Our client’s executive team needed to better understand the investment and expected risk reduction return from their patent portfolio. We helped them build a financial model and direct their patent strategy using an approach where we identified and maximized patent value.

1. Finding your way from patent
value to return-on-investment. A
patent strategy case study
Your CEO: “Why are we spending so much on patents?” Your CFO: “Do we have a
financial model for this spend?” The path forward isn’t clear. Now what? In this case
study, we explore how we helped a high-technology, startup client model the value of
their patent portfolio and patent strategy.
Patents provide value in different ways depending on how you use
them
By Kent Richardson & Erik Oliver & Hannes Forssberg
Malm
August 21, 2017
Print Ar

2. In one of our previous articles, we discussed how patents generate value for companies
in several different ways. In this particular case, our client had been running a patent
program for a few years and had built a patent portfolio for defensive purposes. Their
goal had been to mitigate the risk of patent assertion from large companies in, and
outside, of their ecosystem, see Figure 1.
The costs of the program were increasing, and the executives wanted a deeper
understanding of the financial underpinnings of the patent strategy. The program costs
were relatively easy to calculate. But calculating the expected return, or value, of the
strategy and portfolio, was more of a challenge. We helped the client to assess the risk
from their ecosystem and to model and value their current patent portfolio and patent
strategy. In the end, the client used the model and the strategy to articulate the value of
their program and helped the organization unite around the company’s patent strategy.
Our client had built their patent program primarily around a counter-assertion strategy,
and their intended use of their patents was mainly for defensive purposes. Therefore, we
focused on modeling the value of patent risk mitigation through counter-assertion. Note:
we did not try to model the sources of value from the patent portfolio.
Although the client was not LinkedIn in this case, you can read how LinkedIn built a
defensive/counter-assertion portfolio here.
How do you assess your patent risk?

3. First, we needed to understand our client’s patent risk. The client was vulnerable to
patents of operating companies within their ecosystem, large corporate asserters
outside of it, and NPEs. Their patent strategy focused on mitigating the bigger risks.
Figures 2 and 3 illustrate the basis for analyzing and mitigating patent risks.
First, we had to identify likely patent asserters within and outside of our client’s
ecosystem. Figure 2 illustrates a simplified view of an ecosystem. We reviewed all the
client’s suppliers, customers, partners, and competitors for potential threats. We
assigned each company a label of either high- or low-risk and went on to assess the
specific risk of each high-risk company. Figure 3 illustrates how a counter-assertion by
our client could change the dynamic in an assertion by Company A. Specifically,
Company A’s revenues would be at risk due to their infringement of our client’s patents.
Modeling patent risk to determine expected value from your
patents
After mapping the key sources of patent risk, the client wanted to approximate the
counter-assertion potential of their portfolio. To do this, we looked into each high-risk
company and asked the questions: what is the present value of the expected patent risk
for this company? And how much could we reduce that risk by using our current patent
portfolio for counter-assertion?
To answer the first question, we estimated the likelihood of an assertion as well as the
cost and expected time frame of that assertion. This allowed us to list and compare all
the companies based on expected risk.

4. To answer the second question, for this client, we used class codes as a proxy for
potential patent infringement. This required analysis of the concentration and overlap of
class codes of both the client and each high-risk company. Taking one example, our
client’s portfolio was concentrated in five IPC class codes. Looking at OpCo 1 (see Table
1), we looked at the overlap of OpCo 1’s patents with our client’s five class codes to
identify a higher chance of OpCo 1 infringing our client’s patents. The analysis was
repeated in the other direction to look at the concentration of OpCo 1’s patents to
assess our client’s risk of infringement. The class code assumptions are important and
may need to be further tested depending on the situation. More sophisticated analyses
can be performed for more refined results, e.g. claim-level analysis, machine learning-
based similarity analysis, etc.
Table 1 illustrates how this can be applied. Take OpCo1 as an example. If we follow
OpCo1’s row in Table 1 from left to right, you can see how we arrived at the value of
using our client’s patent portfolio for counter-assertion against OpCo1.
In the case that our client did not have any patents to use for counter-assertion, we
estimated that they would have to pay $100 million in royalties if OpCo1 were to assert
their patents. OpCo1 was considered a direct competitor and a threat to the core
technologies of the client. The probability of an assertion was estimated at 5%, resulting
in an expected risk of ($100 million x 5%) $5 million. We expected a dispute with OpCo1
to take place in 5 years, so we discounted the expected risk to get to a present value of
$3 million. If OpCo1 were to/decided to assert their patents against our client, we

5. Tags: ip valuation, patent, patent portfolio, Patent Portfolio Valuation, patent portfolios,
patent valuation, patent value, patents, valuation
Posted In: Guest Contributors, IP News, IPWatchdog Articles, IPWatchdog.com Articles,
Patent Business & Deals, Patents, Valuation
Eric Berend August 22, 2017 9:54 am
The machinations of a post-injunction world. Since the true ‘teeth’ of U.S. patent rights were
filed down to mere ‘nubs’ by eBay v. MercExchange, the ‘game’ afoot, has become reduced to
mere, pathetic ‘MAD”*.
.
assumed that our client’s patent portfolio could be used for counter-assertion and that it
would reduce the expected payment by 75%. That 75% translated into expected savings
of $2.6 million. The same calculation was repeated for all the high-risk companies we
had identified in the previous phase (OpCo 1-9). The expected savings totaled $22.6
million.
We also estimated the savings from ecosystem companies. These are companies that
have not been specifically identified but represent a threat because they operate in the
same general ecosystem but do not pose as immediate a threat as the high-risk
companies. We also estimated the value of the general deterrence of having a patent
portfolio against others who may want to assert patents against our client. Combined,
the ecosystem and general deterrence added $9.5 million in risk reduction value.
Conclusion
Using a model that examined both patent risk and expected risk reduction allowed the
client’s IP department to put a number on the value of their efforts. In turn, this enabled
the executive team to grasp the return on investment (ROI) from the patent strategy. Our
client now had a tool to use for making decisions on how to mitigate patent risk and
where to spend money to build their patent portfolio. The implications extend further into
setting metrics and plan objectives to ensure that the patent strategy is on track.
All high-technology startups have patent risk, and they should assess that risk to gain
insight into what strategies might provide them with the best-expected return from their
patent strategy. Creating a model to articulate the value of your patent strategy will
support your decision-making and help you communicate the value of different strategic
options internally. It also provides clearer guidance as to what ROI your patent
department is generating.
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6. In this new Sport of Kings, earnest and genuine small entity inventors need not apply.
* Mutually Assured Destruction – otherwise known as a “Mexican standoff”; often found at a
nuclear arsenal near you.