A lack of time and resources often undermines the value of small and medium enterprise ('SME') and individual inventor owned patents. By placing attention and energy on their intellectual property as they do on product development, companies can dramatically increase the value derived from their IP and greatly enhance their overall success.

Successful patent licensing transactions provide 'win-win' outcomes for both the licensor and the licensee; that is, both negotiating parties realize a benefit under the consummated transaction. However, defining mutually agreeable terms and royalty structures can present challenges for licensors and licensees alike, particularly when the commercial potential for the patents under consideration is unproven or unknown at the time of the negotiation. The dilemma of successfully pricing early stage technology is further exacerbated when one or both of the negotiating parties are resource constrained or lack experience in the relevant market. The authors propose that the application of derivative provisions, such as those commonly found in the financial markets, to patent license agreements may mitigate licensing risk and provide attractive alternatives to those interested in altering the inherent tradeoffs of traditional licensing structures.

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The recent <i>CSIRO v. Buffalo Technology, Inc.</i> case just might have been the trump card for which a traditional patent troll was waiting so that it could finally visit the promised land of a permanent injunction. 2007 U.S. Dist. LEXIS 43832 (E.D. Tex. Jun. 15, 2007). Unfortunately for the trolls, however, the impact of this opinion will not be as far reaching and applicable to their business model as they might hope.

The commercial value of a patent derives from the fact that it confers upon its owner a legally enforceable exclusionary right, <i>i.e.,</i> the right to exclude others from operating within the product or process space defined by the patent claims. A patent that current and prospective infringers know will never be asserted against them has zero economic value. Thus, a patent implicitly carries with it the potentiality, <i>i.e.,</i> the threat, of assertion, and the value of the patent ultimately reflects the collective commercial risk that potential infringement litigation targets assign to that threat. On the other hand, patent assertion as a monetization model implies something more. Typically, the assertion entity has no other business and thus is not vulnerable to counterclaims for infringement of its targets' patents. It says to the target, 'We have a patent that covers what you are doing. Pay us a royalty or we will sue you.' The assertion model is essentially a zero-sum game, and the pejorative moniker 'patent trolls' has come into vogue as a way to describe those who exploit this model, although there is considerable controversy surrounding what attributes distinguish a troll from a legitimate patent enforcer. The value proposition for the troll's target is either to pay for a nonexclusive license (or covenant not to sue), or to contest infringement and/or validity of the patent in court and risk a damages award in the form of a reasonable royalty (which may be trebled for willful infringement) &mdash; or worse, the possibility of an injunction.

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A recent case of interest.