How to use your company’s IP to shed light on your firm’s value

Last month, a small mobility company based in Texas popped up on my regular online monitoring of the IP world. This company had written a clever press release about the value of its patent portfolio. While I can’t vouch for the veracity of its claims, I do think more entrepreneurs can learn from its tactics.

As an IP specialist, I am frequently surprised by how little start-up founders and entrepreneurs think about harnessing the value of their IP. Several years ago, I did some work for a start-up working with high-temperature superconductors. Its founders were having trouble determining the value of their IP and decided to seek some professional help. Armed with this IP valuation, they began meeting potential investors. The offers quickly started rolling in. IP valuations can be helpful to companies in multiple ways. Savvy entrepreneurs leverage their patent portfolios for cash, license them out, or use valuation data to ensure they adequately protect their products. And, for a start-up that is pivoting, IP can even be sold to private equity investors, patent aggregators or other market players.

Undertaking an IP valuation on one’s own can be difficult, however. And tech companies get into IP battles all the time on who should pay whom, and how much is at stake. Nevertheless, there are a few simple principles that you can apply to put your company and its IP in a better position.

Determine your goals

Valuing your IP portfolio can help you decide how much to invest in R&D, build a pitch deck, or engage in licensing negotiations. It can also help when you are optimizing your tax structure, entering into a joint venture or collaboration, or seeking to insure your business. Your goals will depend on what stage your business is in. And depending on what exactly those goals are, simpler methods for rough estimates can be used to serve your purposes. Before you seek any professional help in IP valuation, it’s best to decide what you hope to accomplish with any number you receive.

Research several methods to decide which works best for you

The most common IP valuation methods assess either the incremental value of the IP, potential income generated from it, or the broader market for the IP. It is also possible to use a combination of these methods. The right method will depend on various circumstances. The UK Intellectual Property Office, for instance, believes it can be helpful to assess the revenues that IP rights may generate in the future. This method focuses on the potential size of the total market and competition, as well as actual cash flow. A discount rate can be applied to future cash flows in order to reflect risks, which need to be determined appropriately. Using a market method, meanwhile, may produce additional insights when compared to an income method. Often, it can be a good idea to use several methods so as to understand value in different ways.  

Find a simple way to convey what you uncover

This is perhaps the most neglected element of IP valuation among companies, particularly those in the high technology industry. Media conglomerates and sports franchises have no trouble demonstrating the value of cartoon characters or football players. But because so much of IP valuation comes from complex economic models, it can become difficult to demonstrate when IP value that is not as visible or easily understandable. This is why the Texan mobility company stood out so much for me. They had made their patent portfolio a central feature of their communication strategy. This tactic isn’t going to work for everyone. Nevertheless, you should try where possible to show how your IP is making a difference to the market. Keep that information prominent – on your website, in your investor presentation pack, even in the short description on your press release. Rather than telling people how many patents you have, for instance, emphasize your licensing potential or what economic advantages your patented technology offers.

Among founders and entrepreneurs, understanding of the importance of IP valuations is growing. Even so, the market is not yet mature. Companies that are early movers within their industry, in communicating the value of their portfolio, stand to gain a great deal in the minds of potential investors, customers, and even employees.

Roya Ghafele is the Executive Director of IP management consultancy OxFirst. She previously worked for the World Intellectual Property Organization, and now specializes in providing advice on IP valuation and strategy. You can follow her on LinkedIn.

Anti-Troll LOT Network Expands to 500 members

The Anti-Troll (or Troll protection) LOT Network has expanded to 500 members.  I first wrote about the Google started LOT Network in 2015, and I believe it had about 47 members then.  Around four years later and we are at a significant increase.  For more on the LOT Network, please see these two prior posts, here and here.  Also, here is a blurb from a release by the LOT Network: 

"When you’re caught up in the day-to-day business of moving things forward, it’s easy to lose sight of accomplishments. It was in this way that a significant milestone — LOT Network’s membership reaching 500 members — caught us nearly by surprise. We are very proud of our community, which now counts Disney, Meituan Dianping, Centerpoint Energy, Synchrony, Yamaha,  VISA, Juniper Networks, 7-Eleven and Netgear as some of its newest members.

Our growth now spans industries — including automotive, finance, entertainment, cloud computing, retail, manufacturing, and emerging industries like blockchain — as well as continents. You can find LOT members in more than 35 different countries and counting; some of the biggest tech companies in Asia are among our strongest supporters.

Further, we’ve seen an uptick in startup membership, confirming that LOT is a solution for all companies regardless of their size or industry. Our momentum toward becoming a standard business practice grows stronger every day — more and more, we see members joining us based on information they’ve found online — often joining without contact from a LOT Network team member.  And that is because of you — the collective reputation of our membership makes joining LOT an easy decision."

Trump's New Drug Pricing Plan to be Released Soon -- Pay to Play?

How strange.  I was just thinking about why President Trump hasn't said much about drug pricing recently and then this . . . .  President Trump tweeted today that he and Secretary Azar will release a plan to lower drug prices by relying on the importation of drugs from other countries.  It will be interesting to see which states can import prescription drugs given the upcoming election--he seems to imply only some will be able to do so--expect a challenge to that.  His tweet stated: 

@SecAzar and I will soon release a plan to let Florida and other States import prescription drugs that are MUCH CHEAPER than what we have now! Hard-working Americans don’t deserve to pay such high prices for the drugs they need. We are fighting DAILY to make sure this HAPPENS...

US Supreme Court will hear Google v. Oracle Copyright Suit

The United States Supreme Court has just granted review of the Google v. Oracle Copyright law suit.  This is a huge case concerning copyrightability and the scope of fair use of software.  Additional information, including briefs, can be found at the SCOTUS blog, here.  Hat tip to Dmitry Karshtedt.  

US State of Wyoming Ready to Charter "Blockchain" Banks

US State of Wyoming enacted a law concerning the creation of special purpose depository institutions which concern digital assets.  The legislature’s findings in the new law state: 

(a) The legislature finds the following: 

(i) The rapid innovation of blockchain technology, including the growing use of virtual currency and other digital assets, has resulted in many blockchain innovators being unable to access secure and reliable banking services, hampering development of blockchain services and products in the marketplace; 

(ii) Federally insured financial institutions are not generally permitted to manage accounts in virtual currency or hold other digital assets; 

(iii) Blockchain innovators have greater compliance challenges with federal customer identification, anti-money laundering and beneficial ownership because of the complex nature of these obligations and the unfamiliarity of regulators with blockchain innovators' businesses;

(iv) These intricate obligations have resulted in many financial institutions in Wyoming and across the United States refusing to provide banking services to blockchain innovators and also refusing to accept deposits in United States currency obtained from the sale of virtual currency or other digital assets; 

(v) Compliance with applicable federal and state laws is critical to ensuring the future growth and reputation of the blockchain and technology industries as a whole; 

(vi) Most financial institutions today do not have the requisite expertise or familiarity with the challenges facing blockchain innovators which is required to provide secure and reliable banking services to these innovators; 

(vii) A new type of Wyoming financial institution that has expertise with customer identification, anti-money laundering and beneficial ownership requirements could seamlessly integrate these requirements into its operating model; and

(viii) Authorizing special purpose depository institutions to be chartered in Wyoming will provide a necessary and valuable service to blockchain innovators, emphasize Wyoming's partnership with the technology and financial industry and safely grow this state's developing financial sector.

The full bill is available, here.  More information concerning the law is available, here. 

OxFirst’s 4^th Symposium on IP and Competition suggests views on FRAND licensing are far from converging

 

On October 18, IP economic consultancy OxFirst held its 4th Symposium on Globalization and fair, reasonable and non-discriminatory (FRAND) licensing of Standard Essential Patents (SEPs). Academics, judges and policy makers convened at St Cross College of Oxford University to debate FRAND licensing rates, terms and conditions. The symposium, which was chaired by Judge Fabian Hoffmann of the German Federal Court, offered arguments from both legal and economics perspectives.

First the economics: FRAND licensing disputes are on the rise. Compared to non-SEP disputes, patent families containing SEPs were 6.4 times more likely to be exposed to infringement actions than non-SEPs. At the same time, SEPs are also 9.5 times more exposed to validity challenges than non-SEPs.

Of particular interest is the strong involvement of non-practicing entities (NPEs) in FRAND disputes. The data presented showed that in the US, 77.5% of SEP infringement and validity actions involved NPEs.  In Europe that same figure amounted to 43.9%.

As to the role of NPEs in the innovation eco-system, research sponsored by the French public authorities showed that NPEs do not necessarily foster the diffusion of innovation. Rather, they can have the opposite effect. Professors Valerio Sterzi of the University of Bordeaux and Gianluca Orsatti of the University of Turin used forward patent citations as a proxy for a technology’s use. They found that patents passed on to NPEs see systematic falls in forward citations. Their suggestion is that patents held by NPEs lead market participants to seek to stay away from such IP -- an insight that is intuitive, but now has the data to back it.

Legal scholarship presented at the conference discussed extraterritorial constraints. The pros and cons of anti-suit injunctions and global FRAND licensing rates were addressed. Particular attention was paid to issues such as forum shopping, controlling the costs of litigation, and the relationship of such acts to the sovereignty of other nations. The effects that setting a global FRAND licensing rate can have on licensing negotiations were addressed by Roya Ghafele. Ghafele presented arguments that underline the need to set a balance between the interests of the licensor and the licensee.

The symposium concluded with an outlook on possible solutions to the FRAND licensing challenge. That there is a need to come to grips with the licensing of SEPs was undisputed. After all, the Internet of Things thrives on interconnectivity; and standards will continue to play an instrumental role in establishing such interconnectivity. The experts invited were far from having a conclusive, let alone homogenous, view on the topic.

Should regional institutions be established to resolve the issues at stake? Should the global community at least strive to achieve a minimal understanding of what terms and conditions a FRAND licensing agreement should entail? Or should the issue be solved by simply enlightening the market on how to calculate FRAND royalty rates? 

The conference concluded with an outlook on what is clearly the most pressing issue in this matter. Namely, how to manage an increasingly international economic order under the parameters set by a territorially limited patent system.

Further information can be found here: https://www.oxfirst.com/oxfirst-fourth-ip-competition-forum-globalisation-and-frand/

US Collegiate Athletes may Profit from Name, Image and Likeness

The National Collegiate Athletics Association, an organization which essentially regulates collegiate athletics in the United States, has voted to begin the process of allowing student athletes to profit from the use of their name, image and likeness.  This vote was made in light of California’s recent decision to allow collegiate student athletes to be paid for playing.  Historically, collegiate student athletes were prohibited from receiving payment.  The NCAA press release states: 

Board of Governors starts process to enhance name, image and likeness opportunities

Each NCAA division directed to immediately consider modernization of bylaws and policies

October 29, 2019 1:08pm

In the Association’s continuing efforts to support college athletes, the NCAA’s top governing board voted unanimously to permit students participating in athletics the opportunity to benefit from the use of their name, image and likeness in a manner consistent with the collegiate model.

The Board of Governors’ action directs each of the NCAA’s three divisions to immediately consider updates to relevant bylaws and policies for the 21st century, said Michael V. Drake, chair of the board and president of The Ohio State University.

“We must embrace change to provide the best possible experience for college athletes,” Drake said. “Additional flexibility in this area can and must continue to support college sports as a part of higher education. This modernization for the future is a natural extension of the numerous steps NCAA members have taken in recent years to improve support for student-athletes, including full cost of attendance and guaranteed scholarships.”

Specifically, the board said modernization should occur within the following principles and guidelines:  

• Assure student-athletes are treated similarly to non-athlete students unless a compelling reason exists to differentiate. 
• Maintain the priorities of education and the collegiate experience to provide opportunities for student-athlete success. 
• Ensure rules are transparent, focused and enforceable and facilitate fair and balanced competition. 
• Make clear the distinction between collegiate and professional opportunities. 
• Make clear that compensation for athletics performance or participation is impermissible. 
• Reaffirm that student-athletes are students first and not employees of the university. 
• Enhance principles of diversity, inclusion and gender equity. 
• Protect the recruiting environment and prohibit inducements to select, remain at, or transfer to a specific institution.

The board’s action was based on comprehensive recommendations from the NCAA Board of Governors Federal and State Legislation Working Group, which includes presidents, commissioners, athletics directors, administrators and student-athletes. The group gathered input over the past several months from numerous stakeholders, including current and former student-athletes, coaches, presidents, faculty and commissioners across all three divisions. The board also directed continued and productive engagement with legislators. 

The working group will continue to gather feedback through April on how best to respond to the state and federal legislative environment and to refine its recommendations on the principles and regulatory framework. The board asked each division to create any new rules beginning immediately, but no later than January 2021.

“As a national governing body, the NCAA is uniquely positioned to modify its rules to ensure fairness and a level playing field for student-athletes,” NCAA President Mark Emmert said. “The board’s action today creates a path to enhance opportunities for student-athletes while ensuring they compete against students and not professionals.”