Buying patent (s) is a very effective way for the companies to increase size of their patent portfolio and get access to the new and latest innovations without spending much time and money on R&D. In today’s highly competitive world, acquiring intellectual property, is increasingly becoming an important business strategy to increase companies’ offerings or differentiating itself with respect to competition.
By in licensing a patent, companies get permission from the patent holder to use the patented invention for a specific period of time in a given jurisdiction and therefore, buying a patent may also help companies overcome risk of patent infringement.
The sole difference between buying and in-licensing of patent is that in case of buying patent, ownership of the patent gets transferred to the buyer and when patent is licensed, there is no transfer of patent ownership from patent holder to the buyer but it’s only permission granted by the patent holder to the buyer to use the patented invention for a specific period of time.
In this article, we will discuss advantages of buying patents and important considerations before taking decision to buy patents.
Why should companies buy patents?
Innovation is key to success of any business today and in order to obtain a competitive edge in the market, innovative products, processes or services shall be created. Acquiring innovative patents or technologies could be one of the most effective ways to create innovative products. When the patent is granted to patent holder by the Patent office, the patent holder is granted specific rights in a specific jurisdiction which he/she can license or sell it to other in lieu of royalty or an upfront payment. Therefore, if both patent holder and buyer are interested, the ownership of patent may be transferred to the buyer by patent holder.
In 2017, InVisage was acquired by Apple Inc, along with its patent portfolio of more than 100 patents on Quantum Dot Technology for Advanced Cameras along with other technologies. This is how Apple got access to Quantum Dot Technology and thereby it helped enhance size of its patent portfolio and use the acquired technology in their latest cell phones.
In 2014, flash array vendor Pure Storage acquired 100 patents from IBM, which were related to storage technology to prevent litigation. This way, Pure Storage could not only build a robust patent portfolio but also got freedom to operate in a wider range by minimising patent infringement risk. Further, acquiring patents also improved valuation of the company.
There are various advantages of buying patents, such as:
- Obtaining access to new/latest technologies and markets
- Reduce R&D cycle, thereby reducing time to market
- Remain “ahead of the curve” vis-à-vis competition
- Minimise patent infringement risk
- Increase size of patent portfolio
- It may help in branding or marketing
Important considerations while acquiring or licencing a patent
Buying of patent is a cost to the company. Hence it becomes important that only useful and relevant patents are bought. Following points shall be taken into consideration before taking final decision to buy a patent:
a. Area of Technology: In order to buy patents, first of all, areas of technology in which patents are to be bought shall be identified. Reading through the entire patent specifications, especially the claims will be immensely useful to find out subject matter claimed in the patent. Further, the patent to be acquired should complement or enhance the current technology offerings.
b. Jurisdiction: The buyer should be clear about the jurisdiction where the patented invention is to be used. For example, if the business of a company is only confined to India and US, then, patents filed/granted in these two jurisdictions shall be searched. However, there is a possibility of existence of good and relevant patents in other jurisdiction where there may be opportunity for companies to use such patents without a need to buy them or in-license them. For example, if an Indian automobile company finds a good, patented invention in Brazil for which Indian patent is either not filed or timeline to file in India has expired, the Indian company may use such patent in the countries other than Brazil. Patent rights are territorial in nature and patent granted in Brazil is valid only in Brazil. Using such patent outside Brazil generally does not deem to be infringement of patent rights. However, thorough due diligence is needed in such cases to ensure that there is no patent infringement risk involved.
c. Searching right patents: There are free and paid patent databases from where list of published patent applications or granted patents may be extracted using various search strategies. You may shortlist the relevant documents, read through the abstract and if need be, full patent document may be downloaded and read to understand which is the right patent to be bought.
d. Legal status of patents: It is very important to check legal status of the identified patents so that you know if they are “in-force”, “abandoned” or “expired” patents. It is good idea to segregate the identified patents into various categories depending upon their legal status. It is important to note here that you must buy only “in-force” patents because expired patents anyways are available for you to be used for free. As far as abandoned patents are concerned, they may have a possibility to be restored. So, if you are interested in abandoned patent, you must watch it carefully and periodically to understand if it comes into force again or gets expired. So, your strategy to buy such abandoned patent will change accordingly.
e. Making offer to the patent holder: After you have identified the patents of interest and confirmed their legal status, the next step could be to extract name and contact details of the patent holders to contact them to show your interest in buying the patents. Discussion may be initiated with patent holders regarding buying of the patents. At the time of buying patents, before making an offer to the patent holder, one of the important action points you should be focussing at, is valuation of the patent to understand how much you are going to pay for buying the patent. There are various well-tested methods to assess value of a patent, however, lots of things depend upon how the parties want to proceed.
f. Check prosecution history of the patent and it’s renewal fee: After patent application is filed, there are various prosecution stages through which a patent application passes to get a patent granted. This prosecution history may give you very vital information on quality of patent, kind of objections the examiner raised before grant of patent. This information may be of great use at the time of negotiation the patent holder. Further, after a patent is granted, there is an annual renewal fee which is to be paid by the patent holder to respective patent office to keep the patent in force. Failure to pay this fee may result in expiry of the patent. Once you buy the patent, you will be responsible for paying this renewal fee. So, depending upon the term of patent left, you must estimate the amount of fee payable by you to keep the patent in force.
g. Patent Assignment: Patent assignment is the term used with respect to transfer of patent rights and ownership from patent holder to buyer of patent. Here the buyer becomes owner of the patent and patent assignment is completed by executing assignment deed between patent holder and the buyer. Copy of such Assignment Deed is submitted to the respective patent office and then Controller of patent makes changes in the official records.
h. Patent Infringement Risk: It is worth noting here that even if you buy a patent and own it legitimately, before implementing or using such patent, it is important to ensure that usage of such patent does not infringe any third party’s patent rights. Hence Freedom to operate search or infringement analysis is important to be performed before acquisition of the patent.
Conclusion
Buying a patent is an effective and powerful way to increase size of IP portfolio and own patents without spending much on R&D. However, like owning tangible property, IP ownership also comes with obligations and responsibilities. With proper due diligence and expert advice, this process can be made really effective and useful for the organization.
Authors: Bindu Sharma (Founder, CEO Origiin IP Solutions), Bhavya Sharma (BBA, LLB) from Jindal Global Law School.
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