How to monetize your patent portfolio
You have worked hard to prosecute patents, or you have spent substantial resources acquiring patents from patent brokerage services. Either way, now you own one or more patents covering related technology, called a patent portfolio. It represents a substantial investment of time, labor, and/or money. The patent portfolio gives you a legal right to exclude others from practicing the inventions covered by the patents. How do you monetize the patents, in other words, make companies pay for infringing your intellectual property? Here are the steps that patent monetization companies typically take.
Canvas the industry
The first step in patent portfolio valuation is to determine whether the industry players operate in the space covered by the patents. Some companies may actively advertise features covered by the patents in the portfolio. On the other hand, some companies play it “much closer to the vest” and the publicly available information may not be sufficient. At times, you may have to be creative and review patents and other government filings to understand if a given industry player is active in the industry.
Evaluate your patent portfolio
Once you have a broad understanding of the industry and you have the preliminary understanding that some companies infringe your patents, it is time to hire a competent counsel knowledgeable how to do patent portfolio analysis. Your counsel will work with you to assess infringement. This takes the form of claim charts, where elements of patent claims are mapped to the services or products presumably covered by the patents.
In addition to the evaluation of infringement and damages, your counsel will review the patents’ file histories (communications with the Patent Office) to make sure that during patent prosecution, the applicants have not limited the scope of what is covered by the patents or relinquished certain rights. The file history review also reveals the closest prior art found by the patent office and provides an insight into invalidity. Although under the law patents are presumed valid, in some cases, your counsel may recommend commissioning a more thorough invalidity analysis.
Your counsel will also attempt to confirm that the patents in your portfolio actually belong to you or your company. In some cases, an inadvertent break in the chain of title may result in someone else having the rights to one or more patents. Frequently, these ownership defects may be fixed easily. Sometimes, however, the ownership defects may be difficult or impossible to cure. You want to know about such defects as early as possible so you can either fix them or understand what patents you actually own.
If your counsel determines that there is infringement, and sees no problems with ownership, the next step is to a patent portfolio valuation, in other words, what is a fair compensation for the infringement of the patents. And if the licensing efforts ultimately result in litigation what is the measure of damages to which you will be entitled in court.
Having gone through this preliminary analysis, which may take weeks, depending on the size and complexity of your portfolio, you are ready for the next steps.
Write letters to the companies that infringe
Frequently, before filing lawsuits, your counsel would recommend sending letters to the companies determined to infringe. The letters serve a dual purpose in patent portfolio management. First, the letters inform the companies that they infringe your patents, which may facilitate a licensing discussion. Second, the letters put the companies on notice of the patents, which affects the amount of damages you may be entitled to if you decide to bring a lawsuit against the company later. Aside from legal implications, it is frequently a good idea to attempt to resolve a dispute outside litigation.
The language of the letter is very important and best left to your counsel, who know how to protect your rights. In the vast majority of cases, unfortunately, your letters will be ignored. It may be helpful to follow up after some developments, such as a favorable court ruling, a big industry player taking a license to your patents, etc.
Engage in licensing discussions with companies that respond
When companies do respond, they usually ask for more information and time to evaluate your position. Your counsel may choose to provide evidence of infringement in the form of the claim charts prepared earlier. The usual response to this information received from the company that was put on notice is that the company does not infringe. Sometimes, the company will provide prior art in an attempt to show that one or more of your patents are invalid. After receiving such information is it imperative to reevaluate infringement and validity of your patents. Remember, quality patent portfolio management involves adjusting your positions and demands in response to new information. If you are still convinced that the patents are valid and infringed, the company’s arguments should be rebutted. Such exchanges may involve several communications and usually results in a disagreement between the sides as to infringement and validity.
Once the parties have articulated their technical positions on infringement and validity, you as a patent owner can make a demand on the company to license your patents. The payment terms may vary, but most frequently the companies that infringe your patents prefer a lump sum payment. Your demand should be in line with your original patent portfolio valuation. The company would frequently point out the uncertainty of the litigation outcome and the risks to you, as a patent owner. They include unfavorable claim construction, ruling of invalidity, and other court rulings that may weaken your patent portfolio. These discussions should involve your counsel to help you assess the strength of the company’s arguments. Usually, the company would offer an amount that is substantially lower than your original demand. After multiple communications, both sides may agree on a number.
Your counsel will prepare a patent license document, essentially a contract, in which you grant the company a non-exclusive license to practice the inventions covered by the patent in exchange for a sum of money. The license must be non-exclusive for you to be able to license your patent portfolio to other companies. Once the license agreement is finalized and signed, the company will pay you the agreed-upon sum.
Formulate a strategy of patent enforcement
After it is clear which companies have responded and which haven’t, unfortunately, it may be time to file lawsuits for patent infringement against the companies that chose to ignore your letter. Before bringing a lawsuit, your counsel will, again, collect and assess all available information making sure that any lawsuit you bring is not frivolous. Remember that the patent statute provides for sanctions against those plaintiffs who file lawsuits without a thorough investigation.
Moreover, your counsel will develop the overall strategy of the campaign, such as who to file against first, in what court, which patents to include in the lawsuit, etc. An experienced counsel will explain these decisions to you.
The progression of a lawsuit is beyond the scope of this article. Relevant to the patent monetization efforts, there are litigation milestones after which the parties re-assess their respective positions. For example, a Court may issue a claim construction order favorable to one side or you can lose one or more patents on a summary judgment motion. Frequently, the parties may engage in licensing discussions after such milestones that are similar to the discussion that they may have in response to a letter, discussed above. Such discussions may result in an agreement, and then the parties will stop the litigation and enter into a settlement and license agreement.
Sometimes, during the course of litigation the parties on their own, or complying with the court order, may seek the assistance of an independent mediator to facilitate settlement discussions. Mediation may result in settlement where the defendant would pay some money to you. Note, though, that a successful mediation is the one when both sides walk away somewhat unhappy.
Remember, efforts by patent monetization companies are frequently met with resistance. Be prepared to lose your patents in Court or in a post-issuance Patent Office Proceedings, such as an Inter-Partes Review (IPR). Being reasonable and having long terms goals in mind is frequently the best strategy in patent portfolio management.