If You Can’t Beat ‘Em, Join ‘Em: Patent Strategy as a Business Model

Intellectual Ventures is not the only company with a payback model focused on patent strategy. There are many companies that acquire patents for the express purpose of obtaining licensing fees. One example of this is NTP, the company that sued Research in Motion for patent infringement of the BlackBerry PDA device. (After being threatened with shutdown, Research in Motion settled with NTP for over $ 600 million in 2006.) Companies that have engaged in patent strategy (through licensing and litigation) as the sole source of corporate income have often been referred to with the pejorative term “patent trolls.” However, established companies, such as Proctor & Gamble, GE and Dow Chemical have adopted patent strategy as a significant source of corporate value. It would be incorrect to refer to these companies as “patent trolls” because they have other sources of corporate income.

In short, patent strategy has become a legitimate way for companies to generate profits, and in view of this, I prefer to call those who engage in this “patent entrepreneurs.”You may be wondering what the patent strategy efforts of Intellectual Ventures and other patent entrepreneurs mean to your company. Well, the efforts of patent entrepreneurs represent both bad news and good news to companies that rely on innovation for a significant portion of profits.

The bad news is that patent entrepreneurs have realized that there is a huge potential payback in obtaining patents for solutions to technological and human problems. In obtaining patents to solutions rather to than existing products, they could be blocking your company’s freedom to innovate in your commercial spaces. And, this modern patentee is not motivated by altruism: to the contrary, their legal departments have personnel in place to determine whether the company’s patents are being infringed. If your company infringes their patents, a license or expensive litigation or both will be required. As a result, prior to embarking on any innovation program, your company must be aware that such patent entrepreneurs seek to obtain rents from your company if you get too close to their existing patent rights.