In the previous blog post in this series, we examined the forces that shaped patent licensing with the rise and fall of NPEs between 2008 and 2015. The “mayhem” period in which large portfolios came on the market and NPEs grabbed as many patents as they could, forcing corporations to pay high licensing fees, ended with the Alice Decision in 2014, along with the other legal changes which swung the pendulum toward defendants and shifted the focus of licensing again onto corporate transactions. Corporations now realized the importance of having a strong patent portfolio and licensing strategy. How to determine that strategy was the real question.
Quality trumps quantity
As the old saying goes – every experience teaches you something. That’s exactly what happened to corporations during the mayhem period. They understood the potential value of patents on their revenues, and saw the increasing importance of IP in the boardrooms. They also realized that a few good patents can earn you millions or a strong position in a cross-licensing negotiation, but, thousands of low- or average-quality patents might earn no value at all.
The NPEs played a huge part in this lesson, as they always identified the “best” patents from the portfolios they acquired, and used these patents to negotiate handsome licensing deals.
The corporations have learned a valuable lesson – while quantity of patents may improve your market brand, it doesn’t necessarily mean your licensing revenue or position will go up. To earn value from your patent portfolio, you need quality patents.
Today, the rush to obtain as many patents as possible gives way to reason – favoring quality over quantity. Corporations aim to build quality patent portfolios over time that not only protect own inventions, but also target competitors’ products.
Another trend we see currently is that while NPE licensing is significantly down, overall patent licensing business is thriving. Corporations are doing more licensing deals with each other, and the trend is slowly moving again toward cross-licensing. Therefore, it is as important now as ever for corporations to have quality patents in their portfolio.
Market Drivers will again call for more liquid patent markets
Quality today is not only about monetizing patents, it’s also about the valuation of the entire patent portfolio. Patent valuation plays an increasingly important role during M&A and corporation due diligence. Holding valuable patents or “monetization-worthy” patents will significantly improve a corporation’s valuation over and above the value of the technology itself.
Another interesting trend seen lately is that the “forced-to-be-innovative” financial services industry is again looking at patents as collateral when issuing loans to start-ups or small technology firms. This clearly shows that even the financial services industry is slowly warming up to the idea of patents’ monetary value in the technology ecosystem. This is also pushing start-ups and small technology firms to create quality patents that can be used to show the monetization worth to the financial services industry.
Overall in the technology industry, the trend has clearly moved toward ensuring that the patent portfolio contains quality patents as opposed to a large number of low or average-value patents with a questionable monetary value.
NPE business is declining but other intermediaries may accelerate again
NPE business has reduced in recent years, and not only due to the legal changes: fewer major corporations have exited a business leaving behind a large patent portfolio. Existing NPE patents have been circulating for long enough that their threat is waning. Corporations will tackle any future NPE threat using Defensive Patent Aggregators like AST and RPX. These aggregators use funds to acquire and consolidate patent rights and license rights to corporations, keeping them out of the hands of NPEs and as we discussed before, new liquid markets may be required. These Defensive Patent Aggregators may act as liquid patent markets in the future for the patent owners who might want to sell their patents.
The future of patent licensing – is Automotive the next big thing?
Patent licensing is expected to grow from its current level during the next decade. There are many reasons and indications for this.
First, every decade or so there is an industry shake-up where some disruptive technology forces existing players to lose their market share and new players to enter the fray. We can except such a shake-up in the next decade, resulting in an increase in the number of patents available for acquisition. In fact, this could start another era of patent acquisitions and assertions – the automotive industry is a clear candidate.
…add to it changes in law and innovations triggered by financial services industry
Second, due to all the legal changes in recent years, defendants have tended to benefit. We expect that in the next decade balance will return to level the playing field for both plaintiffs and defendants.
Third, financial services industry is looking for liquid markets for the patents that have been kept as collateral. To deliver this, financial services may “push” for the creation of new intermediaries – like NPEs or Defensive Patent Aggregators.
Fourth, corporations may make their IP department a separate division — that means the IP department will have to balance their own top line and bottom line. This will force these divisions to have steady top line growth, which can result only from higher patent-licensing revenue. Also, the budgets of these divisions will be scrutinized closely to ensure cost control, and so the quality of patents will be preferred to quantity of patents in the future.
The consequence for corporate IP – Innovation & agility
Linked to the above point is innovation in patent preparation and prosecution practices in corporate IP. IP departments can be more agile, and can modify their existing processes and workflows to achieve higher RoI. For example, more focus on knowledge management is expected to come during patent-preparation and prosecution processes in future. Likewise, competitor intelligence will help ensure that future patents are more “licensing-ready” against competitors.
A key innovation in patent-prosecution practice that we already see in the market, and which will continue in the future, is the real-time modification of pending application claims during the prosecution stage to ensure the granting of high-monetization-worthy claims. For example, a few corporations now prosecute their pending applications with a target competitor’s product in mind, and ensure during the entire patent prosecution cycle that the claims cover their competitor’s product when the application is allowed.
This strategy ensures that corporations ‘proactively’ create high-quality patents for the future, that they can use during licensing negotiations with their competitors. We will discuss this strategy in detail in a future blog.
Patent licensing changes outside the United States
While we have focused in this series exclusively on patent licensing practices in the United States, there are significant changes happening in other parts of the world that will also affect the patent licensing landscape for corporations.
The patents filings in China have already surpassed those in the United States. Within the next few years, China could be the next battleground for licensing negotiations and litigation. In addition, many corporations now expect to see a return-on-investment from their huge Chinese IP portfolios that have been built over the past twenty years. India also could present an opportunity in the future, as the market there grows and MNCs start to see an opportunity to monetize their Indian patents.
Contact Us. We’d love to hear what you think about our predictions for the future of patent licensing!