Understanding the Role of Patents and Commercial Activity

Overvaluing a patent portfolio can lead to complacency. In my 30 years of experience, I have all too often had to admonish clients that without commercial success, an associated patent portfolio may have little value. A patent that is not marked-tested is not that attractive to investors. Of course, there is a caveat. A patent may find a place in an existing portfolio. Owners of large portfolios, like IBM, Samsung and Microsoft may be looking to close a few gaps in a patent thicket. But whether a patent fills that gap is a function of luck and getting in front of the right decision-maker.

A patent that is aligned with a successful product can be enormously powerful. For example, a few years ago I was approached by a client on the receiving end of a lawsuit. The patent owner threatened legal proceedings and followed up with the application. The patent in suit was poorly drafted and whether it actually covered the alleged infringing product was questionable. But once proceedings are launched, the respondent has no choice but to dig in or concede. One might question the wisdom of launching proceedings based on a shaky patent. In this case, both parties were competing for a multi-million dollar contract with a large retailer. It was enough for the retailer to catch a hint of patent infringement to reject my client's tender. In this case, the success of the product was big enough to outweigh any issues with the patent. Of course, if client had stayed the course, the litigation may have been resolved in its favour. But the damage had already been done with its tender being rejected. The cost of litigation can be crippling so client settled.

A patent is an exponential multiplier of commercial success. If the commercial success is limited, so is the value of the patent. This is why I encourage clients to at least set up a commercial operation aligned with the patent. Ideally, it should be apparent to an investor that the commercial operation only needs cash to leverage success.

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