CREATING HIGH-VALUE PATENT PORTFOLIOS
A Strong Patent Portfolio Can Minimize Litigation Risk
A patent portfolio can be used both offensively, as a "sword" to strike competitors, and defensively, as a "shield" to avoid
competitor attacks. Offensively, the sword prevents competitors from infringing (making, using, or selling) the invention.
Defensively, the shield serves as a bargaining chip against a competitor who threatens to sue for patent infringement of one
of the competitor's patents.
Developing a strong patent portfolio minimizes the risk of an infringement claim.4 Yale University Professor Jean Lanjouw has conducted research showing how decisions on a firm's patent portfolio can affect
future litigation. He used litigated patents reported to the USPTO between 1975 and 1991 to explore whether large firms have
a strategic advantage over small firms in patent litigation because they have a large portfolio of patents with licenses that
can be used as bargaining tools.5,6 His analysis of patenting and litigation patterns showed that having a large portfolio of patents reduces the probability
of being involved in a dispute on any patent in the portfolio, although the portfolio effect is larger for smaller companies.
He noted that on average, small firms with 500 or more patents were four times less likely to be involved in patent litigation
than those with 100 patents. Apparently, if a venture firm has more complete protection for its technology (reflected in a
larger number of patents covering the technology and its variations), it can potentially avoid costly lawsuits with competitors.7 A report published in 2003 by the Organization for Economic Cooperation and Development (OECD) reached essentially the same
conclusion. According to the report, developing a strong patent portfolio minimizes the risk of an infringement claim. Patent
litigation risk is much higher for patents owned by individuals and firms with small patent portfolios. Patentees with large
portfolios of patents to trade, or other characteristics that facilitate "cooperative" resolution of disputes, are much less
likely to prosecute infringement suits.8
Formulating a Value Chain for Each Patent Portfolio
In the biotech industry, a strong portfolio contains patents along the entire value chain. To the fullest extent possible,
an enterprise should seek patents that not only cover its products, but that protect against what others in the market are
likely to do. By having both marketing and technical personnel periodically review competitors' products and marketing literature,
an enterprise can endeavor to patent innovations that may not necessarily be technological breakthroughs.9
A strong patent portfolio may discourage others from bringing suit. For example, companies might be reluctant to sue Affymetrix,
which obtained a record 37 patents in 2006 alone. And if a competitor does threaten suit, a strong patent portfolio can allow
an enterprise to negotiate a cross-license rather than pay for technology it might have developed itself.
Affymetrix has established a strong patent portfolio consisting of eight families of issued patents and pending applications.
These patents cover its core technologies, including DNA and protein arrays, scanner and detector technology, and microfluidics,
as well as a broadened portfolio of patents related to the use of beads to measure nucleic acids or peptide binding for genomic
analysis (Table 2). In January 1998, Affymetrix filed litigation against Incyte over the issues of high-density arrays and
two-color labeling in US patent numbers 5445934, 5744305, and 5800992. In October 1999, a court ruled in Affymetrix's favor.
It is important to note that this case involved only three patents in the Affymetrix patent portfolio, which includes more
than 130 issued and more than 300 pending US patents. According to Phil McGarrigle, Affymetrix's chief intellectual-property
counsel, "We try to cover the array area from start to finish."10
Table 2. Affymetrix patent portfolio (as of April 2007)
Affymetrix's example demonstrates how a strong patent position not only is an important goal for a successful biotechnology
business, but also the primary asset by which an enterprise will be valued during all stages of its development.