As the global economy increasingly turns less on physical goods and more on intellectual property (IP), patents have become an efficient and effective way for a company to increase its valuation, especially when preparing for a sale, according to a pair of speakers at the Foundation for Accounting Education’s Business Valuation Conference on May 21. 

Speaking to her audience at the NYSSCPA’s Manhattan offices, Nancy Edwards Cronin, president and managing partner at ipCapital Group Inc., said that turning an idea into an asset, namely a patent, can allow companies to build value more easily than if they had focused on physical property alone. 

“It sounds like common sense, but it’s really not practiced by half the companies that should: With a little forward strategic thinking, you can get a nicely increased valuation just from IP alone,” she said. 

While intellectual property covers a wide variety of areas that include assets such as trade secrets and copyrights, Cohen said that her approach focuses on patents because of the need to build assets quickly, within a 1.5- to 2-year time frame, before a sale. Patents, she said, “can boost something accepted as measurable, and [you] can point to that value as an increase to the balance of the company.” 

She said that many companies do what she called ad hoc invention—the idea bubbles up through the organization as it encounters an unexpected problem. While this method can produce new IP assets, Cronin said that a little bit of intentionality behind the process can create results faster and more consistently. The process of building an IP portfolio involves a lot of intelligence gathering. When working with clients, her own company studies patent literature to see where other companies are already putting their money and attention. 

“This is important because we are aiming to invent where others aren’t,” she said. 

She raised a hypothetical example of a transportation company. This company looked at all kinds of patents having to do with the hardware and software of vehicles, then narrowed the field down to about 2,000 patents for a study. The point, she said, is to identify places where the client could develop new inventions. This analysis would be then combined with further market research, such as analyst reports on the direction of the industry, and then the firm and client would brainstorm some ideas. In this hypothetical example, the client might decide to focus on “infotainment,” specifically, how people can be educated and entertained during rides. Further development then might result in an idea for a product: an on-demand tour guide. 

“If you were taking an Uber somewhere, would you pay a little extra to have an automated tour guide to take you to different places in the city? We did a little market study and found there [were many] people who would be willing to pay if they got a tour with their Uber. So we qualified the market, said this might be white space [space for innovation other companies are not exploiting], you can apply that to a patent,” she said. 

Although the patent application process can sometimes take a long time,, the other speaker, Alonzie N. Etufugh, managing partner at Etufugh Law PLLC, said that there are a number of ways to expedite the process in order to meet the tight time frame required to prepare for a sale. 

One is a prioritized examination program at the U.S. Patent and Trademark Office (PTO) known as Track One. This is the simplest one, he said, as an applicant doesn’t need to conduct a patentability search. Instead, the applicant can just file an application, or apply to have an already pending case moved to this program. The main advantage is that you will get an answer within a year. The main problems, he said, are that there can be additional fees, depending on the size of the filing entity; the program allows only a limited number of claims; and there’s a hard 10,000 cap on the number of applications that can be reviewed in a given year. 

“So if your company intends to use the Track One program, [it] must file ASAP to get in and be one of the 10,000 reviewed in a year,” he said. 

Another way to expedite a patent is through a PTO program called First Action Interview Pilot. Here, the entity would make a request with the PTO before it issues any opinion on whether an invention can be patented, then conduct an interview with the patent examiner following the receipt of a pre-interview communication about the examiner’s prior art search. If there is a rejection, the applicant is simply out of the expedited process. On the one hand, unlike the previous program, there are no fees involved. On the other, there is also no guarantee of a final disposition within a year. 

Etufugh also pointed to a PTO program known as the Patent Prosecution Highway. This program requires that the company have multiple patent applications filed across several countries, and for there to have been a favorable decision on at least one claim. Applying for this program requires the company to prepare a claims correspondence table that matches claims in one jurisdiction with those in another, and to file an information disclosure statement. The advantage is that there’s no fee, no limit on the number of claims that can be in the application, no limit on the number of applications in the program, stronger claims of validity in the examination because the same application has been reviewed in another jurisdiction, and the ability for the applicant to get coverage in multiple jurisdictions. If there is only one application in only one country, however, the program cannot be used. 

Finally, there is the Collaborative Search Pilot, which is very similar to the previous program except it has an eight- to nine-month turnaround time, and it is specific only to those filing patents in the United States and either Japan or Korea. 

Provided that applicants can clear these programs, he said they can expect a patent within 12 to 14 months. In contrast, non-expedited applications can take five or more years. 

Cronin said that companies in general, but especially those looking to increase their valuation, cannot afford to ignore intellectual property as one possible avenue, especially as information becomes more central to the economy. 

“Intangible assets have become increasingly more important to corporations, so it’s something to pay attention to and something that shouldn’t be overlooked in valuing a company and building it out,” she said.