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Wednesday, December 16, 2009
In M&A deals, don't underestimate the power of your patent portfolio
By By David J. Dykeman and Joanna T. Brougher
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With tightening capital markets due to the economic downturn, life science and medical device companies are increasingly exploring mergers and acquisitions as ways to leverage existing intellectual property assets and generate new sources of capital and revenue. A company’s success — both as an acquiring company or as a target — depends, in large part, on the value of its patent portfolio.
The current economic crisis has caused a seismic shift in the types of deals available to companies. As a result, there has been a dramatic decline in the number of initial public offerings and private equity transactions. So far in 2009, only 54 companies have gone public as compared to 215 in 2007 — a 75 percent decrease. Similarly, the number and value of private equity transactions have declined significantly from the frothier days of 2007.
M&A to the rescue
M&A transactions have proven to be more resilient than IPOs and private equity transactions in this challenging economic climate. In fact, there have been 90 M&A transactions involving biotechnology companies so far in 2009 as compared to 84 in 2008. Under the M&A path, companies are motivated by inexpensive equity or assets of distressed or bankrupt companies that have been hit hard by the credit crisis and economic downturn rather than by highly leveraged buyouts. In some cases, intellectual property assets are a primary source of value in deals involving distressed companies. By creating a value-driven patent portfolio, a company can maximize opportunities for potential M&A deals.
In today’s economic climate, a strategic patent portfolio is crucial to a company’s growth and survival, providing numerous business advantages, including helping to secure funding and gaining leverage for collaborations with other companies. A strategic patent portfolio can be used both offensively as a sword, to strike out at competitors, and defensively as a shield, to avoid competitor attacks. Offensively, the sword prevents competitors from 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 portfolio first requires comprehensive patent coverage for your core technology. Companies should file one or a series of patent applications providing the broadest possible patent protection to cover the core technology. A company should consider both current and future business objectives and contemplate ways that competitors may attempt to design around the patents. Accordingly, life science companies should cover all aspects of the core technology by including patent claims directed to compounds, diagnostics, therapeutics, methods of treatment, use, or manufacture, and any other aspects of the invention. As the core technology evolves, incremental improvements should be patented to form a “picket fence” of protection around the core technology. By filing applications to improvements, companies will continue to expand their presence in the marketplace.
Filing international patent applications further strengthens a patent portfolio and expands a company’s presence in the global marketplace. While foreign patent applications can be expensive, filing in strategic countries can be critical to the commercial success of a product. A company should consider filing in specific countries with a large target market for the product, countries where competitor’s manufacturing facilities are located, and countries that export products to other countries through channels of distribution.
Lastly, a company should conduct an IP audit on its patent portfolio to make sure the portfolio is complete, with no holes competitors can design around. The due diligence should include a freedom-to-operate analysis of third-party patents. Patents or patent applications that have expired or have been abandoned should be revived, and unclear title to any of the patents and patent applications should be resolved. By ensuring that its patent portfolio is complete and up-to-date, a company enhances its opportunities for potential M&A deals.
David J. Dykeman is a Boston patent attorney and shareholder in law firm Greenberg Traurig LLP. He can be reached at dykemand@gtlaw.com or 617-310-6009. Joanna T. Brougher is a registered patent attorney at Greenberg Traurig. She can be reached at brougherj@gtlaw.com or 617-310-5224.
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