Using Patents Strategically

Many CEOs have patents in their asset mix, yet may not be using them to best strategic advantage. Others have options to acquire patent rights. How can a CEO best evaluate the strategic value of a patent, and how can patents best be used to create shareholder value?

One of the keys is to make sure that your patents align with your business strategy. Sometimes engineers are tempted to patent things because a technology is cool, or simply because they can get it patented. Just because something CAN be patented, does not mean it SHOULD be patented.

Worse — according to Jackie Hutter, MS, JD, a member of the pioneering ranks of Intellectual Property (”IP”) Strategists (see her blog here) — about 90% of patents are useless. They are useless because they don’t cover a technology or a business process that anybody else is using. Thus, they have no monetary value.

As Jackie says, a patent is no guarantee of business value. The government issues a patent if you check all the boxes — the government doesn’t analyze your business to see if this patent will be of any real use to you, if it has business value, etc.

Jackie has seen patent teams get caught up in the fun of seeking patents. The business people stay out of the technology silo, because it seems hard and complex.

It’s up to the CEO has to ensure that this question is answered — that this issue is addressed — that the patent being sought or bought, is one that serves the business. If people stay in their silos, that question may not get answered. As CEO you have to demand that this happen.

Another concern is how broadly the patent is written — if it’s too centered on the specific OBJECT or thing created, rather than the FUNCTION — for example, if you patented a particular way to drive from Atlanta to Cleveland, people could drive a different route and avoid your patent. A smarter thing is to patent “driving from Atlanta to Cleveland” — the FUNCTION, not the particular process or method.

There’s a weak spot with patents — once you get your patent, you’ve educated your competitors on all the things you’ve learned. That can paint a picture for someone else to follow in your footsteps, solve each problem you solved in a slightly different way (avoiding your patent), and they essentially get to leverage your years of research for free.

That’s your fault — you didn’t write your patent broadly enough.

Jackie’s most important point: take the patents away from the lawyers — they need to be understood and evaluated by the business strategy people. If you as CEO don’t see the direct business value of each patent, then you’re work here is unfinished.

How to Use Patents

Patents can be used offensively — to get money — or defensively — to reduce the amount you owe someone else. The offensive use is the one we all think of, where you patent a technology or process and collect money from others. Defensive use comes into play, for example, where you are already paying others in your industry for using their patents, and you obtain something they need.

A rare example of strategic use of someone else’s patents came when SCO sued IBM for patent and copyright infringement. IBM’s rival Microsoft in May 2003 gave SCO $6 million to license patents that Microsoft arguably didn’t need — that money allowed SCO to continue its fight against IBM. Many (I include myself) felt this hampered IBM’s ability to sell its AIX operating system — customers were unwilling to run the risk of buying a system that might expose the customer to having to pay damages, if the patent was upheld in court — giving a marketplace advantage to Microsoft.

Enforcing a Patent

Once you have a good patent that applies to other people’s businesses, how do you get them to pay you?

The answer according to Gary Summers, CEO of Silicon Valley Expert Witness Group, Inc.: you have to sell them on it.

First, you research who has some sort of business model or product or service that is likely to be in the same ballpark as your patented technology or process.

Next, you dig deeply from the outside to prove to your own satisfaction that there’s a claim. Be sure there’s no simple workaround, where the other business can easily continue operating while avoiding using the things covered in your patent. If you’ve patented a screw and they can easily switch to a rivet, they may do that rather than pay a royalty. If re-tooling is very expensive, they may choose to pay.

Third, you put together a persuasive case to take to the other business owner to show him that your patent covers what he’s doing. Gary’s done this many times.

Fourth, be prepared with a suggested payment that’s lower than the cost of working around your patent, and that will still allow the other person a healthy profit — once you do strike a deal, you and he both want him to be healthy so he can pay you.

Gary’s core advice here is, “Don’t get greedy.”

(The interview can be heard here.)

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