Monthly Archives: April 2009

A Response to PWC’s "Starry-Eyed" View of the Value of Litigation as Effective Way to Monetize Patents

rose colored glassesI recently became aware of this patent litigation analysis prepared by PriceWaterhouseCoopers (“PWC”) (hat tip: Marcus Malek of the Intangitopia blog). The report appears to be rigorously prepared from data obtained from a large number of reported patent litigation cases dating from 1995. I read this report with interest and think that anyone who is interested in the ROI of patent enforcement should read it also. The data provide a wealth of information for anyone even thinking about bringing a patent case or who is involved in defending against claims of patent infringement.

Although the data in the PWC provides informational value, I nonetheless have a big problem with the following assertion that is prominently presented on page 18 under the title “What This Means for Your Business”:

“In light of the findings in this study, patent litigation appears to continue to be an effective protection and monetization path for patent holders.” (emphasis added)

This unqualified statement gets a big “WHAT?!” from me. Continue reading

50% of Venture Capital Investment is Lost: How Your Clients Can Improve These Odds by Using the Right Patent Analytics


If you are a counselor of venture capital firms or entrepreneurs who owning start-up companies that are targets of venture capitalists, you might already be familiar with the high rate of failure associated with such investments. Nonetheless, you may be surprised to find out that 50% of all money invested in venture capital is a loss. This figure, which is based upon separate research projects by a Chicago Graduate School of Business (“GSB”) professor and a former Chief Economist at the Securities and Exchange Commission, indicates that the actual return on venture capital investment is not much different from the average annualized returns on the smallest NASDAQ stocks. In particular, the return on venture capital investment from 1987 to 2001 in these smallest stocks was 62% as compared to the 59% mean return of venture capital funds.

This 59% figure certainly does not reflect the investing public’s general perception that venture capital return on investment markedly outweighs what one can obtain on the stock market. And, it is this apparently erroneous assumption of perceived higher return that presumably justifies the higher risks your venture capital and entrepreneurial clients associate with venture capital. Investor perception certainly does not match investment reality for your clients who play in the venture capital space.

Why this disconnect between perception and reality on venture capital returns? Professor Cochrane, the Chicago GSB professor, posits that, in effect, traditional methods of measuring venture capital return do not take into account the fact that ventures that are a total loss disappear and are not measured. Because these losing ventures are not around to be measured for calculation of rate of returns, Professor Cochrane states that this survivor bias significantly skews the rates of return on venture capital. His simple explanation of the effect of these missing numbers is telling (quoting from the Jacobius article): “They collect the returns for everybody that is around,” he said. “It is like collecting data from everyone still in the casino: They’re not asking the people on the bus … who are on their way home.” Continue reading

Innovative Methods for Corporate Legal Managers to Reduce IP Counsel Costs

The Slideshare presentation that follows is an excerpt from a class that I am teaching to in-house legal managers about innovations in IP management. The topic of the presentation is innovative methods to reduce IP legal procurement and management costs. The goal of my presentation is not to get corporate IP types not to think outside the box but, rather, to think outside the truck the box came in. As such, many people may think these ideas are “way out,” but if you start with small ideas, you end up with small improvements.

The "Dirty Little Secret of Patents" is that Most are Worthless to Their Owners. Here is Why.

Notwithstanding the vast corporate and entrepreneurial resources expended each year to file, prosecute, manage and maintain patents, a significant majority end up having little or no business value to their owners. Patents can end up being worthless for any number of reasons, most of which center on the fact that the claims do not cover a product or technology either currently or in the future being made, used or sold by either the owner or a third party. And, when a patent does not cover a current or future product or technology, one might argue its only residual value is as the attractive government document on the right.

No doubt exceptions exist to my bold assertion that most patents end up as worthless to their owners. That is why I used the qualifier “most” in my statement. (And, if the reader is a patent owner, I certainly am not referring to your patents because, like the children of Lake Wobegon, all of your patents are above average.) Whether or not you agree with my opinion, or whether you think that only “many” or even “some” patents are worthless, with the resources committed to obtaining patent rights and the expectations placed in them by their owners, the question must then become “why do any patents end up not having any value?Continue reading

The IP Zone: A New Concept for Introducing Needed Information and Efficiencies into the Patent Monetization Market

Harlem, NYC

Harlem, NYC

Many corporations and entrepreneurs today understand that patents are increasingly bought, sold and traded, just like many other assets. However, the patent monetization market is only just emerging and, as a result, few information sources exist today to assist patent owners in selling their patents. The nascent nature of the industry also means that most patent owners do not themselves possess the necessary expertise to successfully monetize their patents. Put simply, today, patent monetization is “easier said than done.”

In view of the challenges currently faced by patent owners seeking to generate revenue by monetizing their patents, I was intrigued to learn about the “IP Zone” to be established later in 2009 in the Harlem area of New York City. The IP Zone will be physically located at 125st Street and Lenox Avenue in the Upper Manhattan Empowerment Zone, which was established in the mid-1990’s to provide enhanced job and economic opportunities for the residents of this historically low income area of New York City.

I heard about the IP Zone from Tracey Thomas, who is currently Chief IP Strategist at American Express. As Mr. Thomas related the origins of the IP Zone project, under his supervision, American Express has generated a valuable patent portfolio in recent years. Now that it owns patents that could generate substantial revenue for the company, the goal now is to find the highest bidder for these assets. The question is how they can efficiently go about doing so. As related by Mr. Thomas: “Because only 10 % of patents suitable for sale are actually monetized, the market clearly needs to be more efficient.” It is this lack of efficiency that Mr. Thomas, American Express and the other sponsors of the IP Zone seek to address. Continue reading

Scott Garrison Guest Posting: A True Story of Wasted IP Assets & Why a Chief IP Officer Could Have Stopped the Loss

Money flying out window

Money flying out window

NOTE TO READERS: Since I am on vacation this week (well, sort of), I have asked my friend Scott Garrison to pen a piece about IP Strategy for me. He has been so gracious to do so, and the post follows. At bit about Scott: Scott Garrison is Chief IP Counsel and Assistant General Counsel for Scientific Games which, among other things, makes scratch off lottery tickets. Prior to joining SciGames, Scott was a senior IP attorney at Kimberly Clark and, prior to that, was a law firm patent attorney. Scott Garrison is a true IP Strategist and I am pleased to present him a forum to express his views on this blog.

Scott’s blog post:

A short while ago I had an interesting conversation with an out of town acquaintance named “Mike” who works at a large international B2B (“business to business”) corporation. I was interested to find out that his opinion was that patent protection was useless in the B2B field. It seems that since his consumer base is much smaller than a B2C (“business to consumer”) business he believes the nature of the business requires deals to be cut and IP is often a nuisance to be worked around.

As we continued to talk I learned that he was the lead inventor on a couple of critical and groundbreaking patents in his field. In fact, it seems that a few years earlier he had been a major shareholder in a relatively small corporation when he received the patent grants. At that time he believed they held great value to his company. As he tells it, his present employer acquired his former company predominantly in order to procure these very same patent rights.

I at first assumed that his opinion was driven by feelings real or imaginary of being slighted by his present employer with respect to these patents for any number of potential reasons. However as we continued our discussion I was shocked to learn what had actually happened. It seems that the company which had bought the patents for the purpose of building value for itself and carving out a niche it could wield against its biggest competitor in fact had inadvertently destroyed the value of the patent family. As we discussed the details the following story unfolded–

In the B2B category where Mike and these companies exist, it was quickly recognized that the patents were a revolutionary and innovative gem. Mike’s current employer, Big Co. did successfully acquire his former company and hence the patents for a sum in the high 7 to low 8 figures. At once Big Co’s patent attorney added them to the company’s patent portfolio and the business leaders began to push the technology onto their customers. Continue reading

Entrepreneurs: Ask 2 Simple Questions to Determine Whether IP Strategy is Critical to Your New Business Venture

2 critical business questions

2 critical business questions

Intellectual property (“IP”) is often a subject that is “out of sight, out of mind” for entrepreneurs who are launching new business ventures. And, why shouldn’t it be: business schools rarely teach much about law in general, let alone about the highly specialized world of IP law. Since non-business school trained entrepreneurs generally take their cues from the methods of their colleagues, it follows that a significant majority of entrepreneurs likely do not consider IP to comprise a necessary step when they are formulating their business plans. My conversations with entrepreneurs from all backgrounds over the years bears this out.

When IP does form a fundamental basis of an entrepreneur’s new venture, it is likely because scientific or technical subject matter forms the basis of the business. In this context, it makes sense that the scientific or technical core of the business model must be protected by seeking patent coverage. While patents are significant in this context, in my opinion, this is a far too narrow view of when a new entrepreneurial concept requires IP protection, however.

Put simply, proper formulation of IP strategy requires an entrepreneur to determine whether she should obtain one or more patents. Rather, prior to launching her new business venture, an entrepreneur must identify whether her business plan requires one or more forms of IP protection in order to allow her to meet her goals.

While IP can seem somewhat arcane and impenetrable to people who have not been trained in this specialized legal area, fortunately, formulation of an IP strategy requires an entrepreneur to ask just two simple questions:

  • What aspects of my business model differentiate me from my competitors?
  • Would I find it difficult to meet my goal and obtain my desired payback if someone copied the differentiated aspects of my business model?

Continue reading