A bit of a long one today I’m afraid, and a diversion from the usual patent drafting and prosecution tomfoolery, but this, dear friends, is a killer. Neglect this at your peril, for behind every smiling face there lurks a rotten smell, often hidden until too late and your hard earned wonga vanishes quicker than a Jehova’s Witness after being told “Thanks. Thanks and all that, but I’m not really that interested.”
A company’s IP particularly its patent portfolio, is a key value indicator. In any commercial transaction, for example, an M&A transaction, a licensing deal or any round of financing. It is important to identify and accurately assess patent quality and value by answering the following questions:
- Do existing patents and patent applications cover and protect the company’s products, services and research areas?
- Are the company patents enforceable against a competitor?
- Are the patents a potential source of licensing revenue?
- Are divisional, continuation-in-part, continuation applications, reissue applications, re-examination or any additional patent applications warranted?
- What is the patent portfolio worth in the context of the value of the company as a whole?
A number of scenarios exist in which a business may wish to assess the quality of a patent owned by another company. The risk of infringing a third-party patent depends upon that patent’s applicability, the strength and breadth of its coverage and whether its validity can be challenged. It is important to evaluate the quality of another company’s patents to answer the following:
- Is the technology in a crowded field?
- Will a competitor’s patents affect the company’s decision to launch a product or carry our R&D?
- Are in-licensing opportunities available for a patent?
- Should the company acquire or merge with a competitor?
- Should the company ensure its own portfolio is defensible or for negotiating strength given a competitor’s patents?
A due diligence analyzes information about a target company’s intellectual property portfolio and assesses the risks, exposure and benefits associated with the proposed transaction.
The outcome will determine whether the benefits and risks of the transaction fit into the buyer’s strategic short and long-term business goals. To accurately assess patent quality, five key areas should be considered:
It is important to consider the subject matter addressed by the patent and whether it is related to one’s own market or technological area. The patent may have some general intrinsic value, and certain companies are interested in acquiring patents regardless of the technological area. However, unless it is directly relevant to the company’s business, it is likely a waste of time to assess it.
Claims – scope of exclusivity
Claims are the most important feature of a patent. Claims define the limits of the property right conferred by a patent. Therefore, once a company determines that the patent’s subject matter warrants further analysis, the next step is to study the claims.
A good set of claims defines the invention with varying scope. Each claim should provide a different breadth of coverage. Broad claims cover the overall inventive concept. Other claims, such as dependent claims, introduce limitations relating to particular examples of the invention. While such claims provide narrower coverage, the patent holder may be more successful defending narrower claims against invalidity attacks based on prior art. An alleged infringer usually challenges patent validity whenever a patent holder asserts the patent against it. Thus, it is important for a patent holder to have a patent attorney/agent create a claim tree, which shows claims of differing scope and breadth as fallback positions.
Another issue is whether the claims include all of the invention’s parallel and alternative forms. Typically, patents should include a combination of method claims (a sequence of steps, such as a process or business method), system claims (an apparatus, functional architecture or machine) and computer program product claims (software encoded on a medium, such as a disk). In pharma patents, composition of matter claims (generic formula, sub-genus and specific compound), process claims, and method of use (methods of treating a disease) claims are a bare minimum.
The company also should examine whether the claims specify steps to be performed by more than one party, entity, person or machine. For patents involving multiple entities (such as client/server architectures), it is important to include separate claims for the steps performed by each entity. For example, one set of claims may cover steps performed by the client, and another set may cover steps performed by the server. A competitor then could be liable for infringement by operating or selling just the server or just the client.
In general, any invention involving communication or interaction between nodes, entities, components or users should include separate claims for as many of these entities as is practicable. This avoids any requirement that the infringer sell or operate all entities.
One also should note whether the claims include “means plus function” language. Such claims define an element of a system according to the function it performs, rather than merely its structure. However, the scope of such claims is narrower than it would appear, due to statutory language specifically limiting such claims to the description in the specification, plus equivalents. Although there is nothing wrong with including “means plus function” claims, it is important to also include other claim formats.
A patent’s specification can have a significant effect on its scope and validity. Courts will read the claims in light of the specification and use the specification for guidance about the terminology used in the claims and what the applicant intended the claims to protect. If the specification contains limiting language, a court may read those limitations into the claims, even though the claims do not recite those limitations. One should be wary of so-called “patent profanity” – words like “essential”, “critical”, “must have” are examples of limiting language.
One should review the specification for completeness. A patent must describe the “best mode” of practicing the invention known to the applicant at the time of filing. It must describe the invention at a level of detail sufficient to allow an individual having ordinary skill in the art to recreate the invention. If doubt exists as to whether the description is sufficient, then the patent’s value is questionable; a defective specification can lead to invalidation of the claims.
The prosecution history of an issued patent provides information as to the claims that the patent holder originally filed, the number of office actions, responses and interviews that took place and the rejections, arguments and amendments that were made.
In the US, this information can have a dramatic impact on the value of a patent and can reveal vulnerabilities that are not immediately visible. Amendments made during patent prosecution can disqualify a claim (or a claim element) from having its scope expanded under the so-called “doctrine of equivalents”, which otherwise can extend a claim’s coverage beyond its literal language.
An infringement defendant can use the prosecution record as a basis for construing the claims narrowly, arguing that such statements in the record indicate what the applicant intended to patent (and the examiner intended to allow) and that the court should read the claims in light of such statements. In general, excessive arguments, characterizations and assertions during prosecution may increase the risk that a patent’s scope may be deemed questionable if challenged.
Priority date and Prior Art
In the “first-to-file” era, patents with earlier priority dates are more valuable than later-filed patents because the earlier filing date means that less prior art is available to defeat the patent.
In considering the priority date, one should investigate what prior art existed at the time, as well as what products may have been launched before the application was filed. In the United States and Canada, an inventor must file a patent application within one year of any public disclosure of the invention. Therefore, it is important to consider what disclosures may have been made more than one year before the application’s filing date (or priority date).
If relevant prior art does exist, one should investigate whether the applicant properly cited the art to the examiner in the course of the patent’s prosecution. Art that was considered by the examiner may make the patent stronger, because there is a presumption that the patent is valid over art that was considered, although the presumption is rebuttable. However, in the United States, if the applicant knew of relevant art but failed to cite it, then the patent may be invalidated due to the applicant’s failure to fulfill the duty of candor, which requires an applicant to disclose any relevant art of which he or she is aware in the course of prosecution.
Patents that claim priority from other patents or applications are subject to additional avenues of attack. If a patent claims priority from an earlier provisional application, and the provisional application fails to fully support the claims, then the priority claim can be defeated. Similarly, a patent that claims priority as a continuation or continuation-in-part can lose the benefit of the earlier priority date if the specification of the parent application does not adequately support its claims. Therefore, for any patent that claims priority from another patent or application, one should review the specification of any parent application.
Assessing a patent’s value is a multifaceted exercise that often requires the skill and expertise of an experienced patent practitioner. However, the points discussed above are crucial in such analysis and a good starting point in any attempt to ascertain the overall value of a patent