DEFENDING YOUR TURF (Part I):

Intellectual property is one of the biggest and most profitable assets a business can own. This month, Sidebar will focus on how business owners can make the most out of their IP.

INTRODUCTION

Aggressive IP deployment is critical. Sole proprietors and corporations alike need to view Research and Development as an investment, rather than as a cost of doing businesses. Having a strong R&D department provides several advantages. First, it can contribute to success because owning IP can exclude one's competitors from a chosen market segment. Second, when properly identified and protected, innovations can be converted into profit centers. Finally, owning IP can make a business more attractive to investors and merger candidates.

Strategic Use of IP

Most companies do not exploit the strategic power of their intellectual property. IP is generally relegated to scientists and lawyers when it should be made part of a company's mission. The strategic use of IP involves four parts: discovery, protection, deployment and enforcement. Business can increase their revenue and build market power by paying close attention to and following the foregoing steps.

Step 1: Inventory Your Weapons

"If you know the enemy and know yourself, you need not fear the result of a hundred battles." -Sun Tzu, The Art of War

Aggressive intellectual property management demands that a rigorous self-examination be conducted early and often. It involves taking inventory of the company's IP "ammunition" and planning the most effective deployment of those resources. It requires an IP audit that is designed to "search and rescue" patentable inventions, trade secrets and other protectable intellectual property. An IP audit should also be designed to ensure that the company has locked down the most effective – and cost effective – ways of safeguarding those assets. The goal of an IP audit is to support, or in some cases, create, procedures for a company to use to build, maintain and ultimately profit from its intellectual property assets.

The IP Audit

Your company should consider conducting an IP audit. First, you must assemble an audit team which consists of personnel familiar with the company's current and future technology, as well as its business and product direction. This team should work closely with experience IP legal counsel. Together, the audit team and IP counsel will identify the patentable inventions and trade secrets and any subjects for copyright and trademark protection. The team will gather the information and documents necessary to fortify the appropriate legal protection for each asset. It will also investigate patents obtained by competitors to see if the company's activities risk a potentially crippling infringement lawsuit. After the initial inventory has been completed, the audit team will present its findings to management, who determines the level of corporate resources assigned to teach asset and how such protection fits into its corporate strategy. For smaller, startup companies performing and implementing the results of an IP audit may be the difference between survival and destruction by a determined adversary. Larger companies use IP audits to focus their technology development into areas which will: complement the company's existing patent portfolio; generate cash flow through licensing; form a "patent fortress" against the company's competitors.

Patent Portfolio Mining

More mature companies often have an extensive, but unfocused, patent portfolio. The process of self examination is "patent portfolio mining." Audit teams can use software tools to "map" the company's patent protection. Teams can identify areas that need to be strengthened; patents that can and should be licensed to generate cash flow; and areas that should be abandoned.

A company should organize its portfolio into an effective arsenal to be used in an infringement lawsuit. Organize patents by product or by competitor. Be ready to assert patents as counterclaims if you are sued. Your patent portfolio (and other documentation) can also be used as "prior art" to invalidate patents asserted against you.

Donating Patents

Often companies donate patents to universities for a tax deduction. For example, Procter & Gamble donated its patent for Smoothies-Protein Particle Stabilization to Kansas State, which spun the technology off into a new company. A donation can result in more favorable licensing rates if the company later licenses the patent back from the university.

Generating an Additional Source of Revenue

Texas Instruments is an example of an effective IP audit. In fact, Texas Instruments was one of the first corporations to use an IP audit to improve profitability. In the mid-1980's Texas Instruments faced bankruptcy. In 1985, after an IP audit, it began an aggressive licensing program which to date has earned the corporation over $4 billion in licensing revenues.

IBM's IP audit is another example of a successful strategy. In the early 1990's IB began to mine its IP portfolio to generate revenues. From 1990 to 1999, its royalties from patent licenses grew from $30 million to $1 billion. In 1999, DuPont took a $64 million tax write-off by donating 29 patents to three universities. In 1999, Dell used its patent portfolio as collateral for a $16 billion cross-licensing deal with IBM which provides Dell with low-cost components, and helps the company avoid millions of dollars in royalty payments to IBM.

Inventory Your Weapons

  • Organize your company's IP Audit Team

  • Identify your technology, IP assets

  • Allocate your resources to IP asset protection

  • Organize your patent portfolio

  • Improve your profitability

Step 2: Deploy Your Weapons

The clever combatant imposes his will on the enemy, but does not allow the enemy's will to be imposed on him. - Sun Tzu, The Art of War

Build Your Patent Portfolio

After you conduct an IP audit, use the power you gained from rigorous intellectual property protection to position your company in the market and to exclude your competitors from your core market. Continually conduct a competitive assessment to focus on your adversaries, including: what they are doing; where they are likely to go; what they are not doing; and how your patent portfolio can block your competitors from entering a market you hope to dominate. Blocking patents completely prevents a competitor from entering a technology or product market covered by the patent. "Picket fence patents" are used to fence in, or surround either your own patents or those of a competitor, with all conceivable improvements. By "fencing" your own patent, you prevent your competitors from "designing around" your core technology. When you "fence" your competitor's patent, you create an incentive for the competitor to license its core patents to you, in exchange for the right to improve its own product. Another way to build your patent portfolio is by tracking technological advances being made by your competitors to fill holes in your own portfolio with similar innovations. Always be on the lookout for the chance to capture unclaimed territory or "white space" where no one has yet patented. The development of a stellar IP portfolio can be the difference between success and failure for smaller companies looking for funding, for an appropriate acquisition candidate or in preparation for an IPO.

Your Portfolio as a Profit Center

In 2003, Kodak acquired the assets of Applied Science Fiction for $50 million – most being the rights to its intellectual property, including its patent portfolio. Venture capitalists and other investors also rely on the ability of funding candidates to protect their business and dominate their market segment through a robust patent portfolio. Patents you cannot use to dominate a market can produce revenue that goes straight to the bottom line (less management and enforcement expenses) with an aggressive licensing campaign. You can generate this revenue without adding a large sales force or new R&D and development costs because the investment in research and development has already been made. IBM generates over a billion dollars per year in revenue from intellectual property licensing and transfers. Medical equipment developer Spire Corp licensed its specialized catheter patent for $5 million, turning a $2.2 million loss into a $2.2 million profit, with estimated future payments of up to $11 million.

Continued in July 2005 Sidebar

WHGC FIRM NEWS

WHGC, P.L.C Shares Latest Information with a Group of In-House Counsel at Science Park in Hsin-Chu, Taiwan

In its continued efforts to share valuable information to lawyers and business executives in China and Taiwan, Newport Beach-based WHGC, P.L.C, PC on March 28, 2005 hosted a half-day seminar at Science Based Industrial Park in Hsin-Chu, Taiwan to an audience consisting of General Counsel from various corporations. Jeffrey C.P. Wang, the firm's founder, presented a seminar entitled "Cutting Edge Developments in U.S. Patent Litigation" which was written by WHG's Jeffrey C.P. Wang, Richard Cauley, and Anna Lisa Biason.

"I always look forward to visiting Taiwan and China and to sharing the latest information from the U.S. with our clients and friends," said Wang. Among the topics discussed in "Cutting Edge Developments" were: Overhaul of Law on Claim Construction; New Rules on Electronic Discovery; In-House Counsel: Managing IP Litigation; and Federal Circuit Update. Wang is scheduled to visit China and Taiwan in the latter part of June 2005.

WHGC Recognized BY MAYOR at Fourth Annual American Cancer Society Relay for Life of Newport Beach on May 13-14, 2005

WHGC, P.L.C helped Relay for Life of Newport Beach set a fundraising record last month. For the first time since its inception four years ago, The Newport Beach Relay For Life the six figure barrier by raising $106,700.00 for the American Cancer Society. On May 13-14, 2005, children, students, families, elderly, city officials, businesses and volunteers of Newport Beach gathered for 24 hours on the football field of Newport Harbor High School to run, walk, celebrate and remember all who have been touched by the disease. The community collectively exceeded its goal of raising $100,000, thanks to donations, sponsorships, sales and pre-event and on-site fundraisers. All proceeds will benefit the American Cancer Society's education, advocacy, research and patient services programs.

Relay For Life, the largest community fundraising event in the United States, is a fun-filled overnight event designed to celebrate survivorship and raise money for the American Cancer Society. This year's Relay started with the Opening

Ceremony followed by the Survivor Lap, the first lap of the weekend. During the Opening Ceremony on May 13, Executive Committee Member and Newport Beach Mayor Steven Bromberg thanked all volunteers and sponsors who helped to make the event possible. He recognized representatives of the event's Platinum Sponsors - - Jeffrey C.P. Wang of WHGC, P.L.C, the City of Newport Beach and Homer Bludau, who represented Hoag Hospital.

Later on Friday night, moving Luminaria Ceremony featured a rendition of "Amazing Grace" as the crowd walked around the candle lit stadium and names of those honored were read. Luminaria candles which spelled the words "HOPE" and "CURE" along the football bleachers lit up the night and were visible from city streets. Jim Roberts served as the Master of Ceremonies and provided entertainment on Opening Night.

Event Co-Chair and WHG's own Anna Lisa Biason said, "We are very excited to raise these funds because they will go a long way to supporting ACS programs." The Newport Beach Relay For Life is still taking donations on behalf of The American Cancer Society. Any additional funds raised between now and August 31, 2005 will also count toward the event. For more information about Relay for Life events throughout the year, or, to make a donation visit http://main.acsevents.org/site/TR?pg=entry&fr_id=31474.

ABOUT US

WHGC, P.L.C is one of the fastest-growing intellectual property and business law firms in the Western United States and Asia. With offices in Newport Beach, and Beijing, WHGC, P.L.C not only represents major, publicly-traded and multi-national high technology corporations headquartered in the United States, Taiwan and China but also provides full legal services to individual clientele and small businesses in the United States and overseas.

Unlike most law firms of any size, WHGC, P.L.C does not need to hire outside engineers to handle complex patent cases. We have – in house - the requisite legal and technology experience you would expect to handle the complex intellectual property and technology issues with which your company is presented.

WHGC, P.L.C also differs from other law firms because from its inception, its goal has been to be your bridge to China and Taiwan. We have developed first-hand knowledge and the skills necessary to investigate, prosecute or defend a patent infringement or any other IP case because we are familiar with the general practices observed by businesses that operate in China and Taiwan. Our knowledge of the culture and protocol in China and Taiwan will help you as your company's business expands into these markets. All legal consultations are strictly confidential and attorney-client privileged. Please contact us today.

Disclaimer

The materials appearing in this newsletter are provided for informational use only, and are in no way intended to constitute legal advice or the opinions of this law firm or any of its attorneys. Transmission or receipt of any information from this newsletter does not create an attorney-client relationship, and you should not act or rely upon any information appearing in this newsletter without seeking the advice of an attorney. Moreover, because the law is constantly changing, the materials appearing in this newsletter are not guaranteed to be correct, complete, or up-to-date.

Note also that sending an e-mail to our office does not create an attorney-client relationship, and none will be formed unless there is an expressed agreement between the firm and the client. Thus, we strongly advise against sending confidential or privileged information to us until you can establish such a relationship. Furthermore, we advise against sending privileged or confidential information through e-mail at all, since we can in no way ensure the security of your e-mail.

Some jurisdictions would consider the materials appearing in this newsletter to constitute advertising. The decision to hire a lawyer should not be based on the written information appearing in this newsletter about the qualifications and experience of this firm and its members.

WHGC, P.L.C, PC has sought to comply with all legal and ethical requirements in creating this newsletter. WHGC, P.L.C, PC in no way seeks to use this newsletter in any way as to represent anyone in a state where this newsletter may fail to comply with the laws and ethical requirements of that state.

Editor — Anna Lisa Biason
SIDEBAR Copyright © 2005 WHGC, P.L.C, PC
1301 Dove Street, Suite 1050, Newport Beach, CA 92660 T 949.833.8483 F 949.833.2281 W www.whglawfirm.com