Patents can be an extremely valuable asset for innovative companies. However, in the current economic downturn, companies are increasingly looking for alternative ways to maximise revenues and minimise costs. With this drive for greater efficiency, patent portfolios and the costs of acquiring and maintaining them are coming under increasing scrutiny. A research project for the European Commission in 2005 found that only around 64% of granted patents are being used and/ or licensed. Although a proportion of the remaining patents will be blocking patents – obtained solely to frustrate competitors – this still leaves a large number of patents lying idle.
For patent applications that are no longer considered relevant to a business, the most straightforward option may be to abandon the application. Even for a relatively simple patent, the costs of prosecuting it through to it being granted can easily run into tens of thousands of pounds, particularly if external patent attorneys are used and/or translations are required. An abandonment strategy may even turn out to be the best option for a granted patent. Although the renewal costs per patent are not particularly significant –in the UK these start at £50 in the fifth year, rising to £400 in the final year – they can quickly add up, particularly where a company has patent protection in several different countries.
However, intellectual property rights can be valuable assets. Before writing off a patent application or granted patent it is worth investigating both the traditional exploitation options and what new opportunities have opened up in recent years and exploring how they might contribute to the business.
The licensing of patent rights represents a valuable source of income for patent owners. In addition to licensing to competitors, or potentially to other companies in the manufacturing chain, it is worth exploring other possibilities. For example, if you need to licence in technology, your licensor might be interested in obtaining a cross-licence of some of your own patent rights, to either reduce or eliminate the royalties that would otherwise be payable. Even where patents are already licensed for use in one particular field, it is worth investigating whether the technology is of general applicability and could also be licensed to companies in different technical fields, subject of course to the terms of any existing licences. For instance, a patent for a technique for laser marking originally developed with electronics applications in mind may be equally valuable for branding other products, such as pharmaceutical tablets, which could open up new and significant revenue streams.
For a UK patent, another option worth considering is endorsing your patent licence of right in the patents register. This is effectively a declaration that anyone is entitled to a licence under the patent, so again it is important to consider whether this would raise any difficulties with existing licences. The terms of the licence are a matter for negotiation between the licensor and licensee, but if agreement cannot be reached an application to the UK Intellectual Property Office (IPO) can be made to decide the terms. The advantage of this endorsement is that the renewal fees for maintenance of the patent are halved, and the endorsement is listed in a register on the IPO website and so acts as a form of cost-free advertising to potential licensees.
For many businesses, licensing income supplements their manufacturing revenues from working the invention. Conversely, some businesses choose not to manufacture or use the patented invention themselves but instead seek to obtain value from the rights solely through negotiating licences and/or engaging in litigation with potential infringers. Businesses that operate in this way are known as non-manufacturing patentees or entities (NPEs). Such businesses are sometimes also referred to in a derogatory way as ‘patent trolls’, due to their practice of buying up large numbers of patents, often acquired cheaply from bankrupt businesses, and then enforcing these against alleged infringers in an aggressive manner.
Sale to an NPE represents a potential alternative to abandonment for patent rights that are lying idle. These rights may be particularly valuable to NPEs where there are already infringing products in the market, but the original owner does not wish to invest the necessary time, money and risk to pursue litigation when the infringement is not impacting on their own business.
Sale of patents
One obvious way to make money from an idle patent is to sell it. Traditionally, companies have tended to go about this by identifying a potential purchaser, often a company in the same industry, and negotiating the terms of the sale.
However, one area that has taken off in the past few years is patent auctions. Operators like Ocean Tomo began running live public auctions of intellectual property lots in the US and such auctions have subsequently been run in the UK and elsewhere in Europe. Businesses can submit lots – including patents, trademarks, copyright works and domain names – for the auction, details of which are then published in the auction catalogue. Once registered, potential bidders can conduct due diligence on lots that are of interest through an online secure data room or via face-to-face meetings during the event.
There have been some notable successes; for example, at the first London auction in 2007 an Internet shopping patent was sold for £2,475,000, setting a world record for the highest selling price for a patent at a multi-lot live auction. Of course, this is an unusual case and for this London auction the average sale price of the lots that sold was £292,521. Not all of the proffered lots will sell at auction, but for those that do not there is still a chance that transactions will complete in the days or weeks after the event. However, it is worth bearing in mind that typical fees for listing lots are around £700 and £2000 for a patent portfolio, with the auction house also taking a percentage commission of the order of 15% of the hammer price if the lot is sold.
As well as these live auctions, there are also auction websites that specialise in patents, though these often operate more as a forum for patent owners to publicise the fact that they are interested in selling or licensing their patent rights rather than a true auction of the rights.
Another relative newcomer in the IP field are patent funds, sponsored by investment banks. As with patent auctions, these were originally introduced in the US but have gradually spread to Europe, although so far mostly limited to Germany. These funds are structured in a variety of ways but all have similar aims – to acquire interests in patents and then leverage them to generate investor returns.
The simplest funds trade solely in patents, acquiring a relatively large number of patents outright and attempting to sell them on at a profit. Such funds are therefore another source of potential buyers for a patent that may otherwise have been abandoned.
Other funds are based on more complex models, involving a degree of incubation of the technology prior to sale. For this type of arrangement, the fund normally identifies a patent portfolio of potential interest and then arranges for an analysis of the portfolio to be carried out by specialists. This analysis may include a review of the prior art, to assess the strength of the portfolio, and an infringement evaluation. As part of this analysis, potential licensees, including possible infringers, may also be identified for eventual realisation of the value of the portfolio. In this type of arrangement, it is possible for the original patentee to remain involved in the development process and retain an interest in the patent, thereby securing the possibility of further revenue if the exploitation is successful.