Some describe it as being similar to real property, because it is a negative right or a “right to exclude” (you can read more on this topic here: http://www.investinip.com/patent-basics-what-is-a-patent/).

Others describe it as being different from real property, because it is an intangible asset.  An intangible asset is typically juxtaposed to a tangible asset (e.g., real property–a house, land).

But merely describing a patent as a negative right or not being tangible fails to answer the question–these answers only describe what a patent is not.

So, what is a patent?

To answer this question, let’s consider (1) the purpose of a patent, and (2) how a patent achieves that purpose.

In this post, we’ll be discussing (2) how a patent achieves its intended purpose.

If a patent’s purpose is to embody or capture the essence of a discovery, how does it exactly do that?

A patent does so by (1) qualifying that discovery into a (2) property right.

(2) Property Right

Looking at (2) first, a patent is a property right–an inventor owns her discovery via the issued patent.  You can read more about property rights here: http://www.investinip.com/patent-basics-what-is-a-patent/.

More specifically, a patent’s property right is carved out by its claimed subject matter, typically referred to as its “claims.”  Every U.S. issued patent lists one or more claims at the very end of it.

What is a claim?

A claim is a sentence that describes the what and how regarding a discovery.  When reading a claim, you should be able to answer what is the discovery (typically a product or process) and how it works.

Hence, a patent’s claims is the inventor’s property right to her discovery.

(2) Qualifying a Discovery

Before the government issues an inventor a property right (i.e., claim) to her discovery, the government examiner first makes a determination re what portion of the discovery is actually patentable (I’ll be describing this process in other posts).

All discoveries are built upon the foundation of prior discoveries.  It is the examiner’s job to determine the scope of your discovery and carve that out specifically for you.

As an example, if you invent a new sole for a shoe based on nano-fiber technology to provide extra comfort and durability, you may be issued a claim to that new sole (e.g., its material, shape), but you can’t have a claim to the shoe or concept-of-a-sole itself–these was already known to the public and in use long before the discovery of the new sole (we’ll go into more specifics re patentability in other posts).

Hence, every claim issued by the government is a calculated attempt to carve out discoveries already known to the public and those actually invented by the inventor.

Some describe it as being similar to real property, because it is a negative right or a “right to exclude” (you can read more on this topic here: http://www.investinip.com/patent-basics-what-is-a-patent/).

Others describe it as being different from real property, because it is an intangible asset.  An intangible asset is typically juxtaposed to a tangible asset (e.g., real property–a house, land).

But merely describing a patent as a negative right or not being tangible fails to answer the question–these answers only describe what a patent is not.

So, what is a patent?

To answer this question, let’s consider (1) the purpose of a patent, and (2) how a patent achieves that purpose.

In this post, we’ll be discussing (1) the purpose of a patent.

For what purpose is a patent granted?

Simple–a patent is granted to an inventor for an invention.

What is an invention?

Citing to our Patent Clause, an invention is a discovery–a new way of addressing some problem, whether known or unknown prior to the point of discovery.

So how does the grant of a patent actually relate to a given discovery?

A patent is a legal instrument to embody that discovery, that step forward–it’s aim is to capture the essence of that discovery.

This is the purpose of a patent.

How does a patent embody or capture the essence of that discovery?

We’ll be discussing this in our next post.

]]> http://www.investinip.com/patent-fresh-perspective-part-1-2/feed/ 0 http://www.investinip.com/draft-understanding-licensing-2/ http://www.investinip.com/draft-understanding-licensing-2/#comments Sat, 12 Jan 2013 22:58:52 +0000 http://ipinvestor.wordpress.com/?p=1782 Licensing is your pathway to monetization.  You realize returns on a patent investment by granting licenses to third parties in exchange for value.

What is a license?

A license is a right to use a patented invention–specifically, a right to make, use, sell, offer to sell, and import into the U.S. a patented invention.

A patent holder, and only the patent holder, has the right to grant a license to third parties (provided the patent holder does not grant an exclusive license or the right to sublicence to other parties–I’ll be discussing this in successive posts).

This right stems from the government issuing the patent, and agreeing to enforce the patent holder’s right to prevent others from practicing the invention.  A third party can practice a claimed invention only after a patent holder grants a license to the patent.

From a monetization perspective, the more licenses you grant with respect to your patent asset, the more you are realizing the patent asset’s monetization potential.  Hence, your goal as a patent owner is to grant as many licenses as possible, at a price point that maximizes value.

The property-right concept stems from a tradition rooted in real property.  If you own a home, as an example, you can reside there and furnish it to your liking.  There is no requirement, however, that you actually reside in or furnish the home.  As such, a property right does not require or obligate the owner to proactively act on the given right.

Instead, a property right is defined as a privilege to prevent others from trespassing on that right.  If you wish to prevent someone from entering your home, you are legally entitled to prevent that person from doing so.  And if that person makes an unwelcomed entrance, he is trespassing and you are legally entitled to defend yourself.  And notably, the US government is obligated to help you enforce that property right, such as through law enforcement and the court system.

This same property-right concept flows to the intellectual-property arena.  There is no requirement that you, for example, develop or market the invention relating to the patent asset, but you are legally entitled to exclude others from practicing the invention defined by the patent asset.  Most importantly, the US government is obligated to help you enforce that property right when it is being infringed (a rough equivalent of trespass).  Specifically, if you make a claim of infringement against a third party and if a court rules in your favor, the government will prevent that party from continuing the infringing activity or force them to pay royalty fees for continuing the activity.

With respect to monetization, the important takeaway is that the value of a given patent ultimately stems from government enforcement, or at least the threat of government enforcement, of the property rights associated with the asset.  In fact, all value of patent assets and monetization activities relating thereto ultimately derive from government enforcement-activity of intellectual property rights.

To accurately valuate a patent asset, you need a reliable methodology to predict whether a court will enforce your property right against a party you believe to be infringing the patent asset.  If a court will enforce the property right, there is value; if not, there is no value.

1.  Patent investments can provide massive returns, sometimes several orders of magnitude beyond your initial investments.  These potential returns can dwarf other investment classes such as stocks, real estate, and commodities.

2.  You can realize returns typically within 1 to 5 years of the initial acquisition of the patent portfolio, which is a much shorter time period than other investment classes, some of which may take as long as 30 years to mature.

3.  If your patent portfolio reads on dozens of potential licensees, it can bring you sustained, residual income over a several-year period.

4.  And there are a number of ways to mitigate risk with patent investments.  As an example, hiring attorneys on contingency fee can help contain your risk to your initial investment.  As another example, early settlements can help you quickly recoup your initial investment costs and also finance the future licensing campaign.

Every investment into a patent portfolio offers a fluid game plan, because each portfolio will have a unique business model, varying with the magnitude of return, time of return, mitigation of risk, and other factors.

Capitalizing on this fluidity can enable your business to thrive, regardless of whether you are fully financed by investors or starting off on a meager budget.

An IP investor includes not only those that acquire an interest in patent portfolios, but also attorneys that enforce and brokers that sell patent portfolios, on a contingency-fee basis.

As such, an IP investor is really a team comprised of those with financial means to acquire patent assets, and those with the specialized knowledge to actually monetize the investment, either through enforcement or a sale.

To become a successful IP investor, you must assemble a balanced team with both financial backing and specialized knowledge.  Before you make an investment in IP, ask yourself if you have the right team in place that can carry you through the full cycle from investment to monetization.