By Joseph Hadzima
Patents are expensive. Patents are granted country by country, meaning there are filing and maintenance fees due in each country where you want to obtain a patent. A 2003 study by the United States General Accounting Office reported that the lifetime cost for a small company to file and maintain a patent in the United States and also in 9 other major industrial countries ranged from US$170,000 to US$340,000 in 2002 Dollars or about $220,000 to $440,000 in 2013 Dollars. And these figures are for small companies, which usually pay half the filing fees for large companies.
Because patents are expensive deciding what to patent, where to patent and what patents to keep are serious financial and strategic business decisions. A “sail on a bicycle” may be a cool invention but is it a valuable patent? It depends. But first, what are the components of patent cost?
U.S. Filing Fees 2014
These are selected U.S. Patent and Trademark Office Fees as of January 1, 2014 for Utility Patents:
A “Small Entity” includes an individual, a non-profit or an organization with 500 or fewer employees. A “Micro Entity” includes a Small Entity that has filed 4 or fewer patent applications, and has gross income that is less than or equal to 3 times the median household income.
These are just the filing and maintenance fees in the U.S. – they do not include attorney or translator fees.
A Million Here, A Million There – Pretty Soon You Are Talking Real Money
One of our clients with approximately 20,000 U.S. patents asked us to calculate what the maintenance costs would be on the portfolio over the next 10 years if they did not file any more patents but paid all required maintenance fees in the countries in which they had patents (assuming no increase in fees). The number? $250 Million = $25 Million per year.
What Are Companies Doing About This?
With these large numbers in mind companies use a variety of techniques to decide whether they should keep a patent in force and pay the required maintenance fees.
First- What Is Your Process For Deciding What to Patent?
For the purpose of this article I will assume that a company has a good process in place for determining what to patent. Unfortunately, this is often not the case even for large companies with resources. Certainly some inventions should come from planned research and development. Thinking up other inventions can be encouraged from your smart scientists and engineers through a variety of incentive programs. These are the two major sources for the “patent funnel” that has to be vetted by the company, usually through the establishment of a Patent Review Committee of from one to many members. Ideally the Patent Review Committee is thinking about protecting (a) current and planned products/services and (b) revenue streams. Well functioning Patent Review Committees also consider whether an invention support strategic business objectives such as limiting a competitor’s expansion room. Well designed and managed invention disclosure programs can elicit new business ideas, but unfortunately in my experience this does not happen as often as it should.
Should We Pay Maintenance Fees?
Assuming the Patent Filing decision process is functioning well the company will start to amass a portfolio of patents or will add to its existing portfolio. In the U.S. patent maintenance fees are due three times during the life of a patent, and may be paid without surcharge at:
- Three to three and a half years after the date of issue;
- Seven to seven and a half years after the date of issue; and
- 11 to 11 ½ years after the date of issue.
Maintenance fees may be paid with a surcharge during the following “grace periods:”
- Three and a half years through the fourth anniversary of the grant of the patent;
- Seven and a half years through the eighth anniversary of the grant of the patent; and
- 11 ½ years and through the 12th anniversary of the grant of the patent.
The Patent Review Committee is usually charged with making patent renewal payment decisions. The decision processes I have seen vary greatly.
Decisions at the 3.5 Year Mark
Some Patent Review Committees don’t review patents at the 3.5 Year decision point on the assumption that a patent this young still has the “merits” that led to the initial decision to file in the first place. A variation on this is to do a “lite review” at this time. This decision not to review or to do a lite review may make sense because the 3.5 year fee is relatively small.
Decisions at 7.5 Years and 11.5 Years (“Later Fee Payments”)
These later maintenance fees are 2x+ to 4x+ larger than the 3.5 year fees. In addition, by 7.5 years the “investment thesis” for filing the patent should have produced evidence of whether the patent is meeting the potential that caused it to be filed in the first place. If the patent is not valuable to the company at this stage then there is money to be saved, so goes the first level analysis.
I have seen a variety of approaches used by Patent Review Committees to assess patents at the Later Fee Payment stage. With so much money on the table I find it odd how incomplete and ad hoc some Patent Review Committees are at this stage.
How Not To Review
One company I encountered gathers a list of patents coming up on the 7.5 year decision one calendar quarter hence – this is a good start. However then they distribute the list to the “committee”, which doesn’t actually meet in person, with a note saying “let me know if any of these should be renewed – you have 30 days”. At least this company has somehow “assigned” the patents to its various business units (which is a topic of another article to be written). They take the “hit list” of patents not to be renewed and send an email to the assigned business unit saying “these will not be renewed unless you say otherwise”. What is wrong with this approach?
Individual Asset Problem. This company’s approach looks at a patent as an individual asset, not as part of a portfolio that was built to support something. The rationale given was that if we determine that this patent is not important we don’t have to worry about the rest of the portfolio until their renewal fees are due. There are several problems with this rationale:
- Foreign Filings. First, it assumes that maintenance fees don’t have to be paid in other jurisdictions – many countries have more frequent renewal fee due dates.
- Business Context. There is no active engagement with business management to consider the current business needs. Patents aren’t like obsolete computers – you don’t need business input to decide to dump obsolete computers. In this company the Patent Review Committee is acting in an administrative manner not in a strategic manner.
- Penny Wise, Pound Foolish. Second, by not renewing a patent that is part of a portfolio without considering the value of the whole portfolio you end up slicing off parts thereby reducing the value of the portfolio.
A Better Way?
Caveat – I assert that what I am about to describe is a better way and I know that because I helped design it – You decide if I am correct in my assertion.
Background: This company (“SmartCo”) has 3,000+ U.S. patents and a well designed and functioning Patent Review Committee consisting of inside patent counsel, technology gurus and business liaison people. SmartCo recognized the need to seek active business input to the initial filing decisions and the subsequent renewal decisions. The problem they had was that it was extremely time consuming to review the renewal patents from a legal and technical viewpoint before discussing them with management. SmartCo also did not have a consistent and evidence-supported analytic approach. It was mostly opinions – experienced and sophisticated opinions to be sure but not easily presented to management.
IPVision Role. Working with SmartCo we designed and tested a process for data collection and review. A database of patents with U.S. renewal fees due one calendar quarter ahead was assembled. The database included basic data from the U.S. Patent and Trademark Office and information pulled from SmartCo’s internal docketing and patent management system. IPVision ran specific patent metrics on the patents in the database.
SmartCo’s Attorneys were provided with a List of Patents to Review consisting of:
- Binder with Patent List and Data
- IPVision Patent Landscape Maps
- Electronic Spreadsheet Format
The data provided to SmartCo’s Attorneys included IPVision Patent Claims Analytics on each patent and patent citation information including the degree that SmartCo’s other patents cited each patent and the degree of citation from SmartCo competitor patents. SmartCo remarked that in addition to the unique analytics provided by IPVision, just the assembling of this external and internal information in one place was a big time saver for the attorneys. Note: We purposely did not provide them with patent family information at this stage.
Each SmartCo Attorney was asked to review each patent provided to him or her and make “keep” (pay the renewal fees) or “prune” (let the patent expire) decisions. The Attorney then met with the business management whose area the patents were in and discussed the recommendations and the business needs in order to come to a final decision.
Unknown to the individual SmartCo Attorneys, IPVision ran patent analytics algorithms along a number of lines and made “keep”, “probable keep”, “probable prune” and “prune” recommendations. We generated 4 separate recommendation sets using different formulae and rule sets. We then compared the manually generated recommendations with the 4 algorithmically generated recommendation sets. Results:
- IPVision recommendations agreed with Manual at least 70% of the time regardless of rule set used
- Where recommendations differed, there were business reasons that were not ascertainable from the raw data
Savings and Benefits
The process implemented at SmartCo resulted in increased efficiency for the SmartCo Attorneys. The IPVision process required less than 15% to 20% of the time Attorneys spent using the Manual Review approach at the same time enabling more robust and strategic discussions with the business unit managers.
Next Time
In the next article I will discuss how creating an efficient and evidence-based process for patent renewal decisions can unlock hidden value in a portfolio and create a more strategic business oriented patent management system.
[This post originally appeared at IPVision.]
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