Elevate Investor Confidence Through Patent Quality

Michael D. Moberly    May 21, 2014   ‘A long form blog where attention span really matters.’

An inventors’ first call…

So, for the foreseeable future, inventors, researchers, companies, and institutions who engage in R&D, perhaps their initial call should not be to (intellectual property) legal counsel whose business model generally remain exclusive to (1.) patent prosecution, and (2.) patent litigation.

The reason is there is a lot of important work inventors/innovators should achieve before, during, and after a patent has been issued. The time honored inventor/innovator practice of, what I refer to as ‘patent and walk away’ is indeed a poor business strategy.

An intangible asset strategist and risk specialist can perform a valuable, process altering, and strategic function for inventors-innovators which is to identify, unravel, assess, and safeguard the enabling and contributory intangible assets and initiate a ‘what fits best will work best’ for the innovator, their circumstances and investors and the absolutely necessity to sustain control, use, ownership, and monitor asset(s) value, materiality, and risk.

Should be little question by now…

There should be little question in the minds of business management teams and investors today that intangible assets and their first cousin intellectual property (IP) are now integral forces to successful business innovation, operation, and sustainability. The reason, it’s now a globally universal economic fact that intangible assets now comprise 80+% of most companies real value and sources of revenue. In other words, intangibles are the ‘building blocks’ for most company’s growth, profitability, competitive advantage, and sustainability.

But, before we delve further, let’s be respectfully frank. When it comes to IP (patent) counsel, let us not assume all are made from the same cloth. That is, with 25+ years of experience in the intangible asset arena and partaking in literally hundreds conversations with otherwise extraordinarily intelligent and resourceful entrepreneurs and innovators, I remain amazed that such a substantial number recognize one option which they assume will secure their work product that is, a patent.

Anecdotally, I am confident that many, if not most entrepreneurs and innovators, not unlike most business leaders and management teams members assume if one graduates from a professional school, be it law or medicine, etc., most are equally competent in the respective area which they have chosen to specialize, that is, unless something adverse is learned preceding or subsequent to an engagement. Ironically, this constitutes a pedestal of sorts, which we do not reserve for nor convey nearly as quickly, for example, to plumbers, carpenters, and the myriad of other craftsman which we are probably more likely to have direct and often times personal contact are able to observe and assess the outcome of their work, often immediately, compared to say the quality of patent prosecution and issuance. For the latter, it may take months, or even years for ‘quality’ to be assessed or tested relative to (a.) one’s motive for initially seeking a patent, and/or (b.) the litigation, disputes, challenges, etc., which unfortunately, seem, in some sectors, to be a growing inevitability of merely doing business when intangible assets such as IP are in play.

Entrepreneurs, innovators, investors, management teams, boards, and D&O’s who still consider IP in general, and patent prosecution – issuance in particular, as merely constituting an occasional service function that can be (a.) completed with equal excellence, and (b.) sustain the rigors of global competitiveness and litigiousness. In other words, those clinging to such views, are, in my judgment, behind the aggressivity and predatorial aspects embedded in 2014+ business curve and the instantaneous global business transaction environments in which the mantra is winner-take-all.

Howery Survey Of Investor Attitudes on IP Protection

In fact, most respondents to a former Howery law firm ‘Survey of Investor Attitudes on IP Protection’ assert that companies that lack an effective IP (intangible asset) strategy can have a substantial detrimental effect on company performance.  I couldn’t agree more.

Again, in today’s go fast, go hard, go global economic – business transaction in which IP and other forms of intangibles are routinely comprising higher percentages of company’s value and aspired success, investors and financial analysts are attaching more credence to intangibles, particularly those in the form of intellectual and structural before making their ultimate invest – don’t invest decision.  In fact, one in four of the Howery Survey respondents stated they have actually turned down investment opportunities due to a company’s ‘inadequate approach to IP’ which could encompass many things, including patent quality!

Fully 95% of the Howery survey respondents reported that it is no longer sufficient, in the context of investment decisions, for a target company to merely own IP. But, in addition, the IP should be both

The respondents also reported, in substantial numbers, that before a favorable investment decision would be made, the (asset) due diligence should determine and assess whether the target company has specific (best practice) strategies in place, to not only exploit the assets, but also ensure they are tactically and strategically aligned with asset safeguards and competitive advantages.

The bottom line, in my view, in conjunction with the Howery Survey findings, is this; companies that presume conventional IP enforcement protections somehow equate with patent prosecution quality and are thus singularly adequate to attract investors are finding instead, those enforcements, as advertised, are no longer sufficient (standing alone) to favorably satisfy prospective investor demands vis-a-vis their invest – don’t invest decision criteria.

In other words, to elevate the probability of attracting serious investors, companies should also have in place (a.) comprehensive and well defined and integrated strategies to effectively safeguard the key and contributory intangible assets to reflect and mitigate when – where necessary, today’s increasingly aggressive, predatorial, and winner-take-all business transaction environment, and (b.) seamlessly integrate same into a viable competitive strategy for utilizing and exploiting the assets. (Adapted by Michael D. Moberly from the work of Howery, Simon, Arnold & White’s Survey Of Investor Attitudes on IP Protection.

Patents are suitable for framing…

It’s important for entrepreneurs and innovators to recognize that patents are one of four types of intellectual property, i.e., trademarks, copyrights, trade secrets, (and patents) each of which is a subset of intangible assets. The primary difference is that a patent, once issued by the U.S. Patent and Trademark Office (USPTO) can assume a tangible or physical property insofar as the issuance certificate can be framed and hung on an office wall as a testament to an inventor’s – innovator’s hard work and being first to file. Too, having a patent issued conveys a sense of usually well warranted personal achievement that is immediate and very personalized, i.e., manifests as professional expertise and credibility.

But frequently, much to the chagrin of the intangibles’ profession, intellectual property, patents particularly, represent a presumptive and much revered brass ring which technology transfer managers, researchers, inventors, and legal counsel routinely set their sights. Anecdotally, having served in academia for over 20 years, I am inclined to believe this may be so, merely because there is no intangible asset strategist and risk specialist available to effectively articulate lesser expensive and more protectable options that can achieve the same desired outcome.

Nourishing ‘patent only’ strategies…

Anecdotally, I suspect, the personal reverence attached to an inventor’s or organization’s patent (only) ‘thinking’ is rooted in an absence of operational understanding and appreciation for the increasingly critical practices and operational preludes which are now necessary to sustaining control, use, ownership, and monitoring the value, materiality, and risks to the intellectual and structural capital embedded in any patent application (prosecution).

Respectfully, contributing to patent only strategies, is the flawed and very unrealistic assumption that an issued patent constitutes a standalone deterrent to, or safe harbor from the ever growing global cadre of would be infringers and purveyors of economic – competitive advantage espionage. Too, the costs associated with defending patents in disputes and challenges are considerable, making a ‘patent only’ tract, in my view, potentially even more risky. Too, conventional patent only strategies can literally be out-of-reach for frugal inventors and innovation regimes, absent committed and deep pocketed investors.

Too, its quite fair to say that in today’s increasingly aggressive, globally predatorial, and winner-take-all (global) R&D and business transaction environments, patents, like most intellectual – structural capital based assets, are in persistent states of risk to infringement, counterfeiting, misappropriation, theft, etc., from a host of legacy free players, independent (information asset) brokers, and assorted state-sponsored entities most of whom are engaged in some form of economic (industrial and competitive advantage) espionage.

Faux affirmation of patent only strategy…

Venture capital forums are usually private events in which inventors and prospective investors, i.e., venture capitalists meet. Those who have participated in such events know that inventor’s are seeking investment, a critical component of which is inventors making the proverbial ‘elevator pitch’ to an audience of prospective investors, in which the inevitable question, i.e., ‘what is your IP position’ will be asked.

In most instances, prospective investors prefer to hear inventors state that they have already secured a patent, or, in the alternative, a patent application has been filed. The primary reason is that prospective venture capitalists and investors perceive patents to be somewhat of an insurance policy for the invention they may be considering investing. That is, an issued patent provides both the inventor and the company with (legal) standing to pursue infringers and defend against challenges and disputes.

Every inventor I have witnessed presenting at a venture forum, their answer to the ‘what is your IP position’ question is consistently in the affirmative because they fear, if not stated, it’s assumed to be a deal breaker to any subsequent ‘invest – don’t invest’ decision. In this context, patent prosecution is an expensive obligation levied against the inventor which (a.) presumably conveys faith in their invention, and (b.) which furthers the notion that a patent only strategy is a requisite to invention investment attractivity. But, in my view, this question is a faux affirmation that a patent only strategy is the preferred and necessary option. I suppose however, at the 30,000+ feet strategic altitudes which prospective investors – venture capitalists tend to function at such early stages, a very conventional insurance policy is meaningful.

But, my own experiences suggest that, with few exceptions, there are few researchers – inventors working or operating at the same 30,000+ foot altitudes as prospective investors and venture capitalists. Instead, most researchers/inventors are working, quite literally, at ground floor levels, and should come to realize that the ‘gatorades and royalties’ (University of Florida, 1965) are really few and far between.

Again, patents are expensive to obtain, maintain, and defend. And, even if the entire patent prosecution process goes smoothly, the real value of – underlying foundation of an issued patent lies in the invention teams’ intellectual, structural, and relationship capital, i.e., intangible assets. Regardless of being issued a patent or not, those intangibles, I can assure readers, remain very much at risk, risks which the presumed deterrents’ and enforcements associated with conventional intellectual properties fall short.

Many opportunities to stumble…

Any research product, i.e., an issued patent and the underlying and contributory intellectual and structural capital can become entangled and/or ensnared in a sundry of legal disputes and/or challenges, anyone of which can, in addition to civil action, cause investments to be withdrawn or altered significantly thus minimizing furtherance of the invention.

Intangible assets are the enablers of IP…

In far too many instances, I find the intangible asset offspring, which I refer to as the enablers of IP. e.g., patents, are overlooked, dismissed, or overshadowed by the assumption that the time honored practice – strategy of pursuing conventional intellectual property, i.e., patent applications, provisionals, issuances, etc., are perceived as either the best or only option. Of course, I disagree!

To that point, an analogy may be in order. When one seeks the guidance of SEO (search engine optimization) firms for example, to promote one’s website and/or blog, etc., without fail, every SEO I have encountered, ther business development – marketing lead statement is consistently some variation of the following, ‘we’ll get you on page one of Google’!

The reality is, there is no guarantee that getting a website or blog post on page one of Google will produce (business) conversions that website dependant business persons mistakenly assume will evolve merely because something one has written has successfully maneuvered its way through the ‘Google algorithm gods’ and eventually found it’s was to page one, temporarily. The presumption is, that when Internet searches are initiated, seldom does the searcher go beyond page one of their search.

Yes, entrepreneurs can rationalize that all it takes is one good (the right) ‘conversion’ to kick start a company down the path to riches and sustainability. But, reaching ‘page one of Google’ may not be all that a startup company really needs to achieve in order to achieve the necessary level of (financial) sustainability.

Inventors and early stage firms, spinoffs and startups will also need a well-coordinated and focused strategy that effectively utilizes an array of internet resources and social media that presents many different options for an innovation’s exposure and conversion potential, not merely ‘getting on page one of Google’.

This post was inspired by a May 15, 2014 webinar produced by the Intangible Asset Finance Society with speakers John Kepler and James Singer, moderated by Jonathan Salem Baskin.


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