Align your patent portfolio with your business objectives.
Portfolio management means many things to different people. At Intellectual Assets, Inc. we look at portfolio management as a means to determine the maximum value each patent can bring to a corporation. A typical unmanaged patent portfolio has the following categories:
Knowing quickly which patents fall into which “buckets” is the key to good portfolio management. This is done by determining the business uses of each patent and the value to the corporation of having those business uses secured.
In the IAM design portion of this website, we outlined the five business uses of intellectual property. Some patents are used to assure freedom to operate. Other patents have value in excluding competition from copying advantaged products and services. Still other patents are valuable for the additional revenues they bring by out-Licensing the technology to others. Finally, other patents are useful in influencing development partners, standards bodies and government regulators.
A single patent may have value for only one of the five business uses, but more typically they have value in multiple areas. These multiple uses make single valuation schemes difficult to employ. Such schemes that assign a single score, rating, or strength to a patent do not reflect the corporation’s full business need and value of the intellectual property. It is this complexity that makes portfolio management a difficult exercise without software support and the guidance of someone who has been through it before.
To circumvent the shortcomings of single value valuation schemes, IAI uses a method that takes into account the five different business uses of patents. To be most efficient and effective in portfolio management, IAI uses a two-phase, multiple stage process. This multistep, multiple viewpoint process ensures that no patent is unnecessarily maintained, licensed or discarded. The process outline is as follows:
Segment the overall portfolio into groups appropriate for using best practices in intellectual asset management:
Further segment into sub-segments for fast, high-quality decisions:
The primary purpose of patents obtained and held by for-profit corporations is to ensure a sustained advantaged position for the products and services they offer in the marketplace. Honorable competitors scan one another’s patent and published applications looking for new opportunities to exploit themselves in a way that does not violate the IP rights of others.
In a company’s existing patent portfolio, core technology portfolio(s) are kept for their ability to exclude others from introducing similar products that would erode their hard-won advantaged commercial position in the marketplace. Typically, these portfolios are being continuously re-energized with new generations of technology and incremental improvements.
Each identified core technology portfolio is evaluated according to the benchmarked management practice metrics appropriate for that core technology’s IP game type. These metrics have been developed, published and validated in hundreds of client and public studies.
Areas in which each core technology portfolio surpasses the benchmark of all entities participating in the core technology area or falls short are identified. Actions to fill the gaps identified by this process are incorporated into the appropriate internal R&D or external licensing-in groups’ strategic and tactical plans.
Knowing the areas in which each core technology portfolio surpasses the benchmark of all entities participating in the core technology area or falls short allows for solid IAM planning.
Sometimes, however, if a company has been lax in its strategic planning, or underinvested in R&D or licensing-in activities, it finds itself too short of resources to catch up quickly. In these cases, it is important to focus on the value chain of the company as and assess gaps vis-à-vis entities in the immediate commercial environment first.
IAI runs evaluations on competitors at the same step in the value chain as well as entities who are suppliers and customers of that value chain’s products and services. As competitors are typically looking for share gains, suppliers for exclusive sales revenues, and customers for price concessions, a company can assess which group to target first with its R&D and IP plans depending upon the company’s own sales, purchasing, and branding strengths. IAI is careful to ensure an Integrated IAM plan incorporates all these points-of-view into its recommendations.
Not every business environment is filled with honorable competitors. There are times when a company despite its best efforts is faced with a lawsuit. In such a situation, IAI recommends a negotiated settlement to the dispute.
It is important for a company to understand and plan for the possible time and expense of key personnel to address patent prosecution (such as opposition) and litigation events. As this environment surrounding a company’s core and supporting technology portfolios is continuously changing, IAI recommends quarterly assessments to keep abreast of such activities and the participants engaged in them.
When specific threats are found, IAI is effective in preparation for FTO counter-suit negotiations as well, using the techniques for in-licensing negotiations. The core and supporting technology portfolios are so evaluated for such a purpose, and high-value art (when viewed in this light) is kept in the company’s portfolio as a reserve for this potential purpose.
Many companies are interested in obtaining additional revenues from their patent portfolios by licensing-out their art to others. IAI has found that a critical stumbling block to these activities is that internal licensing groups must first obtain permission to license from business unit’s general managers. These GMs are appropriately concerned that licensing-out any technology might reduce the protected advantaged revenue and profit streams they now enjoy.
To alleviate this valid concern, it is typical that only two business use types be subject to licensing-out activities.
Using the technology subdomain segmentation first conducted on the company’s portfolio, those supporting and stranded portfolios are quickly evaluated for probability that the licensing-out activities might produce a positive return to the company. Key overall factors evaluated by IAI are shown. If the portfolio possesses a sufficient number of promising patents by this analysis, a detailed IAI licensing transaction study is performed.
Although newspaper headlines tell a different story, with litigation in the forefront, the fact remains that most IP is created with the idea of keeping competitors out of the market while the inventor or employer builds a business around the inventors’ inventions. For most corporations, patents act as a deterrent against honorable competition, not against patent trolls or non-practicing entities (NPEs). When this is the case, a high value activity when managing the company’s portfolio is to remove or prune art that does not serve this specific business need.
Pruning is important because over time technology that was originally patented as novel and unique slowly matures. As newer features are introduced by R&D or in-licensed by business development, the older patents hold less and less commercial value. A product feature or manufacturing process that the patent protects slowly moves from unique to a commodity. When this happens the need to retain patent protection diminishes. There is no need to pay fees to maintain such dead-weight art.
Assuming that sustaining an advantaged competitive position is the key value patents are bringing to a company, an effective and efficient way to quickly determine which patents in a portfolio that are likely dead-weight and not contributing to a corporation’s profits is the following. IAI takes the small portfolios derived from the first segmentation described above and calculates for each patent or application in this portfolio the following measures. These are shown in the figure and include
Although there are many more measures that can be used to assess value, these measures have been found from working with practitioners worldwide to be among the measures that most quickly determine which patents should likely be abandoned. By rank ordering patents (smallest scores on each measure to largest scores), the art which should be pruned is efficiently identified. The lists are fine-tuned for specific industry segments where it is known from subject matter experts that one measure is more or less relevant than the others.
Patents appearing at the top of the list, those with small families and not cited by other entities, are prime candidates to be pruned or abandoned. The logic is when a company obtains or has a patent that is a valuable asset protecting commercial products or services, the company typically files a patent portfolio in many countries and continues incremental R&D to further build out the technology. This results in many family members and many self-citations and references to other company patents.
When a company chooses not to file patents in other geographies, the family size stays small and there is no follow-on work. These are sometimes called “inventor recognition” patents, where the idea might be good technically but the commercial value of the invention is low. In such a case, the feature that a patent is protecting is not important to consumer purchasing behavior. It can also be that the relative cost of producing such a feature has been improved upon by others and the patent over time no longer protects an advantaged cost position. In either or both of these cases, the patent is not protecting the advantaged product position the company desires. Since no advantaged position is being protected, the commercial value of the asset is nil and to maintain such an asset is not a good business practice. Thus, the patents at the top of this list are the ones to stop payment of maintenance fees.
How far down the list a company should go in considering patents for abandonment often depends upon how diligent a company has been in keeping its patent portfolio current. For portfolios that have never been put through the scrutiny of a patent management process or where the process is not been rigorous for five or more years, companies have traditionally found that up to 20% of their total portfolio can be abandoned. This is hopefully the exception. Most companies are diligent in their patent management and in these cases experience has found that on the order of 5% to 10% of the patents found at the top of the listing are the only ones suitable for pruning.
Once the patents at the top of the list of have been selected for pruning, they should be reviewed for their business use by subject matter experts. Such a review corresponds to the columns shown in the first Figure above. The reason this step is put off until this point in the process is that now the number of patents to be considered for pruning should be quite small.
The best group of individuals to get together for this final audit is those familiar with the technology, manufacturing, distribution, and sales of the product and service. Personnel often consist of a research fellow or “gatekeeper” from R&D, an engineer from manufacturing, and a representative from business development or marketing. Looking at the patents one by one, it has been found that a group of senior people can determine a patent’s business use in a matter of seconds. IAI has a process where it is not uncommon for teams to agree on business uses at rates of 100 patents per hour. Since the patents are likely of low value it is relatively easy to confirm that the patent cannot be used (1) for barter or trade in a freedom to operate negotiation, (2) to exclude current competitors from an advantaged business position, or (3) for out licensing, cross-licensing or industry/government standards activities.
In mature markets, the degree of commercial advantage that a patent provides is sometimes slight. Even a group of senior managers can be uncertain of their decision. In such cases, it is important that the business development or marketing executive present has the sales revenues and profits for each of the business lines that the patents have been segmented into. If that business line has significant revenues and/or profits, then you can be assured that competitors will be trying to fast-follow the company’s position. In this case, it is better to err on the side of keeping a patent rather than abandoning it. Such Patent/Product/Revenue data is often available in the company’s financial and business databases.
When the audit is completed, fees are no longer paid on the patents selected. For patents that might be helpful in out-licensing, cross-licensing, or other business uses, those assets are passed along to the appropriate licensing or regulatory groups. For art that is supporting profitable high-growth products, it is also key to ensure that R&D and business development groups build out appropriate patent fences and patent families.
Emerging strategic portfolios are developed to protect new ventures’ and existing business’ ability to exclude others, and sometimes to enhance the ability to attract key development partners. In this situation, it is typically too early to knowledgeably assess a patent or embryonic portfolios’ value to the company. Such patents are best quantitatively evaluated on their fit with strategic technology readiness or embryonic business venture plans. They are also qualitatively evaluated by thoughtful assessment of their likely business use and IP role. By putting invention disclosures, patent applications and granted patents on a complete company’s IAM grid, over- or under-weighting of patent investments can be visualized.
As strategic plans turn into capital expenditure requests and operations plans, the embryonic portfolios can then be assessed by the best-practice methods described above.
In this section on portfolio management, the primary use of patents was assumed to be their role in sustaining an advantaged competitive position. In some industries, this is not the case for companies whose business model is specifically out-licensing, or when a company needs a large and active patent portfolio to influence regulatory or industry standards bodies, the need for patents to do so is different than described above.
Knowing the priority of the five business uses of intellectual property for each industry segment is important in selecting the right portfolio pruning criteria. Guidelines for the best patent family and portfolio criteria vis-a-vis industry segment can be found in the intellectual property game matrix developed by Intellectual Assets, Inc. This high level view is a good starting point in understanding which industries can best use the portfolio management techniques described above.
As mentioned before, a single patent may have value for only one of the five business uses, but more typically they have value in multiple areas. It is this complexity that makes portfolio management an exercise best done with extensive software support and professional guidance.
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