Two things are true of a patent. First, it has some measure of value to its owner. It can be worth a fortune. Far more often, though, it isn’t. Knowing what a patent is worth—and when and why it is worth that much—demands confronting a basket of unknowables. For various reasons, this challenge is beyond the scope of this book.
Second, whatever a patent is worth, its owner must manage it. For instance, its owner must either maintain it by paying fees or, if necessary, abandon it by doing nothing. Likewise, the owner of a patent application might manage it by prosecuting it aggressively, conservatively, or—if abandonment is the goal—not at all.
As with an individual patent, a group of patents—a portfolio—must also be managed. The patent portfolio and its management are the focus of this chapter.
The term patent portfolio has several overlapping meanings. It can mean one or more patent families directed to a single technology. It can also mean the entire collection of patents and patent applications owned by a company or other institution.
A patent portfolio can be small and technologically focused. This is common with newly formed start-ups having only one or two U.S. patents and their foreign counterparts claiming a single drug, for example. Portfolios on the other end of the spectrum include thousands of U.S. and foreign patents and applications covering many technologies. This is normally the case with large pharmaceutical and biotech companies, research institutes, and universities.
Importantly, a portfolio can include patents both owned and licensed. That is, a company’s patent portfolio can include patents that it owns by virtue of assignment, as well as patents owned by a third party (e.g., a university) that has granted certain rights to the company under those patents via a license (a topic covered in chapter 18).
EXAMPLE 12.1
Biotech X is a three-year-old start-up. It is developing a peptide-based method for stabilizing small-molecule drugs. The technology involves attaching a modified dipeptide to a certain type of small-molecule drug to extend the drug’s half-life.
Biotech X’s patent portfolio began with patents and applications owned by University X, where this technology was invented.
Eight years ago, Scientist X, a cofounder of Biotech X, was a professor at University X. Together with Scientist Y, then a postdoc in her lab and now a Biotech X scientist, she invented this modified dipeptide and a method for using it to extend a drug’s half-life.
University X filed U.S. Provisional Application A claiming a genus of modified dipeptides, drug attachment methods, and other related compositions and methods. The application names Scientists X and Y as the co-inventors. As required by their respective academic employment agreements, they both assigned their rights in Provisional Application A to University X. This application ultimately led to a family of U.S. and foreign patents and applications. By virtue of the assignment, University X owns these patents and applications, as well as their progeny.
When Biotech X was formed, University X granted a license to it under this patent family. Under the license, Biotech X is free to make, use, offer for sale, sell, and import the invention claimed in any U.S. patent in the family and in any foreign counterpart patent.
Today, the portion of Biotech X’s portfolio under license from University X includes U.S. and foreign applications that arose from Provisional Application A. These are (i) U.S. Patent A1 claiming the modified dipeptide genus, and (ii) U.S. Application A2 (a divisional of U.S. Patent A1) claiming methods of using the modified dipeptides to stabilize drugs.
The foreign counterparts of U.S. Patent A1 and Application A2 include Canadian Patent A1 and Application A2, European Patent A1 (as nationally validated) and Application A2, and Japanese Patent A1 and Application A2. (These applications would likely arise via a PCT filing and subsequent continuing-application practice in each country.) The Canadian, European, and Japanese patents claim modified dipeptides and methods for using them to stabilize drugs. The pending Canadian, European, and Japanese applications, however, claim dipeptide-stabilized drugs per se, an embodiment not pursued in the granted patents.
Ideally, the pending U.S. and foreign applications will issue as patents in due course. To the extent permitted by law and facts, University X, in consultation with Biotech X, may file more U.S. and foreign continuing applications to pursue additional as-yet unclaimed aspects of the technology, such as specific dipeptides, dipeptide-modified drugs, or special conditions for their attachment to a drug.
Biotech X’s portfolio also includes a patent application that it itself owns, beyond the patents and applications licensed from University X.
Two years ago, Scientists X and Y invented DP1, a superior genus of modified dipeptide for use in the company’s technology. The DP1 genus is outside the scope of the dipeptide genus claimed in the patents and applications licensed from University X. Scientists X and Y invented DP1 through work performed entirely at Biotech X.
Biotech X promptly filed U.S. Provisional Application B. The application claims DP1, methods for attaching it to small-molecule drugs, and related compositions and methods. It also names Scientists X and Y as the co-inventors. As required by their respective company employment agreements, they both assigned their rights in the application to Biotech X.
Before Provisional Application B expired, Biotech X filed PCT Application B based on that provisional. Biotech X is contemplating entering the national stage in the United States, Canada, and Japan and the regional stage in Europe. If filed, these would be U.S. Application B, Canadian Application B, Japanese Application B, and European Application B, respectively.
So, at present, Biotech X’s patent portfolio includes (i) U.S. Patent A1, European Patent A1, Canadian Patent A1, Japanese Patent A1, U.S. Application A2, European Application A2, Canadian Application A2, and Japanese Application A2, all owned by University X and licensed to Biotech X. The portfolio also includes PCT Application B, owned by Biotech X. This portfolio may expand later to include one or more of U.S. Application B, European Application B, Canadian Application B, and Japanese Application B, depending on various factors. (Note: Foreign counterparts often deviate in scope from their respective U.S. patents owing, in part, to differences between the countries’ laws on patentability and unity of invention. It is assumed here for the sake of convenience that U.S. Patent A1 and its foreign counterparts parallel each other in scope, as do U.S. Application A2 and its foreign counterparts.)
A patent portfolio must accomplish its intended purpose, ideally without financial waste. To accomplish this, the portfolio must be managed.
This is easier said than done. Managing a portfolio requires understanding myriad interrelated factors. These include, among other things, the commercial relevance of the covered technology and its expected lifetime, whether the technology’s most important features are covered, whether the choice of countries for patent protection makes sense given those countries’ respective legal systems and market potential, whether an allowance of pending applications is likely, whether certain litigation-related concerns have been addressed, the portfolio’s licensing potential, the expected cost of managing the portfolio, cash flow, and—of course—the seemingly insoluble questions of what the portfolio and its individual members are worth now, what they could be worth later, and to whom.
Managing a portfolio, then, requires balancing these factors, deciding the fate of each patent and application in the portfolio, acting on these decisions, and repeating this cycle again and again. Without the benefit of hindsight, these decisions are imperfect at best.
FIGURE 12.1 In example 12.1, the two patent families, as shown here, constitute Biotech X’s existing patent portfolio and at least part of its contemplated portfolio. University X owns the top family and has licensed it to Biotech X. This family includes (i) U.S. Patent A1 (US-A1) and its European, Canadian, and Japanese counterparts (EP-A1, CA-A1, and JP-A1, respectively), and (ii) U.S. Application A2 (US-A2) and its European, Canadian, and Japanese counterparts (EP-A2, CA-A2, and JP-A2, respectively). Not shown here are U.S. Provisional Application A or any intervening applications (e.g., a PCT application) that would have directly given rise to this family. Biotech X owns the bottom family. At present, it includes PCT Application B (PCT-B). U.S. Provisional Application B expired and is not shown here. Depending on various factors, this family may expand to include one or more of U.S. Application B (US-B) and its European, Canadian, and Japanese counterparts (EP-B, CA-B, and JP-B, respectively).
EXAMPLE 12.2
Assume the same facts as in example 12.1. That is, Biotech X has a patent portfolio that includes Patent A1 and Application A2 in the United States, Canada, Europe, and Japan. These patents, applications, and any progeny are all owned by University X and licensed to Biotech X. This portfolio also includes Biotech X’s own PCT Application B.
The following facts affect how Biotech X manages its portfolio.
First, PCT Application B claims DP1, a superior genus of modified dipeptides. This application also claims methods for using DP1 to modify small-molecule drugs and related compositions and methods.
Second, DP1A is a species of the DP1 dipeptide genus. Scientists at Biotech X believe that DP1A has great commercial promise. Although PCT Application B doesn’t specifically claim DP1A, it does disclose DP1A, its manufacture, and its use for modifying drugs. Accordingly, it is Biotech X’s goal to ensure patent coverage for its DP1A-related technology through the progeny of PCT Application B.
Third, Biotech X has determined that the United States and Europe make up the vast majority of its anticipated market, with Canada and Japan being of only marginal value in that regard.
Finally, Biotech X did not receive the infusion of investment capital it had expected to receive last quarter. It must now manage its portfolio on a leaner budget than originally planned.
Given these facts, Biotech X plans to manage its portfolio in the following way.
First, it will continue to maintain all four of its granted patents: U.S. Patent A1, Canadian Patient A1, European Patent A1 (as nationally validated), and Japanese Patent A1. None of these patents encompasses DP1A or related methods and compositions. They do, however, encompass dipeptides that may later prove valuable to Biotech X, such as the new dipeptide DP2A currently under development. Moreover, the cash flow burden of maintaining these patents is far lower than it was for prosecuting them to issuance. So, the relatively low cost of patent maintenance justifies keeping the Canadian and Japanese patents in force, despite the limited market potential for Biotech X in those countries.
Second, Biotech X will abandon Canadian Application A2 and Japanese Application A2. The company’s funding setback necessitated this decision, which, fortunately, was made easier by Canada’s and Japan’s relatively minor commercial value in this context. (Note: It is likely that under its license agreement with University X, Biotech X would not be at liberty to abandon a licensed application without the university’s consent.)
Third, for market-related reasons, Biotech X will continue prosecuting U.S. Application A2 and European Application A2. Again, their scope encompasses products of at least potential value, such as DP2A, despite not encompassing DP1A.
Specifically, Biotech X will attempt to prosecute to allowance U.S. Application A2, which claims methods for stabilizing drugs. At the appropriate time, Biotech X will file a divisional of this application (i.e., U.S. Application A3) to pursue claims for dipeptide-stabilized drugs. Thereafter, to preserve its ability to pursue subject matter disclosed in the specification but not yet claimed, Biotech X will keep this family alive in the United States by ensuring that at least one progeny application is always pending.
In parallel, Biotech X will attempt to prosecute to allowance European Application A2, which claims dipeptide-stabilized drugs. Biotech X might also preserve its ability to pursue disclosed but as-yet unclaimed aspects of this invention in Europe by keeping this family alive in Europe via continuing-application practice.
Finally, regarding Biotech X’s own PCT Application B, the company will enter the national stage in the United States (as U.S. Application B) and the regional stage in Europe (as European Application B). Because of the market and funding issues discussed earlier, Biotech X will not enter the national stage in Canada or Japan.
Based on her analysis of the prior art, Biotech X’s patent counsel believes that claims to DP1A-modified drugs are more likely to be allowed than claims to other aspects of the invention. She also believes that enforcing claims to modified drugs during infringement litigation would have tactical advantages over enforcing claims to other aspects, such as synthetic methods.
For at least these reasons, Biotech X will first pursue claims in the United States and Europe that encompass, among other things, DP1-modified drugs per se, and particularly DP1A-modified drugs.
FIGURE 12.2 This diagram shows what Biotech X’s two patent families will include once the company acts on the portfolio management strategy described in example 12.2. Regarding the patent family owned by University X, Biotech X will (i) maintain U.S. Patent A1 (US-A1) and its European, Canadian, and Japanese counterparts (EP-A1, CA-A1, and JP-A1, respectively); and (ii) continue pursuing U.S. Application A2 (US-A2) and European Application A2 (EP-A2). Biotech X will abandon Canadian Application A2 and Japanese Application A2. Biotech X will also file U.S. Application A3 (US-A3) and progeny applications (US-PRG) as needed. As for the patent family owned by Biotech X, the company will enter the national stage for PCT Application B in the United States (US-B) and the regional stage in Europe (EP-B). However, it will not enter the national stage in Canada or Japan.
Precious few patents are worth millions of dollars, let alone billions. Most have little value at all. This harsh truth begets a host of questions for anyone contemplating a patent or portfolio. How much is the patent actually worth? How much is the portfolio actually worth? When, if ever, will such value be realized? To whom, if anyone, will the patent or portfolio be valuable?
Such questions defy easy answers. For one reason, it cannot be known whether events yet to transpire will add value to a given patent or do the opposite. Even if it could be known, there are many ways to value a patent. These valuation methods yield wildly different results—not an insignificant problem.
Patent valuation—a topic beyond the scope of this book—is a field unto itself and is normally outside the province of patent attorneys.