The US Patent Office recently reported that 97 per cent of patents never make any money for the inventor.
The US Federal Trade Commission cited an even lower rate of success: less than 1 per cent.
It seems inconceivable that any business would hand over large amounts of cash for an asset that has less than a 3 per cent chance of generating a return (you are better off at the Roulette table with those odds) but regardless they do.
This doesn't mean patents are "bad". Patents can in fact be incredibly valuable. Unfortunately they can also be a total waste of time and money.
What is remarkable however is how often we come across companies who spend substantial amounts on patents but have never stopped to check what their return on this spend really is.
When faced with this situation we ask the patent owner three simple questions:
1. Have you licensed these patents to anyone?
2. Have you litigated (enforced) these patents against anyone?
3. Do you have an active programme to sell these patents to a third party and are they interested in buying?
Over the long term if the answer to these three questions is "no" there is absolutely no point in having a patent. Zip. Nil. Nada. Why?
The answer lies in the nature of patents: a patent is sword not a shield - you need to actively use it to generate value. You can extract that value in three fundamental ways:
First, by convincing a third party to pay you to use your patented technology. This could be a one off fee, an on-going royalty, a premium on the product relative to competitor products or even a commitment to buy the product. You could also ask them to stop using your technology all together to secure market share.
Second, if asking politely doesn't cause them to cough up money or do what you want, you either walk away or sue and recover sufficient damages or other advantages (injunctions, suit dismissals etc) to offset what are likely to be substantial litigation costs. In New Zealand these are about $250,000 for a high court trial, in the US they start at approximately $1.5 million. Large bets on long odds indeed.
Third, recent years have seen the emergence of patent markets so you can try to sell your patent. The value of your patent is essentially a function of (1) and (2). That is, if it's not capable of generating income or being a useful weapon in a patent litigation suit then its effective value is likely to be very low or zero.
So if you're not doing one or more of the above (if you're not wielding the sword or selling it someone who can) there is no point in having a patent at all.
Put simply: patents sitting on the shelf have zero value regardless of what you paid for them or what your patent attorney tells you they are worth.
It's also pays to note that patents are perishable: they have a finite life and every week their potential value ebbs away. Just like a sword, eventually they rust away.
I learned this lesson from a former boss who completed the largest patent sale in history. He took over as General Counsel at a major US corporation which had hundreds of patents it never enforced and was paying millions of dollars in fees for.
The first thing he did was start an aggressive license campaign followed by suing anyone who didn't co-operate. Long story short: he turned a department costing millions into one generating millions. He was prepared to wield the sword.
So if you have patents and you're not actively licensing, litigating or selling them you need to ask some long, hard questions about your IP strategy. As always it pays to ask those questions to someone other than the person who filed your patents or who will litigate them.
Paul Adams is CEO of EverEdge IP, a intangible asset and technology commercialisation firms. He has been named one of the world's top IP strategists and was the recipient of the Outstanding IP Leader Award 2012. www.everedgeip.com.
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