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Part 2 of Interview with David Wanetick: The importance of valuing intellectual property in pricing M&A transactions

Jeff Schmidt had the opportunity to interview David Wanetick on the importance of valuing intellectual property in pricing M&A transactions. Valuing patents is an especially complex subject so we have broken our interview into several posts.

Jeff

David sometimes, certainly in academic circles, people will say that patent citations are more important than the patents themselves. What is a patent citation and what is the importance of that in terms of valuation?

David:

You have to have a patent to have some value. So a patent citation can either be backwards, it can be a backwards citation, or it can be a forward citation. Let's say that I'm drafting my patent application. Now, I'm in the process of filing my patent application, and I need to disclose prior art. I need to disclose similar inventions that I know of and so I may do my research and I might say five years ago, Jeff was issued a patent. And it's not the exact same thing I'm doing, but it's similar. And so I'm going to disclose that. So for me, that would be backwards citation, because I'm looking back in years and I found your patent, or it doesn't have to be a patent. It can be a, a scholarly paper that was written.

So in my patent on the face of the patent, on the first pages of the patent, I would cite your patent because it was backward looking, and it was relevant to my invention. Let's say a few years later I get my patent issued and Brian is going to publish a patent in the same space. He would cite my patent if my patent is relevant. Now, for me, that would be a forward citation. It's nice to be able to say that I published my patent last year and already I received 10 forward citations. Let's say different large companies, when they were filing their patents, they cited my patents. What does that tell me? Why could that be valuable? Could be valuable because they usually, the patent citations are positive.

So usually, they do not say my patent is much better and David's patent was lousy because of this, usually they're positive. I can go to the investment community and say, I've received 10 citations from very fine companies, very large companies, so there must be merit in what I'm doing. There must be merit in the technology I'm pursuing. This could be a real thing, because 10 large companies are citing my work and they respect my particular patent because they're citing it. It could also mean that they may be infringing. They may already be active in my space. And if I want to try to determine who might be infringing, I should look at those 10 companies first. So usually, it's a flattering development when a company receives forward citations.

Not always, though, if the citations come from some academics, some graduate students, that's nice that they side in my patent, but they don't have any money. They don't have any muscle to take a license and they're not infringing, they're just academics. They, they're not producing anything. So that's less helpful. There can be self-citations. I can cite my own patent. If I publish a patent next year the newer patent can cite the older patent. And for the older patent, that's a forward citation. So those are not always as promising although in some cases, if you're the market leader, it's understandable that you would cite your own work because you're the best in the field.

Jeff

Patents are registered with governments, correct?

David

Yes.

Jeff

So, if one had a patent and you were a US domicile company, you would register with the appropriate legislative or governance body in the US. But that doesn't mean that your patent is going to be protected in other geographic markets. I assume that the EU has its own separate patent regime, and certainly places like China, India and other countries would as well.

What if a company has a patent, they think it's valuable, what should they do in terms of registrations to give themselves the opportunity to realize the greatest value from that patent?

David

Okay of course you don't always get a patent. You can file a patent application. You file a patent application, you have to first have the idea, the concept. You have to draft the patent, which you have to go to a patent lawyer. It's very, very technical and sort of a weird language that's used in English to draft the patent. It's not so straightforward. And every word matters. There's been litigation dealing with words such as the word “when”, Does “when” mean the first instant or an interaction takes place? Or does it mean as long as that interaction takes place? Every word matters in the patent. So you have to work with a lawyer to draft the patent.

You have to file the patent in the United States. You file that with the United States Patent and Trademark Office. And 18 months later, the application will be published. People can go to Google patents or different sources and read the patent application. And then there's more of what they call prosecution, which is the review process that can take two or three years. So, you don't get your patent issued immediately and the examiner may not issue it. There can be some back and forth, some reviews, rejections, and rebuttals, and you may have to get less than you asked for. You may have to shrink the claims that you're seeking, but you go through the process, you have a, a US patent issued. Yes, that's true, that the patent only covers your activity in the United States.

Join us on another blog as we expose our readers to more about patents and acquisitions involving intellectual property.

About CDI

CDI Global is a leader in middle-market, cross-border transactions. Our international presence, industry expertise, and market command ensure our ability to help you reach your goals. From mergers and acquisitions to divestitures and capital raising, CDI Global excels in developing custom strategies that identify the best opportunities. We guide you through each stage of the transaction process, drawing on our decades of financial prowess to identify pitfalls before they arise to ensure a smooth completion. With more than 40 offices in the major financial centers of over 30 countries we are positioned to maximize the success of cross-border transactions.

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