How To Monetize Failure

Any design engineer who has ever developed a product knows the importance of IP rights.

Any design engineer who has ever developed a product knows the importance of intellectual property (IP) rights.

According to Paven Malhotra, attorney at Keker & Van Nest in San Francisco, inventors and businesses must think of IP from both an offensive and defensive perspective. “You essentially wrap a fence around your invention or design,” he explains.

However, IP is also helpful as a potential revenue center. Once an individual or entity has a patent, they can force others to take out a license to use their method or technology. This approach to IP is often helpful for companies that have a failing business model.

“Silicon Valley and patent litigation is littered with companies that have failed commercially,” says Molhotra. “But in the process of failing commercially, they happened to gain a very robust patent portfolio. And that portfolio is very useful and can be monetized.”

A prime example of monetized failure is the Eastman Kodak Company. Once a powerful and iconic camera company, the 131-year-old film pioneer was forced to declare bankruptcy in 2012 due to the emergence of the digital camera.

But Kodak wasn’t prepared to go down without a fight.

“When Kodak declared bankruptcy, one of the first things that it did was hire a number of patent litigators and sue every major phone manufacturer in the United States,” says Malhotra. Due to Kodak’s incredibly valuable patent portfolio, the company was able to sue the likes of Apple, Samsung, and HTC for the camera technology in their phones.

Part of Kodak’s reason for doing this was to get some type of licensing fee from these companies. More importantly, the company needed to increase the projected value of its patent portfolio as it went into bankruptcy.

“There are lots of companies out there whose primary asset isn’t the product that they’re manufacturing – it’s the intellectual property they happened to develop over the course of their business,” explains Malhotra.

Beyond the Offensive

Inventors and businesses must also think of IP from a defensive perspective, first and foremost, to avoid any claims of infringement.

“It’s often useful when you’re developing a new product, to have a steady gun of patents in the particular field that you are going to be operating in to see if there is potential IP that you may be infringing upon,” says Molhotra. The last think anyone wants to do is spend months of time and money developing a product, only to be slapped with an IP suit.

Furthermore, building up one’s own portfolio will help ward off any potential attacks. In fact, many companies have recently been trying to acquire patent portfolios from other companies to do just that.

After Kodak’s series of lawsuits took place, a consortium of giant technology companies came together to buy the Kodak patent portfolio. “Essentially, they were ensuring that none of the competitors could sue each other, because everyone had a license to the portfolio of patents,” explains Molhotra.

While developing new products is a very exciting process, don’t be blindsided. Build up a robust portfolio, so if you are sued by a competitor, you will have a portfolio of ammunition as your defense.

What are your thoughts on patent litigation? Have you ever experienced legal battles over IP? Share your thoughts by commenting below, tweeting me @kaylieannduffy, or at Kaylie.Duffy@advantagemedia.com.


Stay tuned for Part II: 3D Printing: How Not to Get Sued

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