Part 1 of a 3 part series
Shareholder Matt Ellsworth and Floyd Anderson of Avago take a business approach to defining the core innovations of a company to help maximize overall value.
Recently, I was having lunch with a colleague who is an accountant at a well-respected firm that specializes in a range of technology companies. During the course of our meal, we reflected on the differences in how we serve our clients and where our practices overlap. I shared that I envy my colleague’s ability to be intimately involved in acquisitions, especially when it comes time to set a purchase price. His response was, “Yes, I enjoy helping determine the value of companies, but my job really depends on people like you building the value of the company with respect to their intellectual property.” His statement struck a chord, and I have since been mulling over how my work can help clients maximize their portfolios.
As a patent attorney who focuses on patent preparation and prosecution, my initial years of practice were intensely focused on the mechanics of drafting patent applications and ushering them through the examination process to obtain an issued patent. As my career has developed, my practice has evolved to include helping clients analyze their portfolios, providing guidance on the types of applications to file or not file, and suggesting applications to seek continuation for or to abandon. My work has also shifted to include helping clients analyze competitors’ patent portfolios, identify business risks and opportunities for innovation, and work as a legal counselor and business advisor.
In my experience, a valuable patent portfolio is more likely than not to significantly contribute to a company’s overall value; and, reflecting on my colleague’s comments has forced me to think about how I work with each of my clients to navigate the intersection of intellectual property and business strategy.
So how can companies properly weigh costs and responsibly develop patent portfolios so as to maximize their value with a limited budget? The answer is not easy and certainly not one-size-fits-all, but there is one common theme I have seen implemented by successful companies over the years: a focus on core innovations.
Understand and focus on core technologies
Companies that have a knack for developing a valuable patent portfolio spend their time and energy on the things they can control. These companies think in terms of core technologies. They build product roadmaps; they focus on hiring efforts that complement their core innovations; and they scrutinize the revenues and profits associated with those innovations. Yet, when it comes to developing a patent portfolio, many companies get distracted and lose the ability to align their portfolios with their business interests. For example, it is critical to recognize a great innovation in a tiny market should probably not be protected. Yet, a minor improvement on a product in a huge market may be much more valuable. Likewise, companies that are fully aware of their core technologies and the market trends are more flexible and much more likely to rapidly respond to a change in the marketplace.
The companies I have seen successfully build a valuable patent portfolio focus their filing efforts and dollars on their core technologies. While many leave some room for filing patent applications on concepts outside of a core technology, those instances are generally less than 10% of a company’s overall filings. That 10% can be also reserved for grasping at the coveted fundamental patents — those that cover the first generation of a technology — for building a defensive portfolio against non-competitors, and for potentially covering technologies that could become core technologies in the future.
If the remaining patent filings are focused on a company’s core technologies, then those patents are more useful to the company and its place in the market. In particular, there is a higher likelihood that a patent portfolio is useful against existing competitors and a deterrent to potential competitors, which enables companies to maximize profitability for their most important technologies and provides a platform for future innovations in the same areas. A great patent can almost never save a lousy business, but good patents can greatly help good businesses.
Focusing on core technologies also means developing healthy and meaningful relationships with innovators and service providers working in those areas. Companies and leaders that focus on core technologies by building relationships with innovators are more likely to identify new innovations from the get go.
Sometimes those new innovations come directly from the innovator as the discovery and understanding of the potential is first identified. Take the story of William Henry Perkin, inventor of the first synthetic organic chemical dye. He discovered the dye as an accident in 1856, but immediately recognized its value, patented the compound, and eventually started a dye and textile company.
Today, companies with successful patent portfolios often collaborate from the start with their innovators in order to capture ideas when they happen, rather than leaving individuals in the labs to their own devices.
The same holds true for trusted counsel. Many companies allow counsel to develop a rapport with the key innovators in order to help identify potential areas of risk and/or opportunity. Getting counsel involved at the ground level helps them prepare better work product. It also allows them to provide better support to the entire portfolio because they can see the big picture. An ideal situation is one where the counsel and key innovators are comfortable working with one another.
I have several clients where I have very close relationships with many levels of employees, and with many of those clients, I work one-on-one to help ensure the optimum protection for the client’s innovations. Because of my first-hand knowledge in some of these relationships, my colleagues and I can prepare invention disclosures for the innovators, which saves the innovators’ time, and ultimately saves the client’s time and money. A strong patent portfolio should, in some ways, be a reflection of the portfolios of top competitors — in fact it should be better than competitors, but that can only occur when the attorney prosecuting the patent applications is working in close concert with the business.
The better patent counsel knows a portfolio, the better he or she can be when called to utilize or defend it through licensing or litigation. In addition, counsel that is intimate with a client’s business is better able to deliver quality work including searching for prior inventions, focusing claims based on search results, including the right number of claims in an application, and making sure those claims are written to the way the company sells its products as well as its position in the market.
About the authors:
Sheridan Ross Shareholder Matt Ellsworth handles many complex electrical and software technologies including telephony, RFID, access control, semiconductors, optics, Artificial Intelligence, communication networks, communication protocols, encryption, web-based business, information storage systems, feedback and control systems, power transmission, power machinery, high current electronics, and low current electronics. Mr. Ellsworth also has experience in non-electrical related technologies such as mechanical patents and business method patents. Read more about Matt here.
Floyd Anderson is Vice President and Chief Patent Counsel at Avago Technologies, a leading supplier of analog interface components for communications, industrial and consumer applications. He took his current position as the head of the Intellectual Property Department at Avago after transferring from Agilent Technologies. Anderson set up the IP function at Avago and currently manages an international team responsible for the patent portfolio, for licensing transactions, managing numerous IP litigations, and providing general IP legal support.