Michael Gulliford has more than two decades of experience in the intellectual property arena as an investor, advisor, dealmaker and former law firm partner. Currently, Michael is Founding Partner at Soryn IP Capital Management, which provides a variety of capital solutions to companies, universities and law firms that own and manage valuable intellectual property. Prior to Soryn IP Capital Management, Michael founded Soryn IP Group, an intellectual property advisory and finance firm that guided the management of private and publicly traded companies with respect to patent strategy, and that closed more than $175 million in patent-centric deals. Prior to founding Soryn IP Group, Michael was a partner in the IP litigation group at Kirkland & Ellis LLP, where he counseled clients on IP issues in a host of industries. Michael holds a BA in Neuroscience from Columbia University and a JD from the Seton Hall University School of Law. Michael regularly speaks, lectures and publishes on the latest IP monetization and finance developments. Among various industry distinctions, Michael has been recognized as a Global Leader in Intellectual Property, as one of the Leading IP Strategists in the World and as a Patent Master.
As investors and business-minded IP litigators, we see many situations where IP holders get the short end of the stick. But one stands out from the rest: joint development relationships. Too often we see great American startups losing their technology and competitive edge to joint development partners/investors with a front-row seat to everything. What follows is a multi-part series that we hope any company going down the joint development path will take to heart. We start with tips to prevent a problem. Future installments will focus on what companies can do after their “partner” uses the guise of venture investment to steal critical IP and know-how.
Intangibles, and particularly intellectual property, are curious assets. By some estimates, intangibles comprise a large overall percentage of the S&P 500’s total value. Yet – as most IP-rich companies know – leveraging the value of intellectual property to secure a financing has traditionally been very hard to do. Yes, the litigation finance industry offers capital to intellectual property owners who need to finance the tremendous expense of intellectual property enforcement litigation. And yes, some litigation finance deals provide for operating expenses. But many IP-rich companies have financing needs that do not center around litigation or jive with the litigation finance industry’s cost of capital.
Patent monetization has become nearly impossible for middle-market technology companies without engaging in some level of legal action. Management teams have consequently shied away from pursuing licensing opportunities, even when the revenue potential of a company’s intellectual property is compelling. While traditional debt and equity investors have an aversion to patent monetization stories, there are specialized investors willing to underwrite capital raises aimed at financing licensing revenue initiatives. By structuring these financings in a way that isolates monetization risk to the patent investor, companies can pursue licensing initiatives that have the potential to generate significant residual value for all stakeholders in the capital stack. In addition to capital, patent investors bring monetization expertise that can play a critical role in the success of a licensing revenue strategy… In many contexts, licensing revenues will only persist so long as the underlying patents remain valid. Increasingly, however, licensees and strategic third parties seek to invalidate patents in Inter Partes Review, rather than continue to pay or renew patent licenses. The uncertainty of future revenue streams further justifies financing structures that ameliorate such risk.
It should go without saying that a good team is a necessary ingredient toward building a successful patent operation. Unfortunately, many companies think they can check the “IP team box” once an in-house IP lawyer has been hired, and/or outside prosecution or litigation counsel has been retained. While those are often necessary ingredients for executing on the patent front, they are by no means the only ingredients. More is required, particularly in today’s patent market, which not only requires an understanding of patent prosecution, but a keen understanding of the business, strategic and financial aspects of patents.
Although the job of developing the patent portfolio never ends, once the assets begin to reach a critical mass it becomes equally important to tactically manage the portfolio. Because if not managed properly, a patent portfolio will not only fail to generate revenue, it will also drain the company coffers. With this in mind it is essential to know thy portfolio, prune thy portfolio and monetize thy portfolio. When many think of patent monetization, patent sales and licensing (in and out of court) are what come to mind, but there have been a slew of anti-patent court decisions that patent owners need to consider before monetizing. Crisis is often said to spawn opportunity and the patent world is no different. Uncertainty in the litigation arena has spawned new, non-litigation offerings to innovators desirous of leveraging the value of their patents.
To compete in our new innovation ecosystem — no matter big or small — there are a handful of competencies that an organization should master when it comes to their patent operations. At the risk of over generalizing, these are (1) sound portfolio development, (2) sound portfolio management, (3) building the right team and (4) smart patent deal-making. Although it is nearly impossible to condense actionable wisdom into a multi-part series on the subject, what follows is my attempt to do just that.
Mr. Oliver strongly misses the mark. It is not trial lawyers who are blocking the Innovation Act, as Mr. Oliver claims. Rather, it is a large swath of the technology community — from universities, to technology companies, to small businesses, to professors, and even venture capitalists — who understand that many innovators are now at a breaking point when it comes to patent rights and that the potential for further unintended consequences via additional reform is just too great. So, in the end, no matter what side of the patent debate you are on, let’s remember that our patent system is a vastly complex, finely tuned equilibrium. While market realities require adjustments from time to time, going too far in either direction will cause devastating consequences for large swaths of businesses.
The most recent patent reform bill to pass the House, which is now expected to receive Senate backing as well, is the Goodlatte Innovation Act (H.R. 3309). Included within the various provisions of H.R. 3309 is the presumption of fee shifting for the losing party in a patent case. Put simply, this means the loser in a patent case pays the winning side’s attorney fees. In the context of a patent case, such costs often total in the millions. But as someone who operates at the center of the patent market, and is certainly sympathetic to the dangers of frivolous patent litigation, I can only hope that if additional patent reform does pass, the presumptive fee shifting provisions are nowhere to be seen. Although seen by those unfamiliar with the nuances of patents as a way to curtail abuses in the patent system, a presumptive fee shifting provision is not only unnecessary, but also likely to cause of host of unintended consequences.