Maximizing IP Value Under Tight Budget Constraints

By James F. Ewing and Patricia Wu, Foley & Lardner LLP

This article is part of our Summer 2010 edition of Legal News: China Quarterly Newsletter, Eye on China.

The current economic recession has forced many companies to take a more proactive role regarding their intellectual property (IP) asset management strategy. IP assets — such as patents, trademarks, trade secrets, copyrights, design rights, and brands — like other corporate assets, can be licensed, kept, or traded. Although IP assets are an important component of a company’s assets, its benefits are generally realized over a long period of time. With a tightened budget, how can a company maximize the overall long-term IP investment in today’s difficult economic and financial conditions?

IP rights are vital to progress and innovation, and IP protection offers a company great incentives for investment in R&D. For technology companies, these IP values can account for a major part of their business. Thus, a good IP asset management and protection strategy that provides calculated flexibility with reduced costs can increase overall return.

An initial assessment of a company’s IP rights is the starting point for optimizing IP assets and protection. Based on this assessment, several strategies can be employed to maximize IP value. One way is through acquisitions or collaborations in strategic partnerships. In addition, a company can think about exploiting its untapped IP values by identifying prospective IP licensees and assigning or licensing the rights. Further, a company needs to ensure prominent use of registered trade marks. Lastly, proactive enforcement through litigation to stop infringers of unlawful activities also can increase the value of the IP assets.

An important part of any IP strategy is IP portfolio management. It is important to identify the kinds of IP assets that make up the company’s inventory, to create specific asset portfolios, and to manage the entire inventory for optimal utilization. For example, an audit of patents can determine whether they should be enforced, licensed, donated, or terminated. It is important to examine which patents, brands, and trademarks are key to the business and which are noncore and can be licensed out or sold. Concerning already-licensed-out IP, due diligence on third parties can ensure that companies are getting as much as possible under the relevant contracts.

On total legal cost control, IP management also should take into consideration the overhead for one’s portfolio, including the carrying costs and annuities for IP. Further, establishing a capable and lean-staffed core team and taking measures to increase productivity should be considered.

In terms of cost control for outside counsel, a number of billing arrangements can be contemplated. The traditional hourly arrangements should be investigated, and the rates are negotiable. Even after the rate has been negotiated and set, a client still can control cost through active involvement in the case. By working closely with the lead counsel, a client can be involved in various aspects of the IP portfolio such as important IP strategy and decision-making processes. During implementation of the IP strategy, a client also needs to regularly track the budget to determine where the money is going and evaluate whether it is being used effectively. An active involvement not only controls cost, it also increases the quality of work product by effectively allocating limited resources to the most important tasks.

Another way of controlling outside counsel cost is through alternative billing arrangements. For example, for simple matters such as patent applications or collections, a fixed-cost fee arrangement can work well because these types of work are generally predictable. However, for complex matters such as patent litigations, a fixed-cost fee arrangement can be more difficult to employ because of the unpredictable nature of the matter — for example, it is sometimes difficult to determine the exact amount of attorney time or the course of the litigation. In addition, value-based determinations can be used as a variation of alternative billing arrangements, but sophisticated clients are sometimes reluctant to negotiate the nontraditional payment plans because there are not sufficient historical data to determine what is and is not financially advantageous.

In conclusion, an early assessment of a company’s IP assets is critical for the design of a good IP strategy. By aligning its IP strategy with corporate goals and market conditions as well as maintaining a cost-conscious implementation of the IP strategy, a company can maximize the lifetime value of its IP assets and ride competitively through the economy’s ups and downs.