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Bruce Berman

Bruce Berman is president and principal owner of Brody Berman Associates, Inc., a consulting firm for positioning intellectual property owners, advisors and investors.

Over the past 15 years Mr. Berman has acted for technology-based companies, m&a candidates, licensing departments and consultants, investment bankers, investment partnerships, owners of branded products, and law firms. Mr. Berman has taught at CCNY, Columbia University and Sir George Williams University, and is a member of the financial markets committee of the Licensing Executives Society (L.E.S.).

Books

Hidden Value: Profiting from The Intellectual Property Economy

Euromoney Institutional Investor, 1999

Making Innovation Pay: People Who Turn IP Into Shareholder Value, John Wiley & Sons Inc, 2006

Understanding the value of patents

Introduction

Patents are rights granted to inventors by governments. Owners of patents, or their assignees, are awarded a period of exclusivity in exchange for giving whoever wants to look a glimpse of how their invention works.

While frustrating to some, these restrictions stimulate innovation. Without patents, competitors would simply copy innovations made by others, thus destroying the advantage of doing R&D. This is called the ‘free-rider’ problem. Free-riders reduce the level of R&D, a socially unacceptable and potentially dangerous outcome. Patent protection gives companies the confidence to spend R&D dollars on innovations which could otherwise be easily copied.

Intellectual property (IP) investors include a diverse range of stakeholders: senior management, money managers, investment bankers, universities and individuals. IP rights, business performance and market value are inextricably bound. Smart companies innovate. Really smart companies innovate, protect and leverage IP assets for performance, profit and shareholder value.

1. Not all patents are assets.

A patent is merely a right to defend an invention, even if it has no value. Many companies are using techniques for increasing R&D efficiency and patenting strategy, and aligning them with business objectives. While it is good to have many patents (IBM secured more than 2,800 U.S. patents in 2000), it is far better to have the right patents. Seven of the top ten recipients of U.S. patents are companies based outside of the U.S.

2. It is relatively easy to secure a patent - but difficult to predict its future value.

Most patent agents can get a patent to issue on almost any invention. Even a ‘hairy fuzz ball’ is patentable if the claims are adjusted to comply with patent office requirements that the invention covered be non-obvious and novel.

However, this does not mean the patent is or will be worth anything, or that it will survive costly legal challenges. Good legal advisors can determine the likely strength of a patent, even if it is difficult to predict its future value.

3. One patent strategy does not fit every business.

Approaches to attaining strong patent position tend to differ by industry. Pharmaceutical companies, for example, spend a lot of money securing relatively few expensive patents. Pharma company patents tend to be associated with product ‘home runs’ (ViagraTM, ProzacTM, ClaritinTM, etc).

Conversely, groups of overlapping patents that cover a product or products and establish patent ‘fences’ are common in the semiconductor industry.

4. Licensing royalties help some companies to compete.

Companies can generate high-margin income by licensing their technology or inventions to non-competitors and, in some instances, even competitors.

Income from technology licenses can be extremely rewarding. Qualcomm, for example, which has decided to manufacture less and license more, may be a model for technology companies that want to cash in quickly on key technologies (like CDMA wireless) which may have a short shelf life.

5. Under or mis-exploited patents can reduce profit and depress shareholder value.

Because patents and the innovation they protect are abstract, most companies are only partially aware of the potential of their patent portfolio and how to best exploit it. Many firms separate R&D, legal and the line engineering to such a degree that valuable patents ‘get lost in the shuffle.’

6. Communicating patent performance to the right audiences can enhance value.

Companies that are candid about their IP strengths and articulate about their performance may be able to positively impact profitability and shareholder value. Companies with a strategic patent position (a carefully constructed ‘portfolio’ that focuses on business objectives) are often worth more than those with ad hoc inventions.

7. People who should know something about patents often do not.

Until recently, showing a patent to an investment banker might result in a new company. Today, bankers know to ask about specific ‘claims’ made in the patent and how they match up against competitors’. Be wary of VCs, stock analysts and other financial types involved in technology who minimize the importance of IP or who lack basic knowledge of patents.

8. Never invest in a company on the basis of a single patent.

Too many factors influence successful inventions, including management, competitive position, financing, the ability to commercialize inventions in a timely manner, as well as challenges to the validity of patent rights. In few industries can a single patent transform a company. It is more likely that a group of patents in a related art will make a greater if less dramatic impact.

9. Successfully enforcing patent rights sends a message.

Companies that enforce their patents by securing licenses from potential infringers and, when necessary, bringing and winning law suits, can win big. Enforcing rights in innovation sends a message. Patent litigation, while expensive, not only helps to generate income, it creates shareholder value.

10. Accidents can be rewarding.

Smart companies know how to apply technologies to business needs - others if not their own. Many successful patented products initially ‘failed’ as an intended application. The technology underlying IBM’s excimer laser was originally intended as a stylus for reading optical media. SeldaneTM, one of the most successful prescription drugs ever, started life as a blood pressure medication.

11. Business inventors come in different shapes and sizes.

Not all inventors are scientists or technologists, or all innovation incubators dominated by engineers. Successful inventors include teachers, builders, musicians and Wall Street bankers. The future of innovation is about business strategy and inventing teams. Lawyers with business experience and executives with legal knowledge make for formidable alliances.

12. Some patents have a second life.

Most patents issued are worth little, if anything. However, in the right hands value can be distilled from the slagheap of unused, unwanted or otherwise discarded patents. A combination of market knowledge, good timing, legal skill and motivation can imbue some patents with new or additional value.