Patent valuation for technology transfer – Part 2

Second part of the interview with Alan Engel, President at Paterra, Inc. and international advisor for technology transfer at the Japan Science & Technology Agency. The day after the first part of this interview appeared, Japan’s Tohoku-Pacific Coast suffered one of history’s largest and most devastating earthquakes and tsunamis. ipe: Alan, how did the recent earthquake and tsunami disasters shape your thoughts on patent valuation and technology transfer? Alan: In the aftermath of the disaster, I decided to focus attention on how patent valuation and technology transfer can contribute to this region’s recovery and future vitality. This focus will shape my remarks, but in a way that many in Europe and the U.S. may recognize. Tohoku residents’ stubborn pride and resilience in the face of declining, even extinct industries, coal mining, steelmaking, copper, whaling, and fishing, will remind Americans of their Appalachias and Europeans of their Sheffields. Tohoku’s fishery and seafood industries have been in crisis for years. World fisheries are being depleted, and the workforce is ageing and shrinking. Then in a few minutes, 90% of their fleet was gone along with a similar share of processing facilities. Although a high priority, this industry’s revival cannot happen without significant transfers of modern technology. Valuation will be indispensable to these transfers. ipe: Now, let's talk about patent value. A patent is a protective right, not a commodity. How can it have a value? Alan: A patent is an exclusionary right. It allows its owner to exclude competitors from a market by blocking them from using the patented technology. So, fundamentally, the traditional value of a patent is the value of the market that it protects. In high technology, however, patents have a secondary use that may override traditional market protection. This use is as offensive legal weapons. A single high tech product such as a computer may contain thousands of patented technologies. The incremental value of each technology may be small, yet an infringement lawsuit for even one of the patent could easily threaten more than and cost more than this incremental value. ipe: Is this the reason why patents are often traded or transferred in bulk amounts? Alan: Exactly. High-tech companies acquire large defensive patent portfolios that allow them to countersue infringement plaintiffs in a mutually assured destruction scenario. Google’s recent stalking horse bid of US$150,000 average for 6000 Nortel patents highlights this scenario. Patent valuation tools such as IPscore currently treat patents as protecting identifiable markets, the traditional valuation scenario. An implication of this approach is that if a market cannot be identified, the patent cannot be assigned a value. This does not mean that the patent has no value; it simply means that the value cannot be known. Of course, there are degrees of knowledge and IPscore accommodates these with risk/pot…