The Patent Portfolio Theory, coined by Parchomovsky & Wagner of University of Pennsylvania Law School, attempts to reconcile what is known as the “Patent Paradox”; the recent phenomenon of rising patent applications, even as the expected value of each patent decreases. The patent portfolio theory resolves this paradox by arguing that the “whole is greater than the sum of its parts.” When making cost benefit analysis, firms that patent aggressively, like Qualcommn & Samsung, understand that “…the true value of patents lies not in their individual worth, but in their aggregation into a collection of related patents–a patent portfolio.”
Patent Portfolios: Why is the whole greater than the sum of its parts?
Parchomovsky & Wagner claim the key advantages of patent portfolios over individual patents are scale and diversity. In regards to scale, a large body of closely related, yet distinct, patents acts as a “super-patent,” conveying rights of exclusion broader than the aggregate of individual patents would convey. Increasing the scale of a patent portfolio has advantages which are “more than merely additive” such as: easing in-house innovation, attracting related external innovations, avoiding costly litigation, improving bargaining position, enhancing efforts to attract capital, and increasing the firm’s political voice. Alternatively, similar to stock options, a diverse patent portfolio allows firms to hedge against the uncertainties regarding a product, future market conditions, future competitors, and possible changes in the Patent Law.
Crafting Patent Portfolios is a Sophisticated Task
The goals of diversity and scale, however, are in tension. Increasing the scale of patents without the goal of diversity in mind would result in an abundance of closely related patents without broad coverage. On the other hand, a “maximally diverse patent portfolio” would not see the synergistic benefits from scale, because gaps in subject matter would provide a “swiss cheese effect” in coverage. That is why Parchomovsky & Wagner observed that:
…the tension between scale and diversity–suggests that effective patent portfolios will be carefully crafted affairs, where patenting decisions are made in light of these twin goals. This in turn suggests that patent portfolio construction is unquestionably a skill-oriented task, one that some firms will perform better (and perhaps far better) than others. Indeed, the dramatic benefits of well-constructed patent portfolios mean that there is almost certainly a market value in such activities, a fact which is borne out by the recent emergence of firms dedicated to patent portfolio construction.
Intellectual Ventures (IV) is a prime example of how one can benefit from a well-constructed patent portfolio. IV’s patent portfolio of over 30,000 patents has generated the company over 1 billion dollars through individual licensing and equity investment deals well over $100 million each with companies like Verizon, Intuit and Cisco. 
What Patent Portfolio Theory Means for Companies
Patent Portfolio Theory gives companies the most promising answer to the Patent Paradox. Rather than the belief that patent monetization is primarily based on luck (e.g. the “Lottery Theory”), the Patent Portfolio theory showcases how companies can control the destiny and value of their patent portfolios. The Patent Portfolio theory suggests that many roadblocks to successful patent portfolios can be avoided through patent due diligence and landscape analysis.
A well-executed patent landscape evaluation can identify potential barriers such as the “concentration of patent thickets, pertinent known and unknown distribution of patent ownership which could stymie licensing negotiations…, pending and issued patents on similar inventions… and repeated citation by others of potential unlicensed competitor patents as signs of their licensing potential.” In the patent environment where one firm may have tens of thousands of patents, hundreds of competitors, and thousands of ever changing products, due diligence in creating a patent portfolios can be immensely difficult. That is why firms are now seeking the winning edge of specialized patent consulting.
 Colleen V. Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System, 62 Hastings L.J. 297, 329-30 (2010)
 Nanobiotechnology, Synthetic Biology, and Rnai: Patent Portfolios for Maximal Near-Term Commercialization and Commons for Maximal Long-Term Medical Gain, 13 Marq. Intell. Prop. L. Rev. 123, 175-76 (2009).