Patents: worth the paper they’re written on?

Posted on 18th August, 2011

A series of articles in the FT (see below) have led me to challenge my usual advice to tech clients to pay attention to any inventions they may have and to make sure that they have at least considered whether to invest the time and effort required to seek patent protection.

On the one hand, the 27 July article poses the question of whether “expansive claims” for the value of patent portfolios in tech companies is creating a new “tech bubble”. Those of us who had our fingers and fortunes burned in the fin de siecle tech bubble will shudder at the thought. I also recall the recent experience of carrying out due diligence on a target tech company on behalf of any investor where the owner/inventor grandly claimed that his patents had been valued at over £100m only to see his company go into administration and those prize assets disappear for a fraction of that sum.

The commentaries in the FT and elsewhere on the Google – Motorola Mobile deal though seem to suggest that Motorola’s fat patent portfolio may have played a large part in the $12.5bn transaction. They also point out that Nortel – remember Nortel? – ended up being little more than a defunct hardware manufacturer with a valuable pack of patents to sell (to Google’s arch-rivals Apple and Microsoft, as it happens).

So where does that leave the humbler tech company with clever technology and an IP protection strategy to think through? Are patents incredibly valuable assets which could ultimately be more lucrative than the business of the company itself – or are they simply a virility symbol?

My feeling remains that patents can never be seen as simply being legal protection of intellectual property. The cost and management time involved in filing a claim (and doing it properly) across the relevant jurisdictions can be considerable and, of course, there are the two key points to remember:

• filing a patent (with all its priority advantages) does not mean it will be granted, or granted in the form it has been filed
• detecting and stopping infringement, or resisting a challenge to the validity of the patent, may be prohibitively expensive and/or distracting

That said, many investors do expect targets to have filed applications for patents, and failure to do so may affect the value of the company on IPO or trade sale. There may also be some market cachet in being able to use the famous “patent pending” line -and it may discourage creditors.

I therefore see the question of whether a tech company seeks patent protection for its inventions as being as much for the marketing and commercial directors (and their budgets) as for the legal department. Which, after all, is quite right: legal advice should never exist in a vacuum.

Rory Graham
18 August 2011

See FT.com:
“Patent hunting is latest game on tech bubble circuit” By Richard Waters 27 July 2011
“Google snaps up Motorola Mobility” By Paul Taylor and Richard Waters 16 August 2011
and
“Is Google turning into a mobile phone company?” By Andrew Ross Sorkin, 15 August 2011, NYTimes.com