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 (3)(ii) estimating revenue potential, taking into the importance of the read.
Revenue Potential–Importance of the Read
To estimate the revenue potential of your campaign, determine the extent to which the patented feature(s) drive demand, sales, and/or revenue of the infringing product or service. If the patented feature drives demand/revenue, then you can capture a royalty on a higher proportion of the product/service’s revenue (“higher apportionment”).
The extent to which the patented feature drives demand is a question of degree—a question usually the topic of heated debate by damages experts. Nonetheless, you can make an initial assessment by answering the following:
1. Is the patented feature a central component of the product or service, such that without it, the product or service would no longer be marketable?
An example would be touchscreen technology regarding smartphones. If a smartphone manufacturer provided smartphones without touchscreen capability, no one would consider it a smartphone or purchase it as such.
If the patented feature is a central component that enables marketability and competitiveness of the product or service, you can obtain a royalty on significant proportion of overall revenue (e.g., 60% to 70%).
2. Do industry experts consider the patented feature a critical one?
If independent experts publically comment that the patented feature is a novel innovation, then this strong third-party corroboration that will support a higher apportionment.
As an example, if industry experts note that smartphone batteries notoriously run out after just a few hours of use, and an improved power-management technology extends battery life to a full day, then this provides strong evidence that the patented power-management technology is a critical feature that drives demand.
Always search for industry-expert commentary regarding the patented feature.
3. If the patented feature does not cover a feature that clearly drives demand, does it cover a required feature?
An example of such a feature is the home button of a smartphone. The home button doesn’t necessarily drive demand directly, but it would be extremely inconvenient to operate a smartphone without a home button.
Here, the apportionment will depend on the extent to which the patented invention is used. In this instance, you can argue the patented home button is used nearly every time a user operates the smartphone.
The more you can argue the patented feature is used during normal operation of the infringing product or service, the higher your apportionment.
4. Does the patented invention cover an optional feature or a feature of a feature?
If so, then your apportionment will likely be extremely low (e.g., 5% to 10% of overall revenue)–plan for a low damages base.