With President-Elect Obama's announcement that he will establish an "Apollo Project" to develop a Green Economy, there is no doubt that "the Green Technology train has left the station." Indisputably, investors will start to invest heavily in companies that appear to possess commericializable Green Technology that will enter the marketplace as the US embraces the Green Economy and develops the necessary infrastructure to make this happen. Before staking a claim to one or more of these companies, however, investors should understand whether existing patent rights owned by third parties could undermine the investment potential of even the most promising Green Technology innovators.
Anyone seeking to capitalize on the Green Economy and its attendant Green Technology must recognize a fundamental reality of US patent law: in granting a patent, the Patent Office cares only that an invention is useful, novel and nonobvious. Significantly--and this is the rub for investors in Green Technology companies--the Patent Office cares not a wit that an invention has commercial significance either today or in the future. As a result, many patents exist today for inventions that did not possess commercial viability when the patent issued, but that cover Green Technology that today may be on the cusp of commericialization. The owners of such patents can (and quite likely will) enforce their rights against those companies that successfully introduce that same Green Technology into the marketplace. Put simply, investors in Green Technology innovators must be hyper-diligent to ensure that inventors who had the same idea but could not commercialize that technology do not derail their commercial plans.
A salient and well-known example of an inventor extracting a patent toll from a successful innovator is found in the infamous NTP vs. Research in Motion ("RIM") patent litigation. In this case, NTP acquired patents issued in the early 1990's to email technology for use on mobile devices. The inventor of the NTP-owned patents never commercialized the patented technology and the patents issued several years before RIM introduced the technology into its BlackBerry(r) device. Nonetheless, after several years of contentious litigation, RIM settled with NTP for over $600 million. The huge settlement was bad enough, but RIM also suffered from loss of market share due to the uncertainty resulting from the litigation, which certainly led to significant additional financial loss. No doubt investors in RIM would have liked to know about the NTP-owned patents prior to making their investments in this mobile email innovator.
Many people reference the NTP vs. RIM case using the term "patent troll litigation." However, it would likely be wrong to characterize the owners of patents to not-yet-commercialized Green Technology with the pejorative "patent troll." Many reasons can be present for such patented inventions having failed to be successfully commercialized, not the least of which is that a market simply may not have existed at the time the patent covering the technology issued. In the US, however, any inventor owning a patent possesses superior rights to the patented technology over one who successfully commercializes that same technology. In short, inventors' US patent rights trump those of innovators. (Note that this rule differs in some oher countries, where the patent laws require compulsory licenses from the patentee to those seeking to commercialize the patented technology.)
So what does all this mean for those who seek to capitalize on the emerging Green Economy by investing in innovative Green Technology companies? At a minimum, Green Technology investors must endeavor not to focus solely on the viability of the technology itself such that they fail to determine whether another party owns superior rights to that technology. To this end, Green Technology investors must obtain Freedom to Operate opinions, which will inform them whether the technology of interest is covered by a third party's patent rights. While this may seem like an obvious step when vetting a new Green Technology investment, I am nonetheless repeatedly surprised that even sophisticated VC's and private equity investors fail to conduct the most basic of Freedom to Operate analyses before moving forward with an investment decision in a technology company.
A Freedom to Operate analysis should only be the first step when investing in a potentially commercializable Green Technology company, however. An investor must also conduct what I call a "Permission to Innovate" analysis. A Permission to Innovate analysis tells the investor whether any third party patents exist that are close to the likely development and commercialization path of the relevant Green Technology. A knowledge of such closeness is critical to know when a technology is yet-to-be commercialized because an innovator must be able to develop technology freely in response to market forces. A Permission to Innovate analysis will provide the investor with knowledge of whether the area of Green Technology in which she seeks to invest is crowded with third party patents that could limit the freedom of a Green Technology company to innovate in the future.
Many investors will see the emerging US Green Economy to constitute a possible "gold mine" and will rush to stake a claim. Nonetheless, investors would be well-served by realizing that good Green Technology ideas have been in existence for many years, and many of these ideas are covered by US patents. Investment success may hinge on knowledge of such pre-existing patent rights to ensure that a company's commercialization of promising new technology is not restricted by the person who first invented and patented that technology. As such, I believe it is critical for Green Technology investors to develop substantive patent knowledge of the relevant patent landscape prior to joining the Green Technology "gold rush."
Wednesday, November 19, 2008
Wednesday, November 12, 2008
Existing Sources of Investment Information Failed Us: Patent Landscaping Analytics Provide a Necessary Innovation for Investors
As global stock markets continue to struggle, smart investors seeking to capitalize on relatively cheap stock prices are searching for promising investment opportunities. Unfortunately, however, most investors are likely relying on the same sources of investment information that failed to accurately predict the current stock market situation. If the predictive nature of this information has been wrong time and time again, why do investors continue to rely on it? The answer is pretty simple: investment professionals lack knowledge that alternative sources of information exist.
One such alternative approach to making investment decisions involves using patent landscaping analytics to assess existing investment in a particular product or technology area. My research demonstrates that properly conducted patent landscaping analytics can effectively allow one to predict the future trajectory of product development by companies.
For example, as I have written about here and here, the fact that Google and Yahoo intended to significantly invest in Intenet-based television technology was fully predictable from their patent filings many months before Google and Yahoo actually made their respective public announcement of such plans. AT&T's launch of its U-Verse Internet television service was similarly predictable from the volume of patent filings in this technology area.
One looking to invest in a company or investment fund with offerings in the Internet television-related area would have been well-served by using this information to decide to move forward with caution. That is, Google, Yahoo and AT & T's respective deep pockets should serve as a signal that competition in this area will be fierce in the foreseeable future. This means that even if a company or technology emerges that is superior to those currently being offered, these "big boys" may still win in the marketplace. Therefore, a potential investor in Internet television technology should take great care not become enamoured with a superior technology or apparently brilliant start-up business plan, because the patent landscape demonstrates that the Internet television marketplace will be a tough place to play.
Of course, the above example is a look into the rear view mirror because Internet television has already been introduced to consumers. More interesting would be application of patent analytics to products and technology that have yet to make it to market in significant form. One such area is biofuels, where examination of patent filings can demonstrate what companies are making technology investments.
For example, corn-based ethanolic biofuels gained acceptance in the market in recent years. However, this technology now appears to be on the wane because of the huge increase in food prices that occurred during 2008 due to greater demand for ethanol. Market forces clearly demonstrated that biofuels should not be made from food sources, such as corn. As a result, biofuel technology appears to be moving toward non-food mass starting materials.
One such source of non-food mass starting material is switchgrass. Not only is this plant unsuitable for providing food such that its use will not cause food to be re-directed toward fuel production, recent research demonstrates that it is a more efficient source of ethanol than corn. Thus, it would appear that switchgrass biofuel technology holds good investment potential. Nonetheless, before getting excited about investing in technology related to switchgrass-derived biofuels, a smart investor should look to see whether any company owns patent rights in this technology area.
To this end, a patent search reveals that there are only 7 patent filings that mention "switchgrass" and "biofuel" in the claims--all patent applications. The earliest filing date of any of these applications is late 2006, thus signifying that this technology is only just emerging. This information demonstrates that one seeking to invest in this area should examine these patent filings in more detail. This investigation should focus not only on the claim scope and technology "quality," but also on whether the owner of the claims has the requisite deep pockets to make it more likely that their technology will succeed in the marketplace. Additionally, after investing, one should regularly re-check the relevant patent filing information related to switchgrass-derived biofuels to determine if investment assumptions and projections still remain viable.
There are no doubt countless other examples of how patent analytics can improve the quality of investment decisions in emerging technology areas. While investment professionals may find patents an unfamiliar and arcane source of information to include in their vetting and selection processes, recent events in the world financial markets indicate that change is needed in the way that money is invested in companies and technology. Integration of patent information into investment decision-making could constitute a necessary innovation.
One such alternative approach to making investment decisions involves using patent landscaping analytics to assess existing investment in a particular product or technology area. My research demonstrates that properly conducted patent landscaping analytics can effectively allow one to predict the future trajectory of product development by companies.
For example, as I have written about here and here, the fact that Google and Yahoo intended to significantly invest in Intenet-based television technology was fully predictable from their patent filings many months before Google and Yahoo actually made their respective public announcement of such plans. AT&T's launch of its U-Verse Internet television service was similarly predictable from the volume of patent filings in this technology area.
One looking to invest in a company or investment fund with offerings in the Internet television-related area would have been well-served by using this information to decide to move forward with caution. That is, Google, Yahoo and AT & T's respective deep pockets should serve as a signal that competition in this area will be fierce in the foreseeable future. This means that even if a company or technology emerges that is superior to those currently being offered, these "big boys" may still win in the marketplace. Therefore, a potential investor in Internet television technology should take great care not become enamoured with a superior technology or apparently brilliant start-up business plan, because the patent landscape demonstrates that the Internet television marketplace will be a tough place to play.
Of course, the above example is a look into the rear view mirror because Internet television has already been introduced to consumers. More interesting would be application of patent analytics to products and technology that have yet to make it to market in significant form. One such area is biofuels, where examination of patent filings can demonstrate what companies are making technology investments.
For example, corn-based ethanolic biofuels gained acceptance in the market in recent years. However, this technology now appears to be on the wane because of the huge increase in food prices that occurred during 2008 due to greater demand for ethanol. Market forces clearly demonstrated that biofuels should not be made from food sources, such as corn. As a result, biofuel technology appears to be moving toward non-food mass starting materials.
One such source of non-food mass starting material is switchgrass. Not only is this plant unsuitable for providing food such that its use will not cause food to be re-directed toward fuel production, recent research demonstrates that it is a more efficient source of ethanol than corn. Thus, it would appear that switchgrass biofuel technology holds good investment potential. Nonetheless, before getting excited about investing in technology related to switchgrass-derived biofuels, a smart investor should look to see whether any company owns patent rights in this technology area.
To this end, a patent search reveals that there are only 7 patent filings that mention "switchgrass" and "biofuel" in the claims--all patent applications. The earliest filing date of any of these applications is late 2006, thus signifying that this technology is only just emerging. This information demonstrates that one seeking to invest in this area should examine these patent filings in more detail. This investigation should focus not only on the claim scope and technology "quality," but also on whether the owner of the claims has the requisite deep pockets to make it more likely that their technology will succeed in the marketplace. Additionally, after investing, one should regularly re-check the relevant patent filing information related to switchgrass-derived biofuels to determine if investment assumptions and projections still remain viable.
There are no doubt countless other examples of how patent analytics can improve the quality of investment decisions in emerging technology areas. While investment professionals may find patents an unfamiliar and arcane source of information to include in their vetting and selection processes, recent events in the world financial markets indicate that change is needed in the way that money is invested in companies and technology. Integration of patent information into investment decision-making could constitute a necessary innovation.
Wednesday, November 5, 2008
If Your Company is Not Capturing IP-Related Tax Savings You are Likely Leaving Significant Money on the Table
I recently heard a group of tax experts spoke about issues related to intellectual property ("IP"), and since then I have been thinking about how my clients could benefit from better incorporating IP into their corporate tax planning and accounting processes. The topic is very complex and, as such, I will leave the details to the experts. (Feel free to contact me for recommendations in this regard.) I believe it is nonetheless valid to make the following statement: if your tax experts do not include IP issues in their tax planning and accounting processes, your company is likely leaving considerable money on the table.
As these experts discussed IP-related tax issues, it became apparent to me how important IP asset management should be to corporate tax planning and accounting efforts. However, my experience demonstrates that few corporate managers are aware that such savings are possible. Even if they know about this opportunity, it would likely be exceedingly difficult for them to capitalize on this savings because few organizations possess the IP infrastructure that allows efficient capture and assessment of costs associated with obtaining and managing IP assets. And, without such IP accounting information, the tax savings cannot be appropriately captured.
A word of qualification--I am in no way a tax expert. Nevertheless, I do understand that in order to capitalize on tax deductions and tax credits related to IP, accounting processes must be able to determine the costs of obtaining and managing such assets. It would then make sense that IP attorneys such as myself would be contacted on a regular basis to assist tax experts in the information capture process. In my years of high level intellectual property practice, I was never expressly brought into the tax planning or accounting processes. I must therefore conclude that most, if not all, of my clients failed to adequately capitalize on the tax savings opportunities discussed by the tax experts. Indeed, the tax experts who I heard speak confirmed that many c companies are effectively ignorant about how proper IP asset management and tax planning can reduce overall corporate tax liability.
How can a corporation capture this tax savings value? The first step is certainly to obtain education about the categories of tax savings that can be captured through improved IP management programs. Management would be well-served in this regard by finding the necessary IP and tax expertise to identify opportunities for value capture through tax savings. Due to the highly arcane nature of the interplay between tax and IP, I would advise one to seek specific expertise outside of their organization. This will require payment to consultants, which could be a limiting factor for many corporations. However, without the initial investigation by the appropriate consultants, the result will be that no IP-related tax savings will be captured.
If this investigation proves that demonstrable IP-related tax savings are possible, the next step would be to institute an intellectual asset management ("IAM") system that allows the corporation to capture the costs associated with obtaining and managing IP-related assets. Many corporations have successfully developed and executed on IAM systems by internally developing robust business-focused IP management processes. Such "home grown" solutions to IP management can be very effective, however, long term management commitment and infrastructure development are typically needed for success.
For organizations seeking to obtain IP-related tax savings more quickly and (possibly) with less infrastructure development, an IAM software solution may be beneficial. Examples of such software systems are Decipher, Anaqua and Lecorpio. These software solutions can be expensive to implement and maintain, but for many corporations the reduction in tax liability may clearly demonstrate immediate ROI associated with such a product.
To reiterate, my knowledge of tax is minimal. However, I feel strongly that much opportunity exists for corporations to capture tax savings through better IP management processes. I intend to reach out to tax experts and hope to post an update to this post in the near future.
As these experts discussed IP-related tax issues, it became apparent to me how important IP asset management should be to corporate tax planning and accounting efforts. However, my experience demonstrates that few corporate managers are aware that such savings are possible. Even if they know about this opportunity, it would likely be exceedingly difficult for them to capitalize on this savings because few organizations possess the IP infrastructure that allows efficient capture and assessment of costs associated with obtaining and managing IP assets. And, without such IP accounting information, the tax savings cannot be appropriately captured.
A word of qualification--I am in no way a tax expert. Nevertheless, I do understand that in order to capitalize on tax deductions and tax credits related to IP, accounting processes must be able to determine the costs of obtaining and managing such assets. It would then make sense that IP attorneys such as myself would be contacted on a regular basis to assist tax experts in the information capture process. In my years of high level intellectual property practice, I was never expressly brought into the tax planning or accounting processes. I must therefore conclude that most, if not all, of my clients failed to adequately capitalize on the tax savings opportunities discussed by the tax experts. Indeed, the tax experts who I heard speak confirmed that many c companies are effectively ignorant about how proper IP asset management and tax planning can reduce overall corporate tax liability.
How can a corporation capture this tax savings value? The first step is certainly to obtain education about the categories of tax savings that can be captured through improved IP management programs. Management would be well-served in this regard by finding the necessary IP and tax expertise to identify opportunities for value capture through tax savings. Due to the highly arcane nature of the interplay between tax and IP, I would advise one to seek specific expertise outside of their organization. This will require payment to consultants, which could be a limiting factor for many corporations. However, without the initial investigation by the appropriate consultants, the result will be that no IP-related tax savings will be captured.
If this investigation proves that demonstrable IP-related tax savings are possible, the next step would be to institute an intellectual asset management ("IAM") system that allows the corporation to capture the costs associated with obtaining and managing IP-related assets. Many corporations have successfully developed and executed on IAM systems by internally developing robust business-focused IP management processes. Such "home grown" solutions to IP management can be very effective, however, long term management commitment and infrastructure development are typically needed for success.
For organizations seeking to obtain IP-related tax savings more quickly and (possibly) with less infrastructure development, an IAM software solution may be beneficial. Examples of such software systems are Decipher, Anaqua and Lecorpio. These software solutions can be expensive to implement and maintain, but for many corporations the reduction in tax liability may clearly demonstrate immediate ROI associated with such a product.
To reiterate, my knowledge of tax is minimal. However, I feel strongly that much opportunity exists for corporations to capture tax savings through better IP management processes. I intend to reach out to tax experts and hope to post an update to this post in the near future.
Subscribe to:
Posts (Atom)
Posts
