Patents as a source of business and industry information Stephen Adams Magister Ltd, GB www. magister. co. uk © Magister Ltd, 2004
Caveat • If I talk about ‘IP’ in this session, – it means ‘intellectual property’, – not ‘information professional’ • Patents are just one aspect of wider intellectual property searching – designs – trademarks – copyright etc. • Sorry in advance for any confusion! © Magister Ltd, 2004 2
Where do patents fit into (business) information work? M&A due diligence Anti-trust (US), abuse of dominant trade position (EU) Intangible assets accounting (Geneva II ? ) Commercial activities direct trading, co-operation Competitive technical intelligence © Magister Ltd, 2004 3
Where do patents fit into (business) information work? M&A due diligence Anti-trust (US), abuse of dominant trade position (EU) Intangible assets accounting (Geneva II ? ) Commercial activities direct trading, co-operation Competitive technical intelligence © Magister Ltd, 2004 4
Intangible assets accounting • Market capitalisation is only part of the story – Dreamworks SKG ; assets $250 m, value $2 bn. – Microsoft (1995) ; assets $8 bn, value $100 bn. – MCI (pre-World. Com) ; assets $5 bn. , value cap. $33 bn. • Anywhere between 40 and 100% of market value is not reflected in the balance sheet. © Magister Ltd, 2004 5
What are ‘intangible assets’ ? * • A whole cluster of properties, including * Reference : Andriessen D. & R. Tissen, “Weightless Wealth”. London: Pearson Education, 2000 – – – customer base, supplier network, brand image know-how, competencies client focus, reliability, quality leadership, communication, management information technology and explicit knowledge • including patents and other IPR • New international accounting standards (Geneva II) may require better recording of these in future: – so an understanding of patents will help. © Magister Ltd, 2004 6
Where do patents fit into (business) information work? M&A due diligence Anti-trust (US), abuse of dominant trade position (EU) Intangible assets accounting (Geneva II ? ) Commercial activities direct trading, co-operation Competitive technical intelligence © Magister Ltd, 2004 7
M&A, due diligence • An acquiring company normally inherits the contractual rights and obligations of the target company – including responsibilities relating to • litigation against the target company • litigation initiated by the target company • payment of maintenance fees on the portfolio • It’s usually better to know these before the takeover goes through, not after! © Magister Ltd, 2004 8
Due diligence • Patents impact on M & A considerations in two ways: – What patents does the target company own outright / have still pending/ in legal action? • assignee search is a good start • supplemented by legal status checks – What patents is the target company licensing from someone else / to someone else? • very little public domain information available © Magister Ltd, 2004 9
The importance of licensing to M&A considerations • A licence is a legal contract. • What happens if the licensee is taken over? • is the new owner buying-in a commitment to purchase from an existing supplier? • What happens if the patent holder is taken over? • will the new owner honour the contract to the licencee? © Magister Ltd, 2004 10
Patentee = Amplex Appliances (Kent) Ltd. , Bromley Sole manufacturing licencee = Plastico Ltd. , Morden © Magister Ltd, 2004 11
Where do patents fit into (business) information work? M&A due diligence Anti-trust (US), abuse of dominant trade position (EU) Intangible assets accounting (Geneva II ? ) Commercial activities direct trading, co-operation Competitive technical intelligence © Magister Ltd, 2004 12
Anti-trust / market dominance • Even outside of an explicit M&A scenario, patents are an important metric in company intelligence e. g. – Company status • actual ‘strength’ in the sector may not be indicated by simple evaluation of ‘portfolio size’ – Current or pending litigation – Effect of other valid patents • on your portfolio, or your activities – who actually owns the ‘dominant’ patent(s)? © Magister Ltd, 2004 13
Case study - Bose ® Corporation Bose is a privately-held company: = No NYSE, FTSE or NASDAQ listing. So how do we evaluate their corporate strength? © Magister Ltd, 2004 14
Simple search • One criteria could be in terms of their IP • • patents held / pending (size of portfolio) patent filing trends (age of portfolio) patents defended / opposed (strength of portfolio) patents cited (respect for portfolio ? ) • ‘Bose’ as IP holder – Simple research reveals over 600 patents worldwide, many examples of trademarks and references to ‘patented technology’ – They clearly take IP seriously • but is it doing them any good? © Magister Ltd, 2004 15
Status in Europe • Other company patents opposed by Bose – 0 (source: EPPATENT, Questel) • Bose’s European Patents being opposed – 5 • • EP 624001 B - allowed to lapse EP 414479 B - allowed to lapse EP 411786 B - allowed to lapse EP 410663 B - found valid, but subsequently allowed to lapse • EP 284286 B - revoked, allowed to lapse © Magister Ltd, 2004 16
Conclusion • The mere possession of an IP portfolio does not automatically add to the value of a company – its legal status is important • The findings on opposition/revocation should make us think twice – examine the age of portfolio and filing trends in more detail before getting too excited. © Magister Ltd, 2004 17
Where do patents fit into (business) information work? M&A due diligence Anti-trust (US), abuse of dominant trade position (EU) Intangible assets accounting (Geneva II ? ) Commercial activities direct trading, co-operation Competitive technical intelligence © Magister Ltd, 2004 18
Some things which patents can tell us about commercial activity • Major fields of industrial activity • Target geographical markets, for each product • Trends in research ; growing or receding emphases • Key personnel and addresses • Research collaborators • Forthcoming products © Magister Ltd, 2004 19
- and some things they can’t (directly) • Licenced-in technology • Revenue streams – derived from own working – derived from licence fees • Related IP rights – not usually a direct link from patent to/from trade mark • Secret processes © Magister Ltd, 2004 20
Key commercial activities • Current R&D programmes – including research collaborations e. g. with universities and the public sector • New products • Mature products • ‘Off-patent’ products © Magister Ltd, 2004 21
Current R&D programmes • A patent analysis can work in intensive R&D or manufacturing sectors – chemical, electrical, mechanical • It may work in other industry sectors – business processes, software, e-commerce – some sectors (e. g. horticulture) have special forms of rights. • It is unlikely to work in creative or designled industries, but. . . © Magister Ltd, 2004 22
OUR COMPANY Martha Stewart Living Omnimedia, Inc. (NYSE: MSO) is a leading provider of original “how to” content and products for the home. We leverage the wellknown “Martha Stewart” brand name across four business segments— Publishing, Television, Merchandising and Internet/Direct Commerce—…. Would patents form a significant proportion of this company’s intangible assets? - in the past? - in the future? © Magister Ltd, 2004 23
New products • Monitoring patent applications for early warning of new products is possible – but it has its hazards • Never forget that you are seeing a snapshot of the state of that company’s technology as it was 18 months ago – they may have made big progress, or completely abandoned the project, since then. © Magister Ltd, 2004 24
Mature products • A well-developed product will often be surrounded by a ring-fence of associated rights • e. g. a well-established drug – later patents on improved processes for manufacture – new formulation /presentation methods – trademarks, designs (design patents) – its own website, copyrighted © Magister Ltd, 2004 25
Products ‘off-patent’ • Don’t forget that the current (in-force) patent portfolio is only part of the picture: – A single successful patent can establish a product so strongly that sales will hold up even after the patent expires • Products ‘off-patent’ can still be market leaders – “much imitated, never surpassed” – A substantial proportion of a company’s income may be derived from ‘off-patent’ products. © Magister Ltd, 2004 26
The original drawings for the Aero ® patent (Cadbury’s, 1937)… still on sale today. . . © Magister Ltd, 2004 27
Where do patents fit into (business) information work? M&A due diligence Anti-trust (US), abuse of dominant trade position (EU) Intangible assets accounting (Geneva II ? ) Commercial activities direct trading, co-operation Competitive technical intelligence © Magister Ltd, 2004 28
Competitive technical intelligence • Good competitive intelligence can inform you about – research trends in competitor companies • “Am I getting too close for comfort? ” – the strength of your competitor’s position • “I don’t care - I think I can win the case if they sued anyway. ” © Magister Ltd, 2004 29
Too close for comfort - Fusilade ® (8 years of litigation) Filed 21 Jul 1977 Filed 22 Jul 1977 © Magister Ltd, 2004 Filed 12 Aug 1977 30
“I don’t care - I think I can win” : -v. April 20, 1976: Kodak launched an instant picture camera and film. April 27, 1976: Polaroid sued for infringement of 12 of its patents. [At this point, Kodak was about 10 times the size of Polaroid] The result: Nine years of trial litigation; Kodak found guilty of wilful infringement. A further five years in court on settlement of damages. The cost : $925, 000 in punitive damages. Closure of a $1, 500, 000 manufacturing plant. 700 redundancies. Legal fees of $100, 000. Expenditure of $500, 000 to buy back infringing stock. Total loss of 10 -year’s worth of R&D effort. © Magister Ltd, 2004 31
Summary • Company and financial information searchers can benefit from using patent information in their work • A thorough job must consider all aspects of intellectual property (IP) rights: – – – IP rights originated by the company IP rights licenced in by the company Terms of contract and royalties on IP rights licenced out Pending or actual litigation on IP matters Legal status (expiry of key IP) © Magister Ltd, 2004 32
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