Why it pays to prune patents
Innovative ideas are the lifeblood of big businesses. But they cost money – the research and development (R&D) behind them is a big expense. Most estimates for leading innovators put R&D spending at five to 10 per cent of turnover. For giant tech companies, that amounts to billions of dollars a year. And then there’s the often-neglected extra cost of filing and renewing patents.
Of course, patents matter. They protect inventions and competitive advantage by warding off potential copiers. Alongside other intangible assets like brands, they can represent up to 80 per cent of a company’s value. And they send a message to the world and to investors: a bulging portfolio of patents equals a creative business at the forefront of innovation.
But does it always? How many of the thousands of patents that big businesses own are genuinely worth ‘maintaining’ by paying the renewal fees? With IP budgets constrained, many companies sit on large patent portfolios, but file very few applications each year to cover new inventions. So, could the money they spend renewing patents without assessing their value be better spent on capturing more exciting new inventions instead?
Sort the indispensable from the irrelevant
The only way to be sure where you stand is to scrutinise your patent portfolio to see which are vital. That’s no simple task. IP teams usually have their hands full already and are understandably risk-averse – what if they give up a patent that later becomes relevant? The default position is a safety-first approach: renew everything.
But this runs the risk of being like that person who holds onto long-unworn clothes because they might come back into fashion. The difference is, while the clothes are only taking up space in the house, the patents are costing large technology companies millions each year to renew. We recently calculated that a major aerospace and engineering company’s patents cost them over $2.2 million a year in renewal fees alone.
See what you can save – and earn
With costs always under pressure, savvy companies are realising that a systematic and objective audit of their patents will reveal considerable, and straightforward, savings. Not only does giving up a patent save the immediate renewal fees, but also those to come over the rest of the patent’s life. The company we reviewed stood to save nearly $200,000 a quarter by not renewing just five per cent of its patents. In our experience, companies who review their patents often discover they can abandon 10-20 per cent of them.
An audit might also uncover opportunities to turn costs into income. Patents no longer relevant to one company can still be worth buying or licensing for another. They could also be an alternative to cash for big companies looking to invest in smaller ones by assigning their IP in exchange for an equity stake.
Look for clear culling candidates
So, where do you start in the search for possible culling candidates? You’ll need to approach the task with an understanding of the business’s needs, as well as the industry and its trends. You’ll also need a good grasp of technical specialisms and a knack for managing stakeholders. That said, the most obvious pruning possibilities shouldn’t be hard to find. Patents have clearly outlived their usefulness for the company if:
- the technology is off the pace
If the next generation has superseded the essence of your idea, is it still worth defending?
- the business doesn’t operate in the same sectors or markets anymore
If you’ve stopped making toasters, why defend your toaster designs? Or if you’ve stopped exporting them to Japan, why defend them there?
- competitors are unlikely to infringe now or in the future
If patents lose their defensive strength as a deterrent against competitors asserting their own patents, why maintain them?
- they’re impossible to enforce
Even if you suspect a machine in a competitor’s factory infringes your patent, you’ll never get access to their plant to prove it.
- mergers and acquisitions have created duplication
Your growing empire is spending money on multiple patents that cover the same inventions.
- rules have changed
What made a patent valid originally doesn’t apply anymore, and all your competitors know it.
Dig deeper with data
Reviewing a whole portfolio with tens of thousands of patents would be difficult. But segmenting the portfolio will help make sense of it and let you focus your effort. So will filtering it with analytics to find the best candidates for culling. Each company and industry will need its own filtering rules, focusing on factors like:
- the oldest patents
- the biggest families
- the highest number of markets – do you need to keep renewing in all 20, or will the five leading ones be enough?
- the fewest citations – regular citations from other patent holders saying they’ve built on your concept are a sign that it might still be relevant. When the citations dry up, it could suggest the opposite.
- the longest prosecution time – if it took a lot of legal to-and-fro to get the patent granted, the final concept might be full of compromises and therefore not your best work.
This process should leave you with buckets of patents to potentially abandon, maintain or turn into revenue. This is the time to bring in IP, commercial and technical opinion from around the business to assess how relevant the candidates for culling really are.
Tell the world why
After you’ve pruned your patents, there’s one more essential step – decide how to tell the world about it. Abandoning patents in large numbers could send the wrong signal to markets or competitors if you don’t explain very carefully why you’re doing it. You’ll show that, far from losing your edge and creative zing, you’re using resources wisely to re-energise the ideas machine.