Five IP questions for investors in tech ventures

Intellectual property is a prime asset for investors in tech ventures, but few realize how vulnerable it is to attack as growth starts to happen. So explore these five questions first with potential targets, says Mathias Karlhuber at Cohausz & Florack

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Mathias Karlhuber

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Investors in tech ventures are well aware that their returns largely depend on a target’s portfolio of IP. However, they sometimes fail to appreciate that it may not necessarily protect them against IP-related attacks by direct competitors, let alone by non-practising entities (NPEs) or trolls, particularly once growth starts to happen and visibility in the market rises. If a target’s portfolio is only mapped onto its own products and services, it typically falls too short in covering the IP risks. When a product infringes someone else’s rights, it can jeopardize an entire investment. So it’s worth exploring these five questions upfront.

Explore what is out there Irrespective of attack scenarios, a prerequisite for assessing IP risks is to know what rights exist and what threat they pose. Ideally, a target will already have set up a search process and profile, typically as a continuous monitoring of risks, assessing new hits for their relevance. As an investor, ask for this profile and use it as a starting point for your own analysis. Explore resilience Evaluate a target’s resilience to attack by checking how attractive its portfolio is to competitors. Those with value will make them think twice and make them more willing to negotiate. A portfolio's relevance to its own products matters less than its relevance to its competitors. So make sure portfolios are defined with these defensive qualities in mind. Explore risk mitigation Some targets will adopt a more active approach to managing the risks from competitors by challenging patents either before or after they are granted. In some technologies, oppositions after grant are routine. However, the only way to challenge trolls, who have no interest in counter-claims, is to nullify their patents. Whether a target is ready for such a step tells you a lot about the sophistication of their IP strategy. Explore licensing Risks may already be managed through licensing. Explore whether these agreements were entered into willingly or in response to a challenge. It makes sense if as much early clarity has been gained as possible, particularly in relation to patent pools. Explore litigiousness Certain markets or technologies are far more prone to IP litigation than others. As an investor, you want to be clear about the reaction that your involvement might trigger. So check what previous disputes the target has had and check the statistical trends in their field of operation. Trolls are more likely to take early action. Competitors have more interest in letting you build up the market first. • The full version of ‘IP Risks for Investors’, an article by Mathias Karlhuber at Cohausz & Florack appears in ‘Winning with IP: Managing intellectual property today’, third edition, Novaro Publishing, October 2022.  See here for details.