Fitness device maker Jawbone was recently featured in a Re/code article announcing that the company had raised $165 million in new funding. The article mentioned another aspect of the Jawbone’s fundraising efforts; the company raised an additional $280 million using its patent portfolio as a significant part of the collateral in a previous arrangement with BlackRock Inc., the largest asset management company in the world.
The BlackRock deal is an example of viewing a patent portfolio as a business asset; BlackRock presumably felt that if Jawbone could not pay back the convertible note, then the patent portfolio might be the most valuable (and possibly only) asset available to enable them to recoup part or all of the loan amount. Regardless of how much value was given to the patent portfolio by BlackRock (because valuing a patent portfolio is a combination of using mathematical models and making certain estimates that are dependent upon how it might be used), the fact that BlackRock was willing to accept it as collateral demonstrates an important aspect of a properly developed patent portfolio.
A patent application represents a way of converting an innovation into a business asset. This asset has value to the business because it can be used in multiple ways to preserve or increase revenue, avoid or lessen risks, and generally provide a company with options it would not have in the absence of a properly constructed patent portfolio. A properly constructed patent portfolio is one that contains assets that have (or can be modified to have) multiple value propositions, some of which benefit the company and some of which may benefit other players in the market.
In some sense, patents enable the value associated with R&D investments to be realized in ways that are not limited to the sale of a product. This can provide an “exit strategy” in the event that the business is not successful, in which case some of the capital invested may be recouped via sale or licensing of the patents. And as demonstrated by Jawbone, capturing the value of innovations in this way can also assist in raising capital during operation of the business, in part because it suggests that new products and services are being developed and with that the possibility of increased market share and new sources of revenue.
The multiple value propositions and potential uses of a properly constructed patent portfolio should provide companies with an incentive to evaluate their products and technology in an effort to identify potential innovations. Business and transactional attorneys should also be aware of these value propositions and are encouraged to seek the advice of a suitable patent attorney (one with both the knowledge and skill set needed to understand the technology, and the ability to craft patent applications having strategic value) when dealing with current or prospective clients.