Forming a Monetization Strategy – Estimating Campaign Costs (Part 2 of 6)

Creating an effective monetization strategy requires a multi-dimensional game plan, a game plan involving (1) acquisition considerations; (2) campaign costs; (3) revenue potential, taking into account the (i) market landscape and (ii) importance of the read; (4) assessments regarding the (i) strength of the read; (ii) claim construction positions; (iii) validity, including (a) forum considerations and (b) validity assessments; (5) filing strategies; and (6) compelling story telling.

In this post, I’ll be discussing (2) campaign costs.

Campaign Costs:

Prior to launching a campaign, estimate your campaign costs.  Based on that estimation, determine whether it makes economic sense for you to launch the campaign, whether to front the costs or have another party do so, and the proper law-firm arrangement.

Below is a checklist of questions to help you determine the foregoing:

1. Can you make a standards read?

Standards reads are the best—these are ones in which you draft one claim chart on an industry-wide standard (e.g., Bluetooth 802.11 standard), and allege infringement against anyone that complies with and practices the standard.

If your read sticks on a widely-adopted standard and validity holds up, you can earn substantial returns on these patents.

Having a standards read reduces your costs in a number of ways.  Firstly, the information published regarding a standard is substantive and comprehensive, so you’ll have a higher likelihood of generating a claim chart from publically-available information (see below).

Secondly, rather than needing a respective claim chart for each and every product in the market, you’ll need only one chart on the standard and a reference indicating the potential licensee complies with and uses the standard.  This streamlines workload in the case considerably when it comes time to serve infringement contentions (see below).

2. If it’s not a standards read, can you verify the based solely on publically-available information?

If so, the only cost to creating these claim charts is labor and time.

Note that you’ll likely need to draft a claim chart for every accused product (e.g., every laptop offered by a manufacturer).  When infringement contentions are due, you’ll need a claim chart on every infringing product.  This demands considerable bandwidth and resources—make sure you have the resources to follow through with the infringement contentions, particularly if you are filing against multiple defendants in a single wave.

3. If you can’t verify the read based on publically-available information, can an expert in the field verify the missing elements of the read?

If so, you’ll need to retain the expert—he or she will likely charge you on an hourly rate.  Factor this into your costs.

For verifying the read, you may only need a few hours of the expert’s time–this won’t be a huge cost sink for you.  But you may have a number of discovery-related costs (see below).

4. If you can’t verify the read based on publically-available information or from an expert, do you need to conduct reverse engineering to verify the read?

Seriously reconsider the campaign, if you do.  Reverse engineering will require a considerable amount of cost and time and, at the end of it all, there may be no guarantee of a read.

If the upside is substantial, the investment is a small proportion of your capital, and you can hold for a 2-to-5 year cycle on investment returns, then you can consider moving forward on a campaign that requires reverse engineering.

5. Will you need confidential, non-public information (e.g., a potential licensee’s source code) to verify the read?

If so, you’ll need discovery from the targets to verify infringement regarding their specific implementations.  Further, you’ll need to hire consultants to review their core technical documents and source code.  You’ll be paying these consultants by the hour, so your costs will add up.

6. How long will you go?

If you plan on going the distance (e.g., trial, appeal), expect your costs to be anywhere from $300K to $1M.  Your largest expenses will come from consultants and experts, particularly testifying experts.

7. Based on the above, can you front the litigation costs?

Determine if it makes economic sense for you to front the costs.  If not, you’ll need to trade equity to a party that can front the costs.  This could be the law firm or an outside funder.

8. Law firm arrangement?

And based on the above, determine the law firm arrangement that works best for the campaign.

Examples of arrangements include: (i) a full contingency in which the law firm fronts the costs, (ii) a full contingency arrangement in which you or an outside funder fronts the costs, or (iii) a hybrid arrangement in which you pay an hourly or quarterly fee in exchange for a reduced contingent interest.

There’s quite a bit of flexibility regarding arrangements with law firms.  Request bids from a number of firms and negotiate for the arrangement that suits your needs and the campaign dynamics.

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