Weighing the Options

Selling IP is not the only option in those circumstances, according to the panellists—a team of seasoned patent litigators and IP strategists all of whom are Partners at Kirkland & Ellis LLP (US).

Rather, there are several ways to generate value while maintaining your portfolio.

“This is a really robust market in which to get value from that IP you have on the books,” said Ellisen Shelton Turner. “If you can execute licenses and negotiate a deal, that can bring in some fast revenue that companies sorely need.”

In addition to licensing, IP owners and their counsel are developing increasingly creative solutions to generate value from patents, he noted.

One example is the “IP drop-down” model, whereby a company transfers its intangible assets to a special purpose entity created for the sole purpose of holding those assets.

There are several options available to companies that take this path: special purpose entities may be able to securitize the IP in exchange for a loan or can seek to generate royalties on the portfolio.

“These entities can be a great way to keep the IP yourself, not license it or sell it, but get some immediate income,” Mr. Turner said.

It is essential that IP owners carefully weigh the risks in creating a special purpose entity, with the help of counsel.

“There needs to be a lot of planning because there are serious tax implications,” Mr. Turner said. For one, this approach could have ramifications for a rights owner’s ability to enforce patents.

He observed: “When the IP changes hands from a practicing company to a non-practicing company, you might lose the opportunity to seek lost profits in litigation, which can sometimes be much more valuable.”

Courts and COVID-19

The enforcement of patent portfolios has become more difficult during the pandemic.

Panellist Jeanna Wacker has had four of her trials postponed this year, and there remains the possibility of further delays, especially with jury trials. “It is a little easier to do bench trials because they’re done via Zoom,” she said.

The backlog in the courts presents strategic issues for counsel and their clients, Ms. Wacker noted.

The U.S. Court of Appeals for the Federal Circuit, for example, has tended to forgo oral arguments in many cases during the pandemic, although the option remains open for parties to request them.

“That’s a strategy decision that parties need to make. Do you think an oral argument will help your motion?” Ms. Wacker asked.

In the U.S., court delays could also have implications for the Patent Trial and Appeal Board (PTAB), explained W. Todd Baker.

“The PTAB is very efficient. They’ve been conducting all hearings virtually or by phone,” Mr. Baker said.

The PTAB’s expediency could make it a more attractive option for those who might otherwise go to court but want to secure a result more quickly.

“I think we’re going to see an uptick in cases at the PTAB in the near future,” Mr. Baker predicted.

Ultimately, the backlog is feeding back into the trend noted by Mr. LoCascio: parties with little appetite for a long wait for their day in court are becoming more amenable to settling out of court and pursuing IP monetization opportunities instead. After all, litigation is an expensive endeavor with no guarantee of success. An amicable licensing agreement, on the other hand, generates income while avoiding costs.

Mr. Turner agreed, noting, “Licensing can provide immediate and recurring revenue much earlier than extended litigation.”

With the pandemic putting many businesses in peril, now may be the time for them to explore the creative solutions and strategies to ensure their patent portfolios generate maximum value and timely income.

Photo of Shutterstock / Ammit Jack