Patents can impact a company's ability to license or sell its technology, secure funding from investors, or gain a competitive advantage in the marketplace. A startup's patent portfolio can be a prime selling point in a merger or acquisition.
But how are these intangible assets valued? And is the security of greentech IP under assault?
A number of patent and licensing professionals took part in a recent panel at Santa Clara University put on by the Licensing Executives Society (LES) and Foresight Valuation Group to explore these questions
Panelist Eric Lane, an intellectual property lawyer at Luce Forward, sees risks and opportunities in today's greentech patent outlook. (Lane occasionally blogs for GTM and specializes in green IP.) He sees it as the "best of times and the worst of times."
- The risk is that developing country parties to the new climate change treaty negotiations could weaken or eliminate green patents in many countries.
- The opportunities lie in the green patent fast-track programs implemented in many countries, and in the readily accessible information on green patents and licensing partners via databases and technology transfer tools that have been developed in recent years.
According to Lane, wording in the texts used to negotiate the next round of climate change treaty has considered:
- Mandatory exclusion of green technologies from patenting
- Revoking existing patents on green technologies
- Exempting 49 of the least developed countries from patent protection
- Compulsory licensing of green technologies
- Pooling and sharing publicly funded technologies
Should green technology be excluded from patenting? Should existing patents in greentech be revoked?
Lane urged those attending the gathering to be skeptical, saying, "IP rights are not a barrier to the transfer of greentech." Lane is the author of Green Patent Blog and author of Clean Tech Intellectual Property: Eco-marks, Green Patents, and Green Innovation.
The positive news in green IP is that green technology patent applications can jump the queue in IP offices around the globe. The sometimes three-year process at the U.S. Patent and Trademark Office (USPTO) now has a few proposed shortcuts to speed the examination process:
- The Track I program allows applicants to request prioritized examination with a goal of completing the examination process in less than a year. Track I is capped at 10,000 patent applications for the first year.
- The Green Technology Pilot Program (GTPP) is available for patent applications relating to environmental quality, conserving energy, developing renewable energy resources or reducing greenhouse gas emissions.
- The Accelerated Examination (AE) program is another option.
Matthew Rappaport is the co-founder and Managing Director of IP Checkups, a source for analysis and interpretation of patent portfolios. The firm provides a process for understanding the competitive patent landscape and embarking on an IP portfolio strategy. Rappaport has developed a software product that monitors patent information as well a massive cleantech patent database with 1.5 million patents. The database is developed from public sources, updated monthly and includes 150 market categories and thousands of companies.
One notable observation is that cleantech patent publication velocity dropped off in 2009 to 2010, a lagging indicator of the economic collapse.
Rappaport made another point using green materials technology as an example. There were 200,000 patents published worldwide from 1981 to the present and the largest number of patents are assigned to 3M, BASF, DuPont, Bayer, Hitachi and GE -- all massive conglomerates and certainly not VC-funded startups. Greentech materials are not new for these industry behemoths.
Rappaport said that the firm Novamont has 229 patents in biodegradables and polymers. Identifying these under-the-radar companies is one of the challenges faced by greentech startups. Transportation was another example cited by Rappaport. It's Toyota, Honda, Nissan, and GM that dominate the patent landscape -- not Tesla or Fisker. He noted that biomass and ethanol patent activity is "really surging."
Aaron Enz is a partner at Watershed Capital, a corporate financial advisory firm focused on clean technology and sustainable business companies and investment funds.
Enz made a strong point in contrasting the internet with cleantech. The cleantech space is full of incumbents with deep, existing patent portfolios. It's not fellow startups that solar, transportation or smart grid firms need to worry about, but rather Cisco, ABB, Koch Industries, Chevron, Siemens, BP, Dow, Samsung, Itron, Tata, Air Products and Veolia, to name but a few.
Enz cited a case study where an industrial equipment supplier with $60 million in revenue but thin margins and low growth was acquired for its rich IP portfolio.
Efrat Kasznik, President of Foresight Valuation Group, sees IP valuation in cleantech as not being any different than in other industries. The only time IP is valued is when compliance issues are encountered such as litigation, M&A, or taxable transfers. IP valuation tends to only be done in compliance situations when it is mandatory and regulated (such as financial and tax reporting), whereas IP valuation largely ignored in pricing M&A deals before the deal is concluded. IP is not priced as a separate asset; instead, it is valued after the deal closes for reporting purposes only.
Patent portfolios are certainly part of the checklist in an investor's due diligence, but the IP is rarely assigned a monetary value or thought of as an asset until a liquidity event like a sale or litigious event occurs.
Two companies in greentech today are good examples of startups leveraging IP. Innovalight and 1366 Technologies are solar startups that are both successfully pursuing a licensing strategy. Read more about them in Michael Kanellos' reporting here.