of citations of the company’s patent portfolio by other entities
The figure shows how many times other entities cited a particular company’s portfolio.
Potential licensees might thus be not only the top citing entities like Sandisk, E Ink, Siemens, Advanced Micro Devices, but also entities further down the listing as they too have demonstrated interest in this field
In addition to portfolio measures, visualization techniques based on individual patents also help identify potential licensees and illustrate their needs
An example of a citation tree is shown to the right to illustrate how a client’s patent is being cited by others
Depending upon the specific pattern of citing companies, and the competitive relationship to the client, the appropriate carrot, cross-licensing or stick licensing strategy and tactics are easily identified
Potential licensor and licensee IP sets are mapped to show inter-relationships that help our clients identify the best strategy for their business
The above work prepares a company for licensing out its portfolio. However a question remains as to the negotiation value of any individual patent. Is the portfolio worth more separately or all together?
To gain insight at the individual patent level, several software companies have engaged in creating patent scores, patent strength, and patent rating algorithms that apply a single value to the asset. IAI uses these scores for guidance, as they vary to the extent they agree on at the single patent level.
Another approach is to list patents by their publication dates, family size, citation counts and velocities, predator presence, generality and originality, and validation measures. Sorting and binning upon these attributes allows those patents likely providing the most negotiating value to be easily identified.
When our clients enlist Intellectual Assets, Inc. to assist them in their licensing planning process, we utilize the above tools and techniques along with our comprehensive business approach to portfolio mining, licensee identification, and competitive assessment. This provides our client companies a complete picture of additional technology and business uses for their existing IP. The complete process ensures that our clients negotiate a full range of income-producing licenses.
Graphic displays of our results illustrates to our clients executive teams how such license transactions can be conducted in a way that both increases revenues and does not disturb the company’s mainstream business lines. These visualization techniques are also used during negotiations with the licensee. They have been proven to significantly reduce the time to contract signing and produce demonstrably more revenue to the license holder.
No transaction process is complete without the human element. Our Principals utilize their “Golden Rolodex” to select whom to contact and how the art under consideration best fits the potential licensees’ business strategy and the client’s need for a sustainable revenue stream. A win-win posture and focus on rapport with all parties is key to our success.
In-licensing transactions are in many ways similar to out-licensing transactions, but some important distinctions and competencies are necessary for success.
When our clients enlist Intellectual Assets, Inc. to assist them in their licensing-in activities, we start with search techniques designed to find art needed for their technology and marketing needs. Business, marketing, technical and IP databases are utilized in an iterative and integrated manner. The experience of Intellectual Assets, Inc. in building and leading top R&D organizations gives our clients the benefit of a “street smart” colleague looking for weak signals in the data and information.
Once the patents and / or patent portfolios are identified, steps to prepare for negotiations are taken to ensure fast, high-quality, successful deals. Many of the same out-licensing graphic displays are used for in-licensing, but one key difference between the out-licensing tools and in-licensing tools is the need to compare two portfolios vis-à-vis all relevant art in the technical and business fields. These two portfolios are the art to be in-licensed and the licensee’s existing portfolio.
The display of such information is illustrated in the figure. The portfolio to be licensed in is shown as the red line. The company’s current portfolio in this technology / business area is shown as the blue line. The attribute under study is the number of patent families in each major country or geographic region. This allows the licensee to understand the relative contribution from their existing and about to be in-licensed portfolios to their global business strategy and tactics. Such insight aids in quickly setting an appropriate BATNA (Best Alternative To A Negotiated Agreement) prior to the onset of negotiations, a negotiation best-practice.
To complete the process, once again our Principals’ “Golden Rolodex” allows quick access to potential licensors to determine their interest in follow-up discussions. Then appropriate anonymity allows our clients to remain under the radar until a memorandum-of-understanding is reached with potential licensors.
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