Patent Strategy - Preliminary Aspects of License Agreements

Dr. Uta Kster is an attorney-at-law with a doctorate degree in Biology. Her practice focuses on Patent law, particularly, Biotechnology patents. She is an associate with the Munich based Intellectual Property Law firm Bardehle Pagenberg Dost Altenburg Geissler.

I. Introduction

In particular, during the past 10-15 years the awareness for the value of intellectual property within companies has risen enormously. If before 1985 there might have been a certain general hesitance towards filing applications, today there is a veritable race for protection which is reflected in the exponentially rising statistics of applications for patents and trademarks in Europe and the U.S. as well as in the other major industrialized countries.

While earlier the first priority was to file a patent (or utility model) application for any invention that seemed to be "patentable", there has now been a certain shift towards a more strategic approach. Patents and Intellectual Property (IP) in general are undergoing a revolution with regard to their appreciation as intangible assets. Surveys on the most valuable trademarks (with Coca-Cola ranking traditionally first) as well as horrendous sums paid in damages for patent infringement are no longer published only in specialist magazines.

Today, up to 85% of the value of the market capitalization are attributed to the intangible assets of a given company. Up-to-date studies by financial service providers show that the highest rate of return with regard to investment is achieved in a company by its immaterial values. This term subsumes technical property rights such as patents and utility models, trademarks, copyrights, designs, know-how, but also other trade secrets, data banks, concepts, methods and other knowledge and abilities of company employees.

Reasons for the growing importance of IP are:

the advancing globalization of the economy with the consequences of

- globally expanding company marketing

- globally expanding exploitation of IP (such as patents and trademarks)

growing competition between companies

growing piracy of products

stagnating return rates (profits) from material assets of companies in many industrialized countries such as Germany and Japan and, therefore, the necessity to maximize the return of (investment) values - not only from tangible company assets

growing awareness for the importance of protecting Intellectual Property

Modern companies are learning to appreciate their intangible assets or IP as "profit centers" as opposed to "cost factors". They have come to treat their IP with the same care in financial administration as the material values of the company, the "tangible assets" (i.e. machines, real estate, reserves, products etc.)

Starting from the USA, but in the meantime also in Europe and in the other parts of the industrial world, companies are increasingly trying to build up their Intellectual Property in a strategic way, i.e. to evaluate and use it advantageously with regard to market competition and cost/benefit ratio. "Patent Strategy" which is also being called "Intellectual Asset Management" (IAM) employs specialist IP-lawyers, patent attorneys and economists. The integration of law, business and technical disciplines necessitates the development of new strategies and processes. These are introduced in companies in order to exploit existing property rights or Intellectual Property , but also to exploit evolving IP with a view to maximizing income, in particular, from license fees, as well as to reduce tax and to build up strategic advantages against competitors and to raise the shareholder value.

"Patent Strategy" includes, in particular, the following processes:

Strategic alignment of research and development (inventions)

a focussed build-up of a patent portfolio and patent management

market analysis

strategic product development

research for and monitoring of competitor's property rights

valuation of internal and external property rights

in- and out-licensing

estimating internal and external risks of infringement

enforcing and defending property rights

The above criteria of "Patent Strategy" can be applied in principle to other property rights, like trademarks, copyright, know-how, et seq.

The basis of "Patent Strategy" is the principal effect of a patent, namely the granting of a "right to prohibit" third parties from using the invention. The aim of a modern company is a strategically optimized patent portfolio. Such a portfolio has three main functions: First, a protective function, in particular, in the form of (legal) protection of infringement of external property rights by products or technologies owned by the company and at the same time the guarantee of the own (technological) "freedom to operate". Secondly, the attack function in the form of excluding competitors or limiting their freedom to operate by augmenting market shares and turn-over by way of out-licensing. This also applies to the possibility of putting ones own property rights on the table as a counter balance in confrontations with competitors (cross-licensing). Last but not least, there is a marketing function...