Patents: an asset or a liability?

“Patents are like lotteries, in which there are a few prizes and a great many blanks,” The Economist newspaper wrote in 1851. The quote aptly describes the uncertainty that exists in relation to the commercial value of patent rights. No doubt patent rights are considered valuable forms of intangible assets and have great commercial value for the businesses that own them.

However, sometimes a patent right might end up being a liability rather than an asset for the owner, particularly when a party invests more in securing and protecting its patent than in recouping financial rewards by commercially exploiting it.

This article will discuss and highlight a few factors that may affect the commercial worth of a patent. Further, it will discuss an evolving jurisprudence which, if accepted and followed worldwide, may further diminish the value of a patented monopoly.

A patent is considered an asset as it allows its owner to exclude competitors from the market for a limited period and earn financial rewards from the patented product. However, the grant of a patent does not always equate to an asset for the owner. Liability can be in the form of costs involved in prosecuting a patent application, which are increasing at a fast pace; the money spent on protecting the patent rights against infringement; and money spent fighting invalidation challenges.

We cannot say much about statutory fees for the grant of patents as they are a part of administrative policy, but the probability of any litigation and costs incurred in such litigation is always considered a liability for a business.

A recent increase in patent litigation in India shows that patent owners and their competitors are ready to fight tooth and nail either to prevent the infringement of patents or to invalidate them. With the increase in litigation, the cost of fighting lawsuits has also increased by leaps and bounds. Therefore, patent owners should evaluate the commercial value of their inventions before seeking a statutory monopoly to ensure that money is not exhausted in pursuing academic inventions.

In India, in order to ensure that patentees are not harassed unnecessarily by vested parties, the Supreme Court of India, in Dr Alloys Wobben Yogesh Mehra (2014), limited the opportunities for a party to seek the revocation of a patent in different forums. The court held that if a party has filed a post-grant opposition then it is not entitled to file a revocation petition or a counterclaim to infringement.

Similarly, a challenger is also barred from pursuing various statutory remedies simultaneously—ie, seeking revocation of a patent by filing a revocation petition as well as a counterclaim to an infringement suit before a high court. The Supreme Court has not only devised a unique technique for reducing the financial liability attached to a patent, by cutting down litigation expenses for a single patent, but also provided a judicial shield to protect a patent by reducing the risk of repeated challenges to its validity on the same ground by any unscrupulous competitor.

"Patent owners should evaluate the commercial value of their inventions before seeking a statutory monopoly."

Another evolving line of jurisprudence may become an additional factor in evaluating the value of a patent. This came from the UK Supreme Court in the case of Virgin Atlantic Airways v Zodiac Seats UK (2013), where the court overruled the earlier UK legal position that a patentee whose patent has been revoked can still claim damages for its earlier infringement.

It was also observed by Lord Neuberger that a defendant can also seek the recovery of damages already paid by relying on the subsequent revocation of the patent. Neuberger’s observation, if followed and accepted as settled law, may provide difficulties for patent owners because they will never be sure whether damages awarded to them for infringement will become a future liability (if their patent is revoked).

Research indicates (according to an article on Forbes) that about 70% to 80% of a company’s market capitalisation comes in the form of intangible assets, which include patents, trademarks, copyright, and other business knowledge and know-how. Patents are now moving from having a legal to a strategic management role and every entity must form a strategy to exploit its patent portfolio to recoup the costs incurred by filing and protecting patent rights.

But one should not be oblivious to the liabilities attached to a patent, such as prosecution costs, costs of infringement actions and invalidity challenges, and any later liabilities arising from claiming damages. A competitor will always try to invalidate a patent but the patent owner is responsible for enforcing its own patents, so if the owner wants to stop another party from infringing the patent it has to do so at a cost.

It is therefore advisable to apply for an invention only if the inventor is confident about its inventiveness, commercial viability and novelty. Simply owning a patent does not mean automatic revenue and therefore an applicant should be confident about the actual industrial applicability of the invention in question.

Patenting too early without actual knowledge of the utility of the invention’s subject matter will result in huge financial implications for an applicant in the future. Therefore, every potential patent owner should ask whether the commercial value of an invention it seeks to protect is more than the financial liability that may be attached to the costs of obtaining a patent and preventing it from unauthorised exploitation. If the answer is “yes”, a careful strategic approach should be adopted towards filing, prosecuting and obtaining a patent in order to ensure that it is ‘strong’.

Overall, an applicant should streamline its evaluation of the invention and aim to achieve clarity on the scope of the patent (therefore avoiding broad, premature and unsupported claims), its utility (with actual data establishing efficacy, etc), and its commercial exploitation. Further, a patentee should always endeavour to take swift and timely steps for the efficient enforcement of its patent rights.

The views expressed in this article are those of the authors and do not necessarily represent the views of, and should not be attributed to, the firm.

Ashutosh Kumar is a senior associate at  Singh & Singh Lall & Sethi. He completed a Master’s degree in intellectual property at University College London, and is now practising mainly in the fields of patent and competition law. He can be contacted at: akumar@indiaip.com

Saurabh Anand is an associate at Singh & Singh Lall & Sethi. He is a life sciences graduate and now focuses on patent litigation and prosecution. He can be contacted at: sanand@indiaip.com