Smarter execution requires objective evaluation

“

Patent value is an illusive concept. What makes a patent valuable? There are at least two kinds of value with regard to patents: valuable inventions and valuable patents. A patent on a foundational development in a new field is one of great societal value and often referred to as a pioneering patent. These patents may or may not generate significant revenue for their inventors or assignees. A patent of great private value is a patent which provides some advantage to its owner regardless of the advance for society.

”

(Kimberly Moore 2004) ^

Board Rooms need better intelligence

In Nortel's recent bankruptcy, the liquidation of the IP assets led to a bidding war. Google offered $900M for the patents; Apple and Microsoft created an alliance (with RIM, Sony, EMC, Ericsson) to offer $4.5B for the same patents^. Certainly there was a great disparity in these bid prices. How can you objectively determine the value of a patent portfolio?

Unforeseen opportunities for the brave of heart

Executives need vision to convert patented R&D into a profit center. Consider EMI, a London company that produces music (a music label company). In their Central Research Laboratories in Hayes, Godfrey Hounsfield had an idea to integrate X-ray slices to create a 3-D image (originally known as an EMI scan), today know as a CT or CAT scan. Godfrey was awarded a Nobel Prize for his work, and later knighted. The idea came to him while picnicking in the park; however, the senior executives realized this was no picnic. They leveraged the technology (foundation patent #3,778,614), securing over 120 of the first 450 patents in this space. The legacy competitors (General Electric, Philips, Siemens) were playing catch-up with this innovator.

Few executives would be brave enough to execute such a divergent business strategy.

Weak constitutions result in undervaluations

Myopia is generally what happens when unprecedented opportunities are placed before them. Those in the know generally do better than those in the worry. Consider Cetus, a startup biotech with focusing on a liver drug. The FDA delayed the approval of the drug, and a major funding crisis ensued. Chiron offered to take over the liabilities contingent on the sale of two patents (# 4,683,202 and # 4,683,195) to a third party, Roche Molecule for $300M (in 1993). This sale was stalled because DuPont challenged the validity of the patents, based on the formal claims written by the inventor (not a patent attorney), Kary Mullis.

In the end, the soap opera turned out well for the investors with weak constitutions. For $300M, they sold the two patents to Roche, turned the company over to Chiron, and walked away. Kary Mullis won the Nobel Prize for his invention embedded in these two patents, known as polymerase chain reaction (PCR) which allows DNA to be cloned. Over 4000 patents in biotech cite these original two patents. In our estimation, $300M represents "pennies on the dollar" valuation of these patents. The shareholders got a payday, and left the game.

Roche on the other hand is thriving based on its intangible assets.

Pick a side

Ask yourself: which side of the game do you want to be on? Do you want to be remembered as the executive who failed to recognize the business opportunity staring you in the face? Or do you want to be remembered as the visionary who executed and altered your company forever? The choice is yours.

We offer patent search tools that will empower your strategists, enabling them to report more relevant, objective, transparent information so you can know now.

“

The increased importance of intellectual property assets like patents and patent portfolios, along with the added complexity of valuing and analyzing risk for these information goods, has created a marketplace populated by players ill-equipped to handle the high transaction costs and information asymmetries representative of intellectual property transactions. Accordingly, entities that can lower net transaction costs and improve information access will be able to take advantage of the unique nature of these assets.

”

(Allen Wang, 2010, Berkeley Technology Law Journal, "Rise of the Patent Intermediaries")