Patents are a measure of innovation. A healthy patent portfolio of a company indicates that the company has invested significant time, money, and effort in research and development activities within the organization. It also indicates that the company is evolving and constantly striving to bring newer and better products or services into the market.
However, patents need to be also looked at as business opportunities and should, ideally, align with the business strategies of the company. Owning a patent gives a company the legal right to commercially exploit its innovation and prevent competitors from imitating or replicating its innovation. Every innovative company, therefore, needs a good Patent Strategy to be successful in the long run.
A good patent strategy:
- Allows the company to explore different markets without significant investments.
- Protects the company from competitors and patent trolls alike.
- Provides leverage for negotiation with competitors and partners alike.
- Significantly impacts the valuation of the company and its offerings.
Let us discuss the different ways in which the Business Strategies and Patent Strategies of the company can align for maximum impact and leverage.
Business Strategy + Patent Strategy
To explore different markets without significant investments
Often, during research, a company may stumble upon new inventions and innovations that may not necessarily be related to or align with the product/service offerings of the company.
However, if the company ascertains that such inventions are valuable, it may be a prudent patent strategy to protect the inventions via acquiring patents, that may be termed “off-beat patents”. Such off-beat patents allow the company to venture into newer markets with minimal investment (of acquiring the patents). Off-beat patents may also help the company gain leverage against existing players in the different markets during negotiation.
To protect the company from competitors and patent trolls.
In the ruthless world of business, competitors are always on the look-out for opportunities to exercise their dominance in the market and stifle competition. They may choose to do so via competitive patents of their own, and aggressively pursuing patent litigations against companies they deem to be infringing upon their intellectual property. Similarly, there may be several patent trolls who may not necessarily have any commercial interest in the patents they own, but are interested in leveraging their patents against successful companies for money via litigation.
A good patent strategy to prepare the company for such possibilities would be to invest in a significant number of “Defensive Patents” in addition to the regular patents that the company invests in. Such defensive patents may cover inventions that the company may not necessarily wish to exploit commercially in the near future, but may help safeguard the company from competitors and patent trolls during lawsuits/litigation. Defensive patents may also allow the company to re-evaluate and freely explore future commercial interest in such inventions.
Business Strategy: To ascertain the commercial significance of inventions and innovations of the company.
Patent Strategy: Acquiring patents for inventions may be the first step but ascertaining the commercial significance of the patents acquired is the next important step.
This step is called Patent Valuation.
A good patent strategy requires that the most important inventions and innovations of the company that are protected by patents are evaluated for commercial importance. A well-researched exercise in Patent Valuation may provide excellent insights on the various business/revenue-generating avenues that may be at the disposal of the company as a direct result of their investment in patents.
A good “Patent Valuation Report” may throw light on the various licensing opportunities that the company can potentially pursue. The report may also provide insights on the potential impact of the patents acquired on the overall valuation of the company.
Business Strategy: To explore new business/revenue-generating avenues
Patent Strategy: Patent licensing is quite often a cheaper and better alternative to expensive lawsuits and litigation between two competitive entities. It is also a tool for establishing trust and co-operation between the two competitive entities in a growing market.
A good patent strategy would therefore involve identifying business entities that may directly benefit from the patent portfolio of the company. This also includes identifying entities that may potentially be infringing upon the existing patent portfolio of the company. Having identified such business entities, the company may bring them to the negotiating table and showcase how such entities may stand to benefit in the long run by opting for a Patent Licensing deal with the company. Such negotiations may help the company in not just monetarily benefitting from a successful licensing deal but also help establish newer partners. Often, two large entities with significant patent portfolios of their own may get into a “Cross-Licensing Agreement” where both parties may agree to allow the use of their respective inventions/patents for mutual benefit.
Business Strategy: To ascertain the contribution of patents in overall valuation of the company
Patent Strategy: The worth of a company is not just in its range of products/services, sales revenues, profits, or market capitalization. Patents can have a significant impact on the valuation of the company. If sales and profits are indicative of the current market capitalization of the company, patents may be indicative of future market capitalization and dominance of the company in the coming years, much like business forecasts but arguably, much more effective.
A good patent strategy for this involves a consolidation of the entire patent portfolio of the company and an evaluation of commercial significance of the portfolio via Patent Valuation. A good Patent Valuation Report will be able to highlight the future business potential of the company by taking into account the term of patents granted and the potential revenue that may be generated (via licensing) during the term (for each granted patent). This exercise of consolidating and evaluating the patent portfolio may also be of great significance during acquisition negotiations of the company. A good patent portfolio of the company together with a well-researched Patent Valuation Report can dramatically boost the overall valuation of the company during Acquisition.
The patent strategies listed above are some of the few important ways in which a company can achieve its business goals via patents.
At Obhan & Associates, we often work with our clients very closely, and sit together to identify, discuss and implement good patent strategies that are in line with their business requirements and business goals. If this is something that your company is yet to consider or has been looking for, do contact us to know more.