VOL. XCIV, NO. 247
MOAT TYPE BREAKDOWN
NO ADVICE
Tuesday, December 30, 2025
Legal moat
IP Choke Point Moat
28 companies · 46 segments
A legal moat where a company controls essential intellectual property that others must use to compete. The IP functions as a tollbooth (often via patents, standard-essential patents, copyrights, or proprietary methods) and is enforceable through licensing, injunctions, or credible litigation pressure.
Domain
Legal moat
Advantages
5 strengths
Disadvantages
5 tradeoffs
Coverage
28 companies · 46 segments
Advantages
- Tollbooth economics: licensing can scale with high margins and low incremental cost.
- Forced participation: competitors must license or accept inferior designs, supporting durable cash flows.
- Negotiation leverage: enforcement threat improves pricing and terms (royalty floors, cross-licenses).
- Defensive shield: IP can deter entry and slow fast followers even if they have capital.
- Strategic optionality: IP can be monetized across many markets without building full products.
Disadvantages
- Expiry risk: patents expire; the choke point can weaken as claims fall into the public domain.
- Validity and enforceability risk: patents can be challenged, invalidated, or designed around.
- Regulatory and policy pressure: SEPs often face FRAND constraints, rate setting, and antitrust scrutiny.
- Litigation cost and uncertainty: enforcing IP is expensive and outcomes can vary by jurisdiction.
- Reputation and customer backlash: aggressive enforcement can push customers toward alternatives or standards shifts.
Why it exists
- Technical necessity: the protected invention is required to meet performance, cost, or compatibility requirements.
- Standardization: the IP is embedded in an industry standard (SEPs), forcing implementers to license.
- High R&D and discovery costs: creating the IP required large investment and expertise, limiting replicability.
- Legal enforceability: strong claims, clear ownership, and jurisdictional coverage enable credible enforcement.
- Design-around difficulty: alternatives are inferior, costly, or violate compatibility with the standard.
Where it shows up
- Telecom and connectivity standards (wireless, codecs, networking protocols with SEPs)
- Semiconductor and hardware design (critical process IP, packaging methods, interface IP)
- Software and media (codecs, content protection, DRM, proprietary formats)
- Life sciences (patented compounds, biologics IP, manufacturing process patents)
- Industrial processes and materials (catalysts, formulations, manufacturing techniques)
- Specialized tooling and methods (measurement, lithography-like process stacks, proprietary algorithms where patentable)
Durability drivers
- Depth and breadth of the IP portfolio (multiple overlapping claims, global coverage, continuations)
- Ongoing R&D to refresh the portfolio (new patents before old ones expire)
- Clear chain of title and disciplined licensing program (audits, compliance, consistent enforcement)
- Strong standard positioning (SEPs tied to widely adopted standards with long lifecycles)
- Proven legal track record (successful enforcement outcomes, credible threat)
Common red flags
- Portfolio concentrated in near-expiry patents with weak pipeline replacement
- Repeated validity challenges and patent losses that weaken bargaining power
- Royalties depend on aggressive rates that courts/regulators are unlikely to uphold
- A major standards transition reduces reliance on the IP
- Licensing revenue depends on a few large counterparties with strong negotiating leverage
How to evaluate
Key questions
- Is the IP truly essential, or can competitors design around it with modest cost?
- How long is the remaining life of the most valuable patents, and is the portfolio being refreshed?
- Are royalties constrained by FRAND, rate-setting, or court precedents?
- How strong is enforceability across major jurisdictions and against major implementers?
- Does the company have the capability and willingness to enforce consistently?
Metrics & signals
- Portfolio strength indicators (patent count is not enough; focus on claim breadth, citations, family coverage)
- Revenue concentration by top licensees and renewal/collection track record
- Remaining weighted patent life and pipeline of new filings/grants
- Litigation outcomes and settlement history (injunctions, damages, licensing rates)
- FRAND/antitrust exposure (ongoing disputes, regulator attention, court rulings impacting rates)
- R&D spend and invention output (new standards participation, contributions, filings)
- Gross margin and operating leverage of licensing segment
Examples & patterns
Patterns
- SEP portfolios licensed broadly across an industry with FRAND frameworks
- Process or method patents that are difficult to design around without performance loss
- Copyright or proprietary technology used as a required interoperability layer
- Cross-licensing regimes where the IP owner captures net royalties due to superior portfolio quality
Notes
- The moat is only as strong as enforceability. Essential IP without credible enforcement behaves like optionality, not a tollbooth.
- For SEPs, the key underwriting variables are FRAND rate constraints and the durability of the underlying standard’s adoption.
Examples in the moat database
- Merck & Co., Inc. (MRK)
Pharmaceutical
- Novo Nordisk A/S (NOVOB)
Diabetes care
- Applied Materials, Inc. (AMAT)
Semiconductor Systems
- Gilead Sciences, Inc. (GILD)
HIV
- Pfizer Inc. (PFE)
Primary Care
- Bristol-Myers Squibb Company (BMY)
Eliquis franchise (apixaban)
Curation & Accuracy
This directory blends AI‑assisted discovery with human curation. Entries are reviewed, edited, and organized with the goal of expanding coverage and sharpening quality over time. Your feedback helps steer improvements (because no single human can capture everything all at once).
Details change. Pricing, features, and availability may be incomplete or out of date. Treat listings as a starting point and verify on the provider’s site before making decisions. If you spot an error or a gap, send a quick note and I’ll adjust.