Coating Matters | The ROI of IP
- Published: November 07, 2012, By Mark Miller and Devan Padmanabhan
In the world of engineering and manufacturing, the return on investment (ROI) of an expenditure is paramount in the decision to move forward on a purchase of capital property that can make or break an operation. An investment in intellectual property should be handled with the same rigor. Intellectual property is a business asset, just like a piece of equipment used in the converting world to manufacture tape, batteries, or optical film. While intellectual property includes patents, trademarks, and copyrights, the subject of this discussion will be patents.
PATENTS
Patents can be a valuable tool, or asset, for their owners. If a patent is obtained, you can keep your competition out of the market for 20 years! However, too often companies do not know the value of their patent portfolios, or do not effectively use their portfolios to maximize their return on investment.
The legal moniker for writing a patent for publication by the US Patent and Trademark Office (USPTO) is patent “prosecution.” “Litigation” is the legal term used to define the act of exercising your patent rights against a competitor. When we say that companies do not effectively utilize their patent portfolios, we mean that companies fail to exercise their rights over the property they created. There are no patent police looking out for your well-being. If your competition knowingly infringes your patent, it is up to you to take action.
The patent process can be expensive and time consuming, so effective strategies are essential in order to create value with your intellectual property. While many researchers love to get patents, companies want value in any property that is built or acquired. I’m sure you have seen corporate research scientists collect patents like baseball cards, but you have to ask yourself: “You’ve got a plaque on the wall, now what?” The key is making the dollars invested, sometimes upwards of $25,000 per patent, to pay dividends down the road. A company that properly pursues and uses its intellectual property will enjoy a substantial advantage over its competitors. And if you don’t, your competitor will—at your expense!
The goal of this article is to walk you through a case study from the converting industry to make the abstract concrete. So let’s look at a tamper-evident tape that was developed by a company that understands coating fluids onto substrates but has little knowledge of the raw film business. For those of you unfamiliar with tamper-evident tape, the basic concept is that you have a multilayer film construction used as a tape to seal an important package. If the package is tampered with, the layers of the film delaminate indicating that the package has been compromised. This is an important product for shipping sensitive materials. An example of such a product is US Patent 4,876,123.
PORTFOLIO STRATEGY
In general, a patent portfolio strategy process includes research and developing ideas into technology, pursuing and obtaining patent protection for the new technology, and using patents to meet business objectives.
Research and Development—In the converting industry, engineers and scientists group technology into one of two buckets: product or process technology. The legal equivalents are utility and method patents. For example, with the tamper-evident tape, if a new adhesive is developed that holds the tape to a package with an unexpected strength, a product (utility) patent could be applied to the invention of the chemistry involved. In addition, if the multilayer film can survive a traditional roll-to-roll process with all the bends and twists without delaminating, then a process (method) patent could be applied to the invention of the process of making or handling the film.
Patent Protection—Once the new invention shows technical merit, working with a patent attorney will help provide the path to most value for the technology. Involving a patent attorney as a business partner early in the product or process development phase will allow the newly acquired property to be handled with the most care and create the most power in future transactions with the property.
Business Objectives—With a patent attorney as a business partner helping you maneuver the minefield that is the intellectual property landscape, you will be able to assess what moves will add value to your patent portfolio. From blocking out competitors to maintaining a monopoly in the marketplace, the possibilities to increase the value of the technology are wide and varied.
Some potential pitfalls of portfolio strategy management include failure to pursue patent protection strategically with business goals in mind, failure to use patents effectively to meet business goals, and ineffective monetizing of patents due to lack of legal counsel along the timeline of patent protection (drafting, prosecuting, and enforcing patent rights). As an example, if a new adhesive chemistry is developed for the tamper-evident tape, but the focus of the patent claims are too narrow, then your competition can work around the scope of the intellectual property. In effect, the sandbox you are playing in is too small.
Whether the business goals include direct use of the patented technology, licensing the technology to others, or litigation to enforce patent rights, the effective use of a company’s patent portfolio is the key to creating value with technology.
RETURN ON INVESTMENT (ROI)
Patents are a powerful tool that can exclude competition from the marketplace by creating a legal monopoly for your product or process for 20 years. Intellectual property management is a long-term plan and patent portfolio strategy for maximizing ROI requires a long-term strategy. Patents typically require 3-5 years to obtain. Even after the patent issues, it may take a few years to fully monetize. Thus, if you have a short-term focus, you may undervalue your patent portfolio. This may sound familiar to engineers indoctrinated in the Six Sigma methodology. Where many companies look at short-term gains, patent portfolio strategy and Six Sigma looks at the return on investment over years and only after milestones have been reached and realistic time lines have occurred.
Not all patents directly realize revenue. A relatively small number of patents are “core” patents that directly protect a product or lead to the realization of royalties or other revenue. Many more patents may not directly result in revenue, but may nevertheless have value in supporting the “core” patents. Other patents may have little or no value to the company that owns them because they are unrelated to the business.
In our example of a tamper-evident tape that was developed by a company that understands coating fluids onto substrates but has little knowledge of the raw film business, the “core” patent would be associated with coating technology but not new film substrates. Core patents are like the core technology of a business: it is the technology that spans multiple product lines, like an adhesive that bonds well to a package can create new tamper-evident tapes and box sealing tapes. Non-core technologies in our example would include the delamination-resistant film, which could be licensed to restricted vendors. And a patent on a multilayer film may have no value to a coating company, lending itself to a sale of the intellectual property to a film vendor. All examples create revenue, but some are more direct than others.
MAXIMIZING ROI
We now know that there are many ways to make money on your intellectual property, just like you could on capital equipment property. You can chose to use it directly, contract the use out to others (even a competitor!), or you can sell it on the open market. But what is the best way to maximize your return on investment? There are two tacks we should consider: patent prosecution and monetizing your portfolio.
Patent Prosecution—Companies should always be aware of business goals when developing a patent portfolio. What is the core technology focus of the company? What products do you want to produce? What value statement does the company bring to the market? Without such focus, the company may be unable to maximize ROI. The company may pursue patents of little or no value (remember the plaques on the wall?), or the company may forgo patent protection for alternative products or potential improvements. Forgoing patent protection will permit competitors to design around core patents and threaten product lines.
To maximize the value of a patent portfolio you need to include patent attorneys or agents in the research and development process. Think of a patent attorney as a business partner. Ensure that the research and development team, including market researchers, are included in the patent drafting process. This will allow the intellectual property to be properly broad, yet focused. It is important in patent drafting to understand the forest and the trees. Focus on the market need the product fills, rather than simply on the product itself. Focusing on the market need will help identify generations of patent protection including future developments in the technology and market.
Cover alternative designs to avoid competitive design a-rounds. This point speaks to broad claim language in the patent to cover simple alterations to develop competitive manufacturing niches. Cover potential improvements to protect future products and product lines. File “fence” patents on potential improvements to competitive products. To be successful, you need to concentrate externally and internally—what are your competitors doing and how can you hem them in? File continuation applications to incorporate claims that cover competitive products. A continuation patent extends your monopoly beyond the original 20 years with a slight variation.
Monetizing the Portfolio—There are several options to monetize patents and maximize ROI: protect your products and ensure protection for improvements and future products, license the patents for a royalty stream, sell the patents, or leverage key patents to force competitors to cross-license blocking patents. The options are to stop others from making money, make money from those behind in development, or play in your competitors space with paid permission.
The key to maximizing ROI is identifying the role and strength of the patents in your portfolio. “Core” patents protect your products and, hence, your revenue stream. These patents should be maintained and protected. Supporting patents are those that protect and support your core patents. They should be maintained and can be licensed if appropriate. Alternative patents do not cover your products, but may have value in the market. Alternative patents should be licensed or sold to realize ROI.
Weak patents are those that are vulnerable to challenge or have little or no value in the market. Weak patents should be sold or abandoned. To determine the current position of your patent portfolio a review of your intellectual property, and that of your competitor, should be done. Constant patent review is key to competitive advantage. Consider this the Kaizen approach to intellectual property—continuous improvement!
The steps to monetizing your patent portfolio include identifying potential infringers of your intellectual property and enforce the patents through licensing or litigation. Remember, there are no patent police, you are responsible for taking action to enforce your property rights. For valuable patents that are not currently in use, package them and market them to potential licensees and purchasers. There are three approaches to any intellectual property decision: the engineering approach, the legal approach, and the business approach. If a competitor is close to infringing a technology, an engineer would design around the patent, a lawyer would litigate the patent, and the business person would license the patent to the competitor. No one answer is a “right” answer, but each has a decision tree that is best traversed with the help of a patent attorney.
SUMMARY
When utilizing intellectual property for a business advantage, make sure to approach your patent portfolio strategy with a plan to include a patent attorney as a business partner. Remember to consider intellectual property as a business asset similar to any capital equipment you purchase when you consider how to create value through patents.
Mark Miller is an independent consultant in the roll-to-roll coating industry, the founder and CEO of Coating Tech Service, and author of PFFC's Coating Matters column. With experience in the converting industry since 1996 in a broad range of precision coated products, Coating Tech Service is available to provide process troubleshooting and on-site technical service for slot die coating equipment installation, trial work, or process development independent of the manufacturer. As a certified Six Sigma Black Belt for 3M, Mark has been integral to new developments and technology that minimize product waste and improve process scalability in web coating applications. Mark holds a Law degree from Hamline University, a Master's degree in Polymer Science and Engineering from Lehigh University, and a Bachelor's degree in Chemical Engineering from the University of Wisconsin and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or 715-456-9545.
Devan V. Padmanabhan is a highly experienced patent litigator who helps clients litigate and manage patent portfolios with national and international needs for more than 18 years. Devan’s significant experience includes patent litigation cases covering a wide range of technologies and industries, and crosses all intellectual property areas, including patent, copyright, unfair competition, trademark, and technology-based cases. As an electrical engineer and lawyer, Devan is able to maximize his technical, engineering, legal, and business acumen to the client’s advantage, both inside the courtroom and in the boardroom. Devan is a patent attorney and shareholder at Winthrop & Weinstine. Winthrop & Weinstine is a dynamic and relationship-driven law firm focused on understanding its clients’ businesses through responsiveness, innovation, and creativity. The firm enjoys steady growth by meeting the diverse needs of its clients, from individuals and emerging-growth businesses to Fortune 500 companies, in an impressive array of industries regionally, nationally, and internationally. Devan can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or 612-604-6748.
