Aligning Patent Portfolios to Match Business Objectives
In 2011, the role of patent portfolio management in intellectual property significantly shifted. This was the year that Nortel sold 6,000 patents valued at $4.5 billion. Then, Google acquired 17,000 patents from Motorola for $12.5 billion. Since then, patent portfolio management has become a significant part of a company’s overall investment strategy. Managing and protecting intellectual property has become increasingly complicated for global companies, which often have huge IP portfolios and operations in multiple jurisdictions with varied IP laws and levels of enforcement. The increase in mergers and acquisitions has made developing strategies to value, protect and/or transfer these assets even more important. At GHB Intellect, we have the experience and the capabilities to cost-effectively support our clients in managing their IP, If you need help with understanding your intellectual property economics, please let us know.
GHB Intellect’s approach is to ensure our clients spend their IP and patent portfolio management funds efficiently. We have deep industry and technology-specific knowledge that allow us to quickly identify opportunities to buy/sell or improve ROI. We perform strategic internal assessments and external IP searches that ensure the patent portfolio management strategy includes a strong focus on individual patents while receiving the full benefit of the aggregation of the portfolio patents.
The Relevance of Patent Portfolio Management in Today’s World
The proper management of a patent portfolio requires close attention to potential risks as well as the potential rewards. An effective patent portfolio management strategy ensures that risks (claim scope, validity, detectability, etc.) are minimized and short-term/long-term economic profits are maximized, while the business strategies of the company are adhered to. Keeping a controlling interest on a large portfolio of patents for a specific technology has also become a common goal for most large companies. This gives them the ability to direct and influence the markets that rely on that technology. If companies can get a lead in their technology IP race, they can dominate the market. It also has the added benefit of optimizing their R&D expenditure.
According to the World Intellectual Property Organization, or WIPO, in 2016, there were 233,000 PCT patent applications, 53,000 MADRID applications, and 19,000 HAGUE applications. Each of these filing systems showed between 7.2 – 13.9% year-over-year increases. Although digital communications and computer technology are the largest sectors for patent applications, patent filings increase across the board. These figures indicate that there are companies are increasingly emphasizing IP protection. Consequently, the need for IP management is also growing very rapidly to match this emphasis on IP development.
Managing Patent Portfolio Size
Although the types of technology included in a patent portfolio are essential, it is also important to manage the overall size of the portfolio based on the corporate goals. The optimal size of a patent portfolio is highly specific to each company.
When developing a patent portfolio strategy, the size of the current portfolio needs to be considered. For example, if a company has only 10 patents, the decision to pursue the patenting of an idea would be much more important than for a company with tens of thousands of patents. As such, small and medium-sized companies usually cannot afford to make a mistake in their IP filing strategy, and our IP management expertise provides them with that assurance. On the other hand, our work with larger firms is mainly focused on portfolio analysis. Our goal is to maintain alignment with their business strategies and innovation goals, while reducing overall IP maintenance cost.
The budget for research and development is usually the first step to identifying a baseline for an ideal patent portfolio size. The average R&D cost for each patent filed by large U.S. firms is generally accepted to be slightly above $1 million. However, the total R&D spend is also important since the smaller a firm is, the higher percentage of total revenue expenditures R&D is likely to use. The average patent filing rate for U.S. companies with less than $100 million in revenue is 12 applications per year, whereas for revenue between $500 million to $1 billion, a patent filing rate of 65 applications per year is prescribed. These are generalized numbers and we strongly recommend having each portfolio examined before selecting a filing rate target.
Consistent Portfolio Management
The management of IP must include a continued, evolving approach that incorporates diversity, scaling, outside market factors and stabilization tactics. Besides R&D spend, diversity and scaling are key factors to consider. Scaling a portfolio to include as many filings as possible in a given subject matter is a time-proven tactic to increase market leadership and reduced risks.
In fact, scaling helps a company to avoid litigation risks since a breadth of patents can be used for supporting counterclaims and providing a barrier to entry.
Diversity can also play a role in risk mitigation. Like financial assets, large patent portfolios should have varied categories of assets that react differently to major shifts or events in the market. For example, most telecom companies are preparing for 5G, but are still filing 4G patents to spread their profit capabilities regardless of infrastructure improvement timelines. Diversity, however, helps only if the scale is correct. For small portfolios, diversity may not provide sufficient cushion against market gyrations. In fact, there is such a thing as too much diversity.
Periodic updates to the portfolio analysis and competitive landscape are required for successful intellectual property management. There are several reasons for this. First and foremost, IP assets can expire. As such, regular re-evaluation of the portfolio’s time value is important. Also, since there are external players in IP, your company must always keep an eye on what patents are being filed by competitors and what risks or new opportunities they create for the current R&D activities. Moreover, as markets shift, the value of certain assets may diminish to the point that their abandonment may be the best course of action, reducing IP maintenance cost.