Michelle Rakiec and Stevan Porter
How can your company improve its business results? One way is by optimizing your firm’s use of patents. The right strategies for leveraging patent properties can provide long-term advantages and a leg up on the competition.
The following strategies are useful starting points for enhancing business outcomes through patents:
Consider patents’ financial qualities
The same analytical constructs that apply to financial asset management can be applied to patent management. When managing financial assets, it is prudent to consider things like expected future cash flows, return on investment and relative risk profile. Understanding this information helps businesses with limited resources to select the most profitable investments and manage risk.
Likewise, expected cash flows from internal commercialization of a patent or out-licensing royalties can be forecast, returns on patent research and development investments measured, and relative risk profiles of patents assessed. By considering these financial characteristics associated with their patents, companies can make better decisions and optimize value.
Understanding patents’ financial qualities, for instance, can shed light on which monetization route — commercialization, licensing or sale — is most desirable for a given patent or group of patents. It can also help a company strategically leverage its operations to support patent value and vice versa.
Recognize the risk profile of patents
All assets, including patents, carry risk. Importantly, the type and level of risks in patents vary according to a patents’ economic life, the technology it discloses and the industries touched by the technology. For example, certain patents in fast-moving industries may carry the risk of rapid technological obsolescence, while other patents’ technologies may face uncertain or very slow market adoption.
Holding several patents that relate to a steadily selling product may suggest financial stability but also may imply a high level of risk concentration since several patents’ values may be impacted by a single product’s market performance.
Evaluating risks associated with patents can lay the foundation for comparative risk analysis and superior strategy planning. By understanding the relative risk levels of patents in a given portfolio and how those risks align or differ from broader business risks, companies can efficiently diversify.
Effective diversification of a patent portfolio can be achieved by holding the right mix of patents and by utilizing the proper combination of monetization techniques for those patents. Notably, effective patent risk management can be done without straying from a firm’s core competencies since even patents with similar technological profiles may have substantially dissimilar risk profiles.
Execute strategic patent
transactions with care
Due diligence in executing patent deals should be analytics-based, and care should be given to the broader business implications of any transaction. In this regard, appropriate qualitative and quantitative analysis should be deployed. Proper evaluation can help parties maximize value obtained through a transaction and ensure any deal comports with prevailing strategic initiatives, financial goals and desired competitive positioning.
Factors that should be considered in executing any patent deal include the following:
■ Values paid or received by others for comparable technologies.
■ Alternatives to reaching an agreement, including design-around cost/benefit analysis and assessment of the risk-adjusted outcomes of not executing a transaction.
■ Immediate and subsequent financial benefits, such as cash flow, “option” value and defensive patent aggregation security.
■ Possibilities for using the patent deal to foster broader strategic relationships or forestall undesirable competitor activity.
■ Value and risk implications of the contemplated deal on other patents in a portfolio.
When managed carefully and used cleverly, patents can be especially powerful tools for a business to enhance its bottom line. The right patent strategy can offer an excellent path to improved business results.
Michelle Rakiec and Stevan Porter are managing directors at AdValum Consulting, a premier provider of expert economic consulting services located in Chicago. They specialize in strategy, valuation and damages analysis in intellectual property matters. Rakiec and Porter can be contacted at