Collating Financial Data for Patent licensing research – Nice to have but not too useful for the most part

Many experienced researchers I have met say that there is no substitute for technical analysis and the insights received from analysis of the patent data itself. Financial information such as profitability, revenues and market cap of assignees may be required for undertaking industry analysis, however do you really need such data for corporate licensing research? Lets understand this further in the context of in-licensing and out-licensing.

For in-licensing, in IP research, one of the biggest “cant help” limitations is that many patents are held by private firms globally and most online services fall short and do not provide accurate financial picture of privately held firms. In an in-licensing context, an “interesting patent” held by a Microsoft, IBM or Exxon may not excite you as much as one held by a startup or a small-to-medium sized private company. Further, as a corporate IP counsel, you are well aware who the big players are in your techno-commercial space and information of their market cap, profitability and annual revenues doesn’t really add any unique insight to patent data. Private companies in US are not required to provide their financial information to anyone other than the IRS, in most cases the data isn’t publicly available or only approximations are available. The same is true for most countries.

Financial parameters can perhaps help get an indication of where to focus your in-licensing efforts on, but caveats exist here too. Say if your patent portfolios extended across three technology segments A, B and C. Now out of the three B has maximum current market potential and licensing revenues are highest in B. However if you analyze the market and see that B belongs to a maturing market and the markets verticals in which C is operating is growing fast and in 5 years may overtake B then you would rather focus on acquiring patent in C instead of building an assertion portfolio for B. But it is to be noted that such decisions require market estimations based on industry growth trends and not on historical patent licensing information. In fact in the current example historical patent licensing information may even misguide you to focus on B. Now re-read this example with A as CD technology, B as DVD and C as Blue-Ray and you will realize why industry trends should dictate the focus and not past licensing revenues or assignee financial information.

For out-licensing, in today’s market, successful corporate out-licensing requires assertion licensing strategies that use technical data to demonstrate infringement and financial power (…. _your_ financial information) to backup your intention to enforce. So the bigger task (and the first step) here is clearly identifying the patents that are building up upon your invention. For this an in-depth technical analysis, especially claims and citation analysis is required. Once you have a strong technical case, then business, financial, legal (litigation) and overall environmental conditions about you and the companies behind those patents are to be considered.

So you need to ask yourself – Does the path to successful licensing research lie in financial data or does it lie in the technical analysis of patents? Our opinion here is that patent research for licensing must start with just patent analysis. How you build your search set makes a huge impact. Analysis of forward and backward citations can help identify related technologies around your inventions. Building the right citation sets and analyzing their claims is necessary. Combining classification codes with contextual clusters gives deep insights on how the sub-technologies are spread. Application filing trends can indicate which technologies are rapidly growing and which are maturing. Undertaking keyword analysis of claims can give many deep insights about companies active in the same research area.

Once you locate the patents, most of the “research” part is done!

Patent in the Gaming Industry

Gaming is perhaps one of the fine examples of how boundaries blur between developing end customer value and protecting IP.

Let’s say your software company developed a radical new rendering engine that can allow pixel perfect resolution and provide a gamer the ability to ‘simulate’ Hi Definition video. However, what you manged to do was that you did this without the need for specialized hardware. So what do you exactly patent and protect. The code, its functionality or its business value?

What you have done would not take any of the software giants much time to achieve. So forget the delicious incentive of your technology buyout. It’s only a matter of time before they hit bullseye. Functionally speaking, your code will do wonders to game buyer. But how do you build a demand for this functionality when you are not interacting with the customer? Finally the business value will be perceived by the customer buying the engine – a gaming company. Will owing copyright to this engine enhance your technology’s value?

What do you protect?

Perhaps you should consider protecting an aspect that you can control and that could fetch you better licensing returns. After all the idea behind patenting my technology is more to do with it’s licensing than the fact that my name gets published somewhere! But how do you know today what you could license tomorrow?

A major challenge for your business is the evaluation of ‘white spaces’ in the patent landscape and ensuring that infringing has already not happened. You don’t want to end up 3 years developing code along an algorithm and realize at the end of it that your patent has not been granted only because someone earlier had thought of something similar. More than that – you would want to make sure your investment remains strong through the gestation of your technology.

One of first steps to solving this is through efficient Patent Searching. By identifying key players and the technology spaces already occupied, you and your investors can get key insight into where exactly your code can make an impact. In fact intelligent analysis of this search can estimate what the Patent Landscape would look like in the future. You could also look at a potential buyout of a semi finished technology that would set the stage for your rendering engine.