IP News & Transactions

Why It Is A Good Thing To Be On Good Terms with Your Inventors!

Previous posts to this blogs have discussed the importance of keeping up good relations with listed inventors on the patents a company pursues.  Besides the obvious reason of needing an inventor’s assistance in drafting the final applied-for patent, an inventor’s input is often relevant when filing continuation patents from the inventor’s original disclosure; and also when interpretation of the patent’s claims require additional background from the inventor relating to the timing, prior art, and “inventive thinking” surrounding the claims when first disclosed.

Just like anyone else, inventors in a company will from time to time leave their current employment to pursue other interests and career opportunities.  Most companies who view IP asset development as a key part of enterprise activity will strive to plan for such departures by contractually requiring inventors to provide cooperation with patent filing and assertion activities, even after they leave their current employer.  Typically, these contractual requirements provide that the inventor receive some sort of market-rate compensation for their efforts.

That being said, the reality is that such contractual requirements are very difficult to legally enforce – presumably, a company could get a court to issue an order to a non-cooperative inventor to assist with these sorts of patent activities.  But an “affirmative” order by a court for a party to “do something” to assist with these sorts of activities is fraught with difficulty, particularly when the action ordered is more of a mental or intellectual effort – how does the court decide if the inventor has really, truly done his/her job in assisting with the patent activity?

The good news is that most of the time, these sorts of disputes don’t arise – all concerned realize that there is more to be gained than lost by cooperating with one another. 

Which is why the current dispute involving INVISTA and DuPont is worthy of note.

INVISTA, which is an amalgam of subsidiaries owned by Koch Industries, purchased a number of tangible and intangible assets from DuPont in April 2004 relating to the latter’s nylon, polyester and spandex operations. (It is strangely comforting to your author that despite the passage of the 1980’s, there are still growth opportunities in the spandex industry…) Among the assets purchased by INVISTA were patent rights to a technology used for manufacturing nylon.

Shortly after this transaction, INVISTA and DuPont came to blows over the transaction, initially over INVISTA’s allegation that some of the manufacturing plants sold to them by DuPont as part of the transaction did not comply with relevant environment, health and safety laws.

In the meantime, INVISTA became involved in an infringement dispute with another party, causing INVISTA to use the patents it acquired from DuPont as part of its defense in the dispute. To fully develop defensive use of these patents, INVISTA needed the assistance of the patent’s inventors – who were still employed by DuPont.  As you might expect, DuPont was apparently in no hurry to assist INVISTA by providing them access to the inventors.

INVISTA has thus filed an action in the U.S. District Court in Manhattan to compel DuPont to “provide” the inventors for INVISTA’s defensive efforts.  DuPont says it has done everything required by the asset transfer agreement to provide INVISTA access to the inventors; but INVISTA apparently thinks DuPont has not done enough.

What will be interesting in this case is to see whether the court, if it decides in favor of INVISTA, can actually put together an enforceable order that INVISTA thinks is sufficient to compel assistance by the inventors.  Your author thinks this will be a bit of a challenge, and perhaps not the last time these parties will be in court over the issue.

More information on the INVISTA case may be found at http://uk.reuters.com/article/companyNews/idUKN0721414220080507?symbol=DD.N.

IP Development Strategies for Startups/SMEs

Playing off my last post on the subject of trademark and brand strategy, I started to consider the value of patents as part of a branding strategy – the idea that a company can create greater brand value by publicizing its patents and innovation efforts.  Some great companies – like IBM as an example – have done well by this strategy, creating for itself a market perception that their products and services offer greater value partly because of the IP assets that underlie them.  This strategy may have become a bit long-in-the-tooth for other large companies, but it does seem that smaller companies – particularly start-ups and SMEs – may find some value in utilizing a branding strategy that emphasizes their IP development activities.  In fact, one could argue that such a strategy should be THE strategy for emerging companies, insofar as these companies usually cannot compete well on price with larger companies.  They must bring something else other than low prices to the “table” of competition – and perhaps the best way to create perceived value is to emphasize the quality of their innovation and IP assets.

That being said, small companies must think thoughtfully as to how to implement an IP development strategy that is cost-effective and a real value generator for the firm.  On this note, an excellent article by Guy Kawasaki provides some excellent pointers on how emerging companies can implement an effective IP strategy.  His article may be found at

http://blog.guykawasaki.com/2006/11/counterpoint_pa.html

Considerations in Branding and Trademark Development

To date, this blog has focused primarily on issues relating to patent development and licensing.  Of course, the world of intellectual property consists of more than patents – for an enterprise, attention must be paid to all sorts of intellectual property, including a company’s trademarks and associated branding strategy.

Undoubtedly, there is value in thoughtful trademark and brand management – Nike and Coca-Cola are but just two examples of firms whose core value rests primarily on the strength of their branding efforts.  And it is probably accurate to say that trademark and brand management has historically created more enterprise value than patents. (I hope my friends in the patent community don’t count this comment against me…)

For IP professionals who are interested in learning more about trademark and brand management, the Branding Strategy Blog (http://www.brandingstrategyinsider.com/) – is an excellent resource.  Within the blog, there is a very useful article regarding the legal aspects of trademark and brand management (found at http://www.brandingstrategyinsider.com/2008/03/branding-and-tr.html).  It’s definitely worth the read.

Patent Filings – And Issuance Delays

A current issue within the patent prosecution community relates to the delay between application filing with the PTO, processing of office actions reviewing the patent, and final issuance.  It is well-known that a combination of increased patent filings and fairly static Federal funding of the PTO has lead to increased delay in issuance. For example, in the telecom equipment industry, it is not uncommon for several years to pass between the time of patent application and final issuance.

Section 154(b) of the U.S. Patent Code (35 U.S.C. 154(b)) provides provisions for the PTO to extend the effective life of a patent to the extent that the patent application is unnecessarily delayed.  Perhaps not surprisingly, the PTO in recent years has increased its recourse to this provision because of the enormous growth in patent applications filings.  An interesting article on the Patently-O blog discusses this trend in depth.  The article may be found at http://www.patentlyo.com/patent/2008/03/extending-the-p.html.

For licensing professionals who oversee corporate patent disclosure and licensing programs, it is wise to be aware of this trend, as a) participants in a patent disclosure program are often incented by some form of cash payment upon patent issuance, so thought may be given to changing (or even accelerating) such payments in light of existing delays in issuance; and b) from the standpoint of assertive licensing, it is not uncommon for inventors to have found new employment prior to patent issuance – meaning that utilizing their assistance in claims analysis may become much more difficult. On this last point, it is thus wise to keep up good contacts (and relationships) with your inventors, to help assure their assistance in the future.

Monetization of Trade Secrets – An Emerging Practice?

Most current discussion regarding the issue of IP monetization focuses on “registered” IP rights – that is, rights that are formally recognized by and registered with a governmental agency.  Traditional registered rights include patents, trademarks and copyrights.  In a sense, such registration helps to create a market for IP assets, because it serves to provide some sense of validity of the existence of property rights ascribed to IP assets.  (Of course, most IP professionals who have been around the block a couple times know that registration of IP rights is not a per se guarantee of the value of such rights.)

But within a company, there is frequently a great deal of know-how that is central to the company’s competitive ability that CANNOT be registered under existing regimes of IP registration.  This sort of know-how is generally categorized as “trade secrets” – knowledge or know-how that a company relies upon to be competitive, that the company acts to keep confidential from the rest of the marketplace.

As suggested above, there has not yet been a great deal of effort in attempting to specifically monetize trade secrets.  However, a very intriguing article by Scott Lebson of Ladas & Perry discusses the legal nature of trade secrets as a property right, and the possibility of monetizing them.  Non-attorneys may find the article a little dry, but it is a very interesting article worth the read.

Scott’s article may be found at http://www.ipfrontline.com/depts/article.asp?id=17703&deptid=4.

IP Management for SMEs

As interest and momentum grows in regard to intellectual property as a strategic and revenue-generating asset, companies of increasingly smaller size are developing their own IP management strategies.  This trend is in sharp contrast to the traditional orthodoxy regarding IP programs – that they are the province of only large-cap companies.

At the risk of creating a new oxymoron, there is a “very good Powerpoint presentation” at the WIPO website which discusses the steps that small and medium-sized enterprises (SMEs) can take to develop their own IP management programs.  It may be found at

http://www.wipo.int/sme/en/documents/pdf/poland.pdf.

The Misnomer of “Essential” Patents

For management and executives that are inexperienced with intellectual property and licensing matters, it is not uncommon for a great deal of excitement to be attached to the idea that a company owns a patent that is “essential” to a particular industry standard.  While having an “essential” patent is not a bad thing, it is also not exactly a license to a goldmine, either.

Generally speaking, “essential” patents are those which a standards body (such as IEEE or 3GPP2, in the telecom equipment space) deem to be essential within a particular standard.  That is, a product which practices the standard MUST by definition practice the essential patent.  Probably the most well-known holder of essential patents is Qualcomm, for patents related to the CDMA cell phone standard.  If you own a CDMA phone, the phone relies on Qualcomm’s CDMA patents.

Essential patents are a good thing, to be sure – but there is a tradeoff that holders of such patents must endure.  The rules of standards bodies (as well as decisional law) generally hold that essential patents must be licensed in a “reasonable and non-discriminatory” fashion.  This has basically been interpreted to mean that royalty rates for such patents cannot be excessive.  What is considered “excessive” can differ from standard to standard, and industry to industry, but it unquestionably acts as a ceiling on potential royalties.  The rationale behind this rule is two-fold: a) standards bodies desire more participation by product producers within a given standard, and excessive royalties can drive away potential participants; and b) even though the patent holder gives up the opportunity for super-sized royalties, the difference is made up by more numerous licensing opportunities within the standard (albeit at lower royalty rates).

An interesting “sweet spot” in standards-based licensing are patents which are NOT within a standard, but because of market demand are implemented in products which practice a standard.  The best examples of these sorts of patents are feature-based innovations which are not integral to the relevant standard, but provide some sort of desired functionality.  As a very simplistic example, a cell phone may transmit under a particular radio standard (such as GSM or CDMA), but each cell phone may also have a built-in camera.  The camera itself has nothing to do with the standard, but is installed in every phone sold.  So a patent holder for the camera technology enjoys a) pervasive use of his/her patent rights; AND b) is not restricted to “reasonable and non-discriminatory” limits of standards-based royalties. 

Of course, the camera patent holder will still need to prove up a royalty, and this will be subject to challenge – but the key point here for licensing professionals is to not overemphasize essential patent coverage.  Non-essential patents are valuable as well, and perhaps even more so than their essential brethren.

Patent Infringement Damages Showing the Effects of Recent CAFC Ruling

An interesting article at Bloomberg (http://www.bloomberg.com/apps/news?pid=20601103&sid=a4bFLqwEx2II&refer=us) discusses how a recent CAFC decision toughening the measure of proof for willful (read: intentional) patent infringement has benefitted large technology companies.  The article discusses, among other things, that the new ruling has allowed Microsoft to shave approximately $4 billion off of a damages award recently recieved by Alcatel-Lucent SA in an infringment case involving video software.  As the article points out, that's about 41 cents a share coming back to Microsoft in avoided damages.

Information about the case (In Re Seagate Technology LLC) can be found at http://arstechnica.com/news.ars/post/20070824-willful-infringement-gets-harder-to-prove-in-patent-cases.html. For those of you who are up for it, the opinion itself is available at http://www.cafc.uscourts.gov/opinions/M830.pdf. It does seem that the CAFC is moving towards a narrowing of rights relating to patent enforcement.

ISO Studies International Standards for Patent Valuation

One of the most vexing problems for licensing professionals whose work touches on patent licensing is how to determine a value, monetary or otherwise, for portfolio patents.  At present, determining the value of a patent is more art than science; consideration must be given to the technology that is the subject of a patent, the quality or breadth of the patent claims, the useful life of the patent, and the prior enforcement “record” of the patent, to name a few variables.  Add to this the unfolding uncertainty of how patent rules and laws will be applied to already-issued patents, and it’s fairly clear that patent valuation is easily one of the most challenging problems facing patent licensors.

Because of the efforts of IP aggregators and brokers over the past several years, markets for patent transactions have improved enormously, in the sense that there is now more liquidity and velocity in regard to patent transactions.  Nonetheless, there remains no uniform method to determine the value of a patent.  If there was such a uniform method, it follows that patent markets would see substantial expansion, due to the ease and quickness of determining value.

In January of this year, the International Organization for Standardization (ISO) announced a fairly ambitious project to develop an international standard for patent valuation.  The project is based on a publicly available ISO specification known as PAS 1070.  (Readers may download a copy of this specification by following the link at http://www.patev.de/files/pressespiegel/103.html.)

Whether this effort will succeed is open to debate.  Some experienced patent professionals argue that as there are just too many variables to consider in patent valuation, a simple valuation model may just not be possible. (This point is somewhat humorously illustrated in a posting found at http://www.patenthawk.com/blog/2008/01/fools_gold.html.)  Somewhat cynically, others within the licensing space may view this effort as a bit of a threat, as there is undoubtedly an “arbitrage opportunity” in patent markets created by the differences in market and patent knowledge found between patent buyers and sellers.

Whatever the outcome of the ISO project is, it seems that sooner or later, some uniform patent valuation method will take hold – simply because the opportunities for patent monetization are too big to pass up.  Less experienced patent holders will be reassured by such standards, and be more willing to bring more patents to market; more sophisticated buyers may not appreciate a “dumbed-down” approach to valuation, but would still likely welcome the fact that the markets they operate in would grow substantially because of new participation.

For those of you interested in drilling down further on the ISO initiative,  I highly recommend Peter Zura’s post on his blog, 271 Patent Blog, at http://271patent.blogspot.com/2008/01/iso-pushing-forward-to-establish.html.