In our previous blog post, we discussed the external trends affecting patent value, including macroeconomics, business trends, technology trends, legal and regulatory changes, and geopolitical trends. In this post, we’ll delve into the value of a patent portfolio – that is, a collection of patents marketed together.
A patent portfolio can range from just a few patents to thousands. The patents within the portfolio can either reinforce each other, increasing its value, or detract from it. So, what makes a patent portfolio valuable?
Value in Numbers
A patent portfolio has more value than the sum of its individual patents. With enough effort and expense, it’s often possible to invalidate a single patent through methods such as finding prior art unknown to the patent examiner or asserting that the patent claims are indefinite. Once invalidated, a patent loses all value.
However, invalidating every patent in a large portfolio is nearly impossible and prohibitively expensive. Potential buyers can be certain that value will remain even after a concerted legal attack. Additionally, a portfolio provides more diversity through a “patent thicket” of different claims that are difficult to avoid.
Reinforcement and redundancy only occur when the portfolio has coherence – when its patents address related technical problems or product types. If not, it’s best to split it into smaller, more coherent portfolios. While different buyers may have their own preferences for portfolio size, portfolios ranging from 10 to 1000 patents are generally easiest to sell.
With many patents in a portfolio, how do you make sense of them all?
By breaking the portfolio down into a hierarchy:
- Group patents by technological or scientific fields or application areas.
- Identify patent families.
- And identify the best patents and claims.
Patent Portfolio Hierarchy
Patent Portfolio Hierarchy
Grouping patents by field provides insight into their likely use and allows buyers to focus on areas of interest. Patent families consist of all patents originating from one original application and may include multiple patents from one country and foreign counterparts. When buying or selling a patent, all family members should be included in the transaction.
Identifying the best patents and claims is a complex task and will be the subject of our next blog post.
Having patents from different countries adds value to a portfolio. A patent only provides protection in the country where it was awarded, so obtaining foreign counterparts offers wider protection. Differences in patent law between countries also provide diverse options for using patents.
For example, in the US, it can be difficult to obtain an injunction against an alleged infringing product, but courts can award high damages. In China, obtaining an injunction is easier, but damage awards are relatively low. Thus, US and Chinese patents can complement each other.
In which countries should you obtain patents? There’s a tradeoff between cost and breadth of protection. In the information and communication technologies (ICT) industries, products are complex and potentially covered by thousands of relevant patents. Companies usually obtain patents in just a few jurisdictions, primarily the US, Europe, and China – major markets for products and manufacturing locations.
In the biological, chemicals, and pharmaceuticals (BCP) industries, just one or a few patents can define a valuable product. Companies apply for just a few patent families and obtain foreign counterparts in all large and medium-sized markets for that product. Other industries fall between the extremes of the ICT and BCP industries.
Granted Patents and Pending Applications
Granted, active, valid patents provide legal protection from competitors. A portfolio needs at least some granted patents in major jurisdictions such as the US or Europe to have value.
Pending applications have potential but don’t yet provide legal protection. They could be rejected or require modification before being granted. Patent Cooperation Treaty (PCT) applications also don’t provide legal protection but give applicants the right to make patent applications in individual countries or regions. Therefore, a portfolio with only pending applications rarely has value.
However, having both granted patents and pending applications in a portfolio has value. Granted patents define current intellectual property rights while pending applications allow for modifying claims or filing new ones to reflect recent technological trends. A portfolio with both granted patents and pending applications is potentially more valuable than one with only granted patents.
Ownership, Encumbrances, and Existing Licenses
Incorrect recording of patent ownership is surprisingly common. Each time a patent changes hands or the owner’s name changes, an assignment document registered with the national patent office. A mistake in any of the assignment registrations can affect the chain of title and make ownership unclear, rendering the patent worthless.
Patents can also be pledged as loan collateral or subject to other encumbrances, which must be discharged before a patent can be sold. Understanding and documenting existing licenses is essential – if patents are already licensed to key competitors, and particularly if a license grants sub-license rights to third parties, the patents’ value may be diminished or even zero.
Most patents have no sale or licensing value, while others have very high value. Commercial use determines patent value. For a portfolio to have value, at least some of its patents must be in current or imminent use by a commercial product with a large market – our rule of thumb is annual worldwide revenues of at least $100m.
To sell or license a patent, you must provide evidence of its use. For some products and patents, this is easy to find, but for others it can be extremely difficult and expensive. Even if a patent is being used, if you can’t prove that it is used, it is hard to sell or license.
In this blog post, we’ve discussed the value of a patent portfolio in terms of ownership, licenses, and commercial use. In our next post, we’ll delve into the value of individual patents and their claims.