“No, Chicken Little, the (Patent) Sky Isn’t Falling:” 
Why Patents Remain Valuable

“No, Chicken Little, the (Patent) Sky Isn’t Falling:” 
Why Patents Remain Valuable

A few days ago, I posted an article bemoaning the current state of the U.S. patent system. While that article makes an important point or two about today’s patent system, and while it discusses a mission-critical, IP strategy that is appropriate for many businesses, it doesn’t tell the whole story ….

The question in the prior post was, essentially, what does one do today to protect one’s technology in view of a patent system that is considered to be broken, or at least dysfunctional, by many incumbent stakeholders in that system? I gave a hint in the first footnote of that prior post that significant value likely remains in the patent system over the long haul. This blog post continues that discussion with a few, additional, and perhaps more advanced, considerations. I invite you to dig in and to think deeply about how some of these considerations could apply to your business. Then, as I always recommend, talk to your attorney.

It is undeniable that patents can create value. They can help companies raise investment capital, increase valuation, increase public interest and awareness, and help defend one’s market position against competition, to name but a few potentially favorable, derivative outcomes. All of these things can allow a company to grow, to employ people, to make a social impact, and to return value to shareholders.

In this article, I hope to make the case that the development and pursuit of a patent asset, even in today’s turbulent business and legal environment, can be a monumentally important, make-or-break business play. In some cases, patents (and, as discussed below, patent applications) can be amongst the most important, valuable, and strategic assets a company or institution can have.

Notwithstanding, let’s get this out in the open right away: I don’t intend to imply that patents are always necessary, or that they are the right answer for every technology or innovation-based business, or that there aren’t other, equally important strategies and business models for certain businesses/institutions (e.g., F/L/OSS or other permissive licensing strategies, non-proprietary development and release strategies, and the like). Certainly, there are billion-dollar businesses built with, or on top of, non-proprietary models. But, let’s be clear, even those businesses own patents and/or belong to patent defense organizations in order to protect and to defend their business interests and their market position against aggressors. Bottom line: No matter your philosophical perspective, patents are a fact-of-life. In my professional experience, at some point in time or another, nearly every business will have to consider the impact that a patent will have on that business.

Now, let’s look at a few supporting examples from the patent universe:

Patents and IP have become part of the mainstream national dialog. One need only look so far as a daily newspaper or online news feed to see significant IP issues being reported. Patent policy is now central to our national debate surrounding U.S. technological, economic, environmental, energy, medical, and political leadership on the international stage.

No longer are patents the exclusive domain of inventors, patent owners, and patent attorneys. Rather, the active patent domain now includes the voices of economists, public policy experts, valuation experts, traditional investors, speculators, accountants, practicing and non-practicing entities/institutions, open source communities, journalists, social media influencers, and the educated public (to name but a few).

IP and patent topics increasingly are being taught in undergraduate and graduate level business classes— future business leaders will be required to understand and be comfortable with these topics, their application and use. Sophisticated shareholders will demand it of them.

Patent portfolios have garnered significant valuations (and have captured significant pubic attention) during asset sales by distressed companies, and as offshoots of patent portfolio pruning decisions/ strategies by large companies.

Patents are collected, traded, pooled, and aggregated, both as defensive and as offensive weapons in increasingly sophisticated, high-stakes litigation arsenals.

Patents underpin the commercialization epicenters of many industries by virtue of their inclusion in industry essential standards, as administered by powerful standard setting organizations.

Patents can be the centerpieces of research universities and hospitals, public institutions, governmental research, medical, and scientific agencies (think: NASA, DOE, DOD, NIH, CDC, USGS, etc.) and the like, providing significant licensing revenue, opportunities and leverage for collaboration with private industry, justification for ongoing funding, prestige, and political influence. Patents enable governmental agencies and public institutions to meet public technology transfer laws and regulations, which can speed public adoption and use of new technologies developed with public funds.

Patents form a basis for Federal Trade Commission exclusion orders protecting U.S. business interests from foreign encroachment. Patents act to exclude unauthorized/counterfeit products from entry into the country via U.S. Customs border enforcement.

Historically, patents have been considered to be (and have always been treated as) assets.* Of course, assets have value, and that value can significantly and favorably affect the current and long term balance sheet of a company or institution. Patents can be bought and sold, licensed, or otherwise monetized through contractual vehicles with third-parties.

As well (and although under current attack in Congress), there may be favorable tax treatment for some kinds of patent-related transactions. The fact that a company has applied for a patent can provide an appropriate factual and legal framework for the company to capture R&D tax credits, training credits, and the like.

Patent/IP valuations and derived revenue streams can be a significant component of an exit strategy, a merger/acquisition transaction, and, as discussed above, as a contribution to the bottom line of a company or institutional balance sheet.

In some circumstances, the principal value of a patent, or of a patent application publication, may be in its use as a defensive publication (another topic for a future post). In some cases, defensive publications can help secure an open, fair space for innovation, research, and development by ensuring that resulting developments, technologies, products, and services cannot be claimed in later-filed, third-party patents. This can help limit the impact that aggressors, dominant market participants, and the like, can have within particular industries and/or market segments.

As well, a pending patent application can provide a vehicle to protect future rights to file additional, extended, or expanded-scope patent applications claiming priority of inventorship to the pending patent application. This can be important in order to protect potentially unforseeable, but important developments of the technology, and to help defend against market and/or technology interlopers.

These considerations are only a few that immediately come to mind – the tip of the proverbial iceberg, if you will.

As one of the key benefits of patents, and as one of the main take-aways of this article, I want to talk for a moment about the following:

For young companies, for small-to-medium sized companies, and for fledgling technologies, patents have always provided, and still provide, economically valuable runways to market. Companies often want — and need — these legal runways to attract investors, to keep competition at-bay, to keep from being blocked-out of their own technology development arcs by the developments of others, to feed the market’s perception of cutting-edge product innovation, and the like.

In fact, some clients view the “Patent Pending” designation as one of the most critical factors for their business operations. For such clients, ultimately securing a patent would be a fantastic outcome; however, the 3-5+ year “Patent Pending” runway can often prove to be much more important and valuable. The reason is that the “Patent Pending” runway can give them the much-needed time to launch and commercialize their product, to form business-critical relationships and negotiate favorable deals, to create innovative new product categories, and to establish their competitive position as a market or product category leader, all while dissuading competitors from copying and from early market entry. Thus, sometimes, the patent pending phase can be more important than an ultimate grant of patent rights (for other reasons that I’ll discuss below).

Now, as I’ve stated above and in my prior post, it’s not all sweet-smelling roses, gold nuggets, and sparkly diamonds. There is a really big elephant in the room ….

The biggest complaint and objection I hear is that it is “so expensive and risky to litigate” a patent. Let’s be crystal clear: this absolutely is true. You’ve all heard the statistics (if not, Google® is your friend): even “simple” patent litigation can be a multi-million dollar undertaking. Again, I’m not blind to the economic and business realities that must be weighed in making a decision to litigate (or not), but I would respectfully submit that none of us have a crystal ball telling us what the competitive future holds.

Although litigation -based enforcement/defense actions sometimes are an option (or may become an unfortunate business necessity), litigation is not a given in all (or even in most) situations. Consider, however, that it may be better to have the nuclear option available if and when you need it, than to be left exposed, dangling, and without leverage. Let’s be clear: patent litigation is expensive and volatile for everyone involved. Given that fact, the spectre of patent litigation often is enough to turn a deal, or to discourage a competitor.

In my prior post, I lamented that the U.S. patent system can be “dysfunctional; erratic; unpredictable; unreliable.” Notwithstanding, it is clear from the many, significant discussions happening today amongst legislators, industry leaders, public watchdog organizations, inventors, businesses and institutions of all kinds and sizes, and the American public, as well as from the cases coming from the courts and administrative agencies, that today’s frustration with the patent system will lead to an eventual swing of the pendulum and a systemic correction. But it won’t happen overnight, and it won’t be without winners, losers, political fallout, and a great deal of metaphorical bloodshed.

No one in this space is blind to core economic and business realities — dollars and cents will always be invested in accord with a risk/reward calculus. The patent system has never, ever been perfect; nor has it ever been an inexpensive forum or vehicle. Patents have always been the subject of sophisticated legal, governmental, and commercial interplay; and domestic and international patent policy and strategy has become ever more sophisticated and complex over time. Patent needs, strategies, and interests between certain stakeholder industries have become notoriously contentious, well-represented by lobbyists and lawyers, and, often, are seen as incompatible within a uniform, cross-industry national patent policy.

Given our current political, legal, and commercial environment, we certainly don’t know how some of these traditional and evolving strategies will play-out over time in a patent system that remains in flux. But each core patent strategy discussed above has a long and precedential history in the U.S., both from the commercial and the legal perspective. “Old habits die hard,” especially when the underlying practices have proven so commercially valuable and successful.

For the reasons illustrated above, you can bet your bottom dollar that companies and institutions will continue to view the patent process as a long-game strategy. They will continue to invest in R&D, and they will invest in protecting their resulting IP. They will keep their options open, and they will develop ever more innovative legal and commercial strategies to enforce, defend, commercialize, and monetize their products and the IP that supports those products.

And the patent system will continue to ebb, flow, bend, pivot, and adjust. That is the beauty of our American system of law and business. Notwithstanding the current environment, Chicken Little, the (patent) sky isn’t falling.

The question of whether a company can “afford” to work in today’s patent system must be balanced against the long-view potential for, and the strategic uses of, the resulting IP. Although there can never be guarantees of success, perhaps the question should be, “when we consider the long-game for this technology, this industry, and our particular commercial/ institutional interests, can we afford NOT to take advantage of the benefits and opportunities provided by today’s patent system?”

As always, thanks for reading!

*But, see, Energy Services LLC v. Greene’s Energy Group, LLC, U.S. Supreme Court 2017, No. 16-712. Many of us believe that the outcome of this case will be one of the most important patent cases to-date in U.S. history. Squarely at issue is the question of whether patents are to be treated as private property rights, with all of the attendant legal protections to which all other traditional private property rights are entitled. I’m quite sure we’ll come back to this case in a separate post.