The inventor who is not going to set up a factory and manufacture and sell a product based on his or her patent is left with two monetization alternatives – sell or license the patent or assert it against its infringers. Asserting it against its infringers is only an option, of course, if the patent is being infringed!
And, therein they say, lies the rub. The reality is that most patents are NOT being infringed, so that leaves the patent owner with an uninfringed patent only one monetization option – find a patent broker to represent him or her and sell or license the patent. A business with a patent it is not practicing has the same two options, but only if the patent is being infringed.
For most patent owners – individuals and businesses – there is just one monetization option and asserting the patent is off the table. But the patent owner – an individual or a business – owning a patent that is being infringed is confronted with some challenging decisions that need to be made.
Very broadly, putting your patent up for sale is the Low Risk/ Moderate Return option, while asserting your patent against its infringers is the High Risk/High Return option. While there is very little downside to turning your patent over to a patent broker for the purpose of finding a buyer or licensee, the reward is moderate, likely in the hundreds of thousands of dollars for the sale of a single patent. Asserting your patent against in infringer involves considerable risk – including the possibility of actually losing the patent – while the rewards can be significant, especially if the patent has multiple infringers as is often the case!
Let’s start with exactly what “infringement” is. In order for a product to be infringing a patent that product must include every element of one Independent Claim from the patent. It does not have to duplicate every claim in the patent, just one Independent Claim – but every element of that Claim.
We had a client a few years ago who had a patent for a luggage-tracking device, and he identified a product that appeared to infringe his patent. Upon closer examination, we saw that one of the elements in the Independent Claim in his patent was that the invention included a USB port. The product the inventor identified copied exactly what was in the Independent Claim from the patent except that it did not include a USB port. So, it was not infringing the patent! Had the patent been written without the USB port in the Independent Claim, and had the USB port instead been included in a Dependent Claim, we would have had an excellent claim for infringement.
The patent owner who believes that his or her or its patent has been infringed needs to order an Initial Infringement Analysis. This is a study performed by a team of patent and technology professionals that specifically identifies products that are infringing a patent by matching the key elements in an independent claim in the patent against features of a product. The Infringement Analysis ranks infringing products in order of their viability as assertion properties. A product might be infringing your patent, but it might not be a viable candidate for patent assertion. We will circle back to that issue.
From the Initial Infringement Analysis, the patent owner can identify the most viable assertion candidates, and order a Claim Chart for each. A Claim Chart is a document that breaks up a claim from a patent into its key elements, and then documents infringement of each element of the claim. A Claim Chart is the “smoking gun” of patent litigation that clinches the case for the patent owner.
The inventor then needs to engage a patent broker that will use the Claim Charts to recruit a Patent Assertion Firm to represent the patent owner on a contingency basis. There is a modest investment on the part of the patent owner for the Initial Infringement Analysis and a modest investment in Claim Charts. But once the patent owner has these, a Patent Assertion Firm will take over and fully manage and fully finance a comprehensive patent assertion campaign against the infringers. The Patent Assertion Firm shares with the patent owner in the proceeds of the patent assertion campaign per an agreed-upon formula.
Remember the High Risk/High Reward of patent assertion? It is not uncommon for a patent infringement lawsuit to conclude with a settlement of several hundred thousand or even a few million dollars! And it is not uncommon for a patent to have multiple infringers – so multiple settlements!
Let’s also circle back to the viability issue. Under U.S. law, the penalty for patent infringement is “reasonable royalties” – that is, what the infringer would have paid the patent owner in royalties had the company licensed the patent in the first place and not infringed it. This does not seem fair. You get caught infringing a patent and your only penalty is you have to the pay the royalties you would have paid had you followed the law and licensed the patent in the first place, but that is what the penalty is!
Where the viability factor comes in is that it will cost the Patent Assertion Firm in the range of $100,000 to $200,000 – maybe even more – in legal fees and other costs to launch and try a patent infringement claim in federal court. If the sales of the infringing product are just $1 million, a “reasonable royalty” of 1% would result in damages for the infringer of about $10,000 – not nearly enough to cover the expenses of a lawsuit. The reality is that the infringing product must be generating sales in the $20 to $30 million range for there to be sufficient “reasonable royalties” in damages to make the undertaking financially viable. And that is the viability factor.
Alec Schibanoff is Vice President of IPOfferings LLC, a leading patent brokerage firm. In addition to patent brokerage, IPOfferings offers patent valuation and IP consulting services and has an extensive list of patents for sale at its website.
