Proper Patent Valuation is Critical in Today’s Market

$12.5 billion for 17,000 patents! $4.5 billion for 6,500 patents! These purchases by Google and a group spearheaded by Microsoft and Apple represent a shift in the value of respective patents. However, valuing patents is not a simple task, but requires proper attorney diligence to ensure the purchase of patents is done in an efficient manner as not all companies have the resources of Google and the Microsoft group.

In the first deal, Google allegedly paid a premium for 17,000 patents of Motorola Mobility. Some speculate that this was done to ward off lawsuits from Apple, Microsoft, Oracle, and the like targeting the Android, including application developers and manufacturers for the phone. Or maybe it was because Google’s chief legal officer believes that a smart phone is possibly subject to approximately 250,000 potential patent claims. (In a related patent deal, Google obtained 1,000 patents from IBM after the Nortel deal, which is discussed below, fell through.)

In the second deal, the Microsoft group purchased 6,500 patents from a Nortel bankruptcy auction at 4.5 times the seller’s valuation. This purchase was possibly done with future patent litigation and/or licensing in mind.

In both cases, technology giants paid a premium to acquire intangible assets. So what gives? Well, not all patents are created equal. This is where the attorney diligence mentioned above comes into play.

You might be asking, well can’t I simply use one of those patent valuation websites to save money and time? Unfortunately, the diligence portion of the valuation requires elbow grease, that is, an analysis of a number of factors, some of which are shown below:

  • Purpose: What is the future objective? Will the patents be used in protecting new products? Licensing? or Do the patents need to be litigation ready, that is, withstand the intense review normally accorded such a process?;
  • Claim scope: Do the claims cover a company’s current and future products? Competitor’s products? Do the patents prevent competitors from entering the technological space? Does the written description accurately portray the claims? Has the invention been incorrectly characterized in the patents? Is there any disavowment of claim scope during prosecution?;
  • Technological market: Are the patents directed to a high value area?;
  • Validity: Has the claimed invention already been disclosed to the public?;
  • Enforceability: Is there some reason the patents could not be enforced?; and
  • Other Potential Areas: Have the patents been litigated previously? Reexamination? Reissue? Are there any ownership issues? Have maintenance fees been paid? Are the patented products marked? Are there any licenses? Are the patents in the Intellectual Property Exchange International? Are there existing patents in prosecution that could be used to draft claims directed at a company’s and competitor’s products? Are multiple actors required to infringe the claims? Are the claims readable without analyzing the specification? Are the claims written in such a way that many in the distribution line could be held liable?

Please contact us if you would like to discuss these questions and/or others with regard to a patent you are currently considering.

Andrew P. MacArthur, a former Associate in the Gibbons Intellectual Property Department, authored this post.
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