Mekhala Chaubal is a JD candidate at Osgoode Hall Law School, and is currently enrolled in Professor Ikechi Mgbeoji’s Patents class, in Fall 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

The just-concluded international intellectual property conference, presented by the Canadian International Council (CIC) in Ottawa was an opportunity for the leading thinkers of the nation to address some of the most important developments in intellectual property, and to speculate on the current state of Canada’s knowledge economy. Much has been said about the practice of buying up vast amounts of patents, mostly by non-practicing entities (NPEs) or ‘patent trolls,’ and how to either combat or benefit from them. The CIC conference highlighted another speedily emerging issue affecting international intellectual property law: that of patent valuation, or the practice of estimating the value of an invention after a patent has been approved for it.
Robert Pitkhely’s 1997 analysis of the need to measure patent-worth, and his proposal of methods to do so point to the enormous business value that this practice has been known to have had for some time. Over the years, other scholars have critiqued  (see Ted Hagelin, “Valuation of Patent Licenses”) and proposed alternative ways of measurement of patent-value—from a purely macroeconomic perspective, to a hybrid of business principles and mathematical modeling, just to name a couple. What is clear from this article from the Financial Post (FP) however, is that the process is still as complicated as ever, but is becoming the focus of much international attention, with both the EU and WIPO releasing reports on the cruciality of recognizing and managing existing patent-resources effectively, rather than chasing after future acquisitions. Why then, is so much attention being paid to this not-so-new kid on the intellectual property block?

The CIC’s report, “Rights and Rents: Why Canada must harness its intellectual property resources” highlights the fact that Canada’s intellectual property regime is lacking in both measurement and protection resources, leading to a serious ‘brain-drain,’ where large numbers of the country’s patents are being amassed by others, especially the US. It also notes that in the future, a country’s wealth will be told, in part, by its intellectual property, and especially by its patent wealth. This phenomenon is already being called “a new kind of arms race, with patents as the ammo.” The FP article notes that “[b]etween 70% and 80% of any modern corporation [‘s assets] today are in intangibles,” showing that the struggle to successfully pin down patent valuation is ongoing, and that the heightened sense of urgency that corporations and countries are feeling may be justified. While attempts to quantify the value of a patent, and qualitatively assess the potential of its use have been made, there remains no premier measurement criterion as of now.

This ‘war’ around the amassment of patents has led to the concern that a ‘patent bubble’ is being created, where the rapidly increasing demand for robust patent portfolios is leading to corporations paying massive amounts of money for patent-acquisition, all with the view to sue and countersue one another for patent infringement. A recent PWC analysis echoes this concern, and states that this defensive approach is only serving to push the stakes higher in all areas of patent protection— from its initial buying to the related litigation. The fact that companies which have typically partnered with each other are now openly competing for patents for the sole purpose of collecting patent-revenue also goes to show that the CIC report’s warning of the importance of the protection of intellectual property assets should not be taken lightly. The extremely expensive auction of Canada’s Nortel Inc.’s assets to non-Canadian companies has created a technology deficit of $4.8 billion in Canada, which is “one of the largest technology debts in the world, according to the World Bank.” The issue here is also that corporations (or nations) without strong patent portfolios are now essentially left without any means to protect themselves from infringement, while having no ‘arsenal’ to countersue with. In the clash of “negative rights” (protection by exclusion) and “network effects” (more use through greater application by a larger number of people) as outlined in this article, it seems that the true purpose of patents— to enable further innovation and development— has conveniently been forgotten. It seems only a matter of time then, before this patent bubble bursts, leaving yet another financial crisis in its wake, much like its dotcom and housing predecessors.

Posted in Commercialization, Competition, Infringement, IP, Patent Practice, Patent Trolls, Patents, Patents Course Topic, WIPO