Will The New Patent Law Remove Barriers To Monetization?

Friday, January 20, 2012 - 15:38
OpportunIP LLC

At OpportunIP LLC we work with owners of intellectual property (IP) to foster innovation by helping them realize the hidden value inherent in their patent portfolios. Specifically, we work with IP owners to develop strategic relationships with other entities that result in alternative applications of existing technologies, thereby further enhancing the value of the IP. However, it is our experience that certain IP owners are fearful of the increased risks of making their IP available to other entities, including real or perceived increases in litigation risk. Increased litigation risk brings with it the potential for significant costs to defend the IP against allegations of infringement. As a result, we find that some IP owners are not willing to take on additional risks that may arise from the non-core application of the IP. These risks are an impediment to innovation within the IP community. A (partial) remedy for the litigation risks associated with IP may emanate from the Leahy-Smith America Invents Act (the “Act”), signed into law on September 16, 2011.

This Act contains some of the most significant changes to U.S. patent law in decades.  One of the more important changes is that the first inventor to file a patent application is entitled to receive a patent. Under previous rules, the first person to invent what was claimed in a patent application was entitled to the patent. Additionally, the Act provides a broader basis under the new “post-grant review” process to challenge the validity of a patent grant. These two changes become effective on March 16, 2013. 

The “first-to-file” provision of the Act is expected to mitigate litigation risk since the legal ownership of the patent is conferred on the entity that is the first to file. Under the first-to-invent provision, litigation ensues because someone may assert ownership of an idea even though he/she did not file a patent application or make any move toward developing or commercializing the invention. Under the Act, these costly lawsuits should decrease because of the clarity provided by the first-to-file approach.      

Litigation may also be mitigated by the granting of higher-quality patents. For example, additional resources promised to the U.S. Patent and Trademark Office may allow for a better assessment and more thorough examination of patent applications. It is reasonable to expect that more patents will be rejected as a result of this process. Since too many patents that are challenged in court are ultimately deemed to be invalid, rejection of weak patent applications should avoid some litigation. In addition, a broader basis for post-grant review of patents will result in higher-quality patents surviving the additional scrutiny. As a result, the patents should possess greater validity and IP owners should be in a better position to withstand legal challenges. If these benefits are realized under the Act, the higher quality of the patent grants should also help to discourage future lawsuits and reduce risks to IP owners.

In contrast to the hoped-for benefits of higher-quality patents and reduced litigation risk, the Act poses some challenges for smaller entities and individual inventors since larger entities may be in a better position and have the resources necessary to be the first to file. It remains to be seen whether these potential challenges will inhibit the innovative spirit of smaller entities and individual inventors.

If the provisions of the Act provide the risk mitigation described herein, IP owners should realize higher economic benefits from their IP than they otherwise would have under prior law. Since the threat of litigation will be reduced and patents will be of higher quality, they will be easier to monetize and will be more valuable because of the expected higher net cash flows they should generate. The greater value should make it easier for IP owners to put more IP into play. This enhancement to innovation will lead to the creation of new capital among the parties to the transactions through the development of new products and processes. The IP owner will also benefit by the creation of new streams of wealth from new sources of royalties and license fees. It is my hope that the Act will provide some impetus to generate incentives that lead to the greater innovation that we all seek.

Glenn D. Sacks, CPA, is a Director in the Litigation and Corporate Financial Advisory Services practice at Marks Paneth & Shron LLP. Mr. Sacks is also an officer of OpportunIP LLC, where he specializes in servicing clients seeking to monetize and maximize the value of their IP.  

Please email the author at gsacks@markspaneth.com with questions about this article.