What to Patent is a Strategic Question

The strategic importance of a well-managed patent portfolio has the attention of many C-suite executives. For example, in 2011 Google Inc. offered $12.5 billion for a portfolio of 17,000 patents and 7,000 pending patent applications from Motorola Mobility. It was a clear indication of Google’s intent to expand and defend strategic growth in the smartphone market.

Even smaller portfolios can yield significant value. Tegal Corporation, for instance, sold a portfolio of patents related to nanolayer deposition technology for $4 million.

Companies don’t need thousands of patents to achieve strategic advantage. Many would be better served with a right-sized patent portfolio that supports specific business goals. Patents help companies defend a key technology or product feature that gives them a competitive advantage. For a small company or one focused on particular technology, a patent on a core feature is the most important component of a patent portfolio.

A related defensive strategy is acquiring patents of other companies that relate to your key technology or core feature.

Less well appreciated in the C-suite is the fact that patents can be used offensively. Offensive actions include asserting a patent against an infringer in a lawsuit, or licensing the patent to another company with an interest in the technology. Because it can create revenue stream in the form of royalties, licensing is especially useful for patents on technology that is no longer of interest to your company but is valued by others.

The laws and regulations that dictate the rights the federal government receives in a contractor’s software and technical data are complicated. They differ depending on whether the contract is with a defense agency or a civilian agency, and whether the procurement is commercial or non-commercial.

Historically, the government has received the same rights as the general public when purchasing commercial items. Although the distinction between commercial and non-commercial acquisitions remains important, recent changes in the rules applicable to Department of Defense (DoD) contracts have blurred the line. These changes reflect a trend towards expanded government rights in contractor IP and increased administrative burdens on contractors.

Contractors, particularly those less familiar with public contracts, must be wary of the risks presented by these changes and informed as to how to mitigate them. Otherwise they may surrender rights unnecessarily.

Subcontractors that provide slightly modified commercial components as contributions to a larger whole are most vulnerable.

The longstanding statutory presumption has been that commercial items are developed exclusively at private expense, and that contractors retain all rights. This presumption was partially reversed by the 2007 and 2008 National Defense Authorization Acts. The contractor now has the burden of demonstrating development at private expense.

The author lists some best practices to mitigate risk. Among them is keeping close track of your development cycle. An item is “developed” when it exists and is workable. Try to reach this point prior to accepting any government funds.