What an IP coordinator should know: Are we getting value for money?

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As part of our ongoing series examining the ecosystem necessary to bring technology to market, David French, a senior Canadian patent attorney with 35 years of experience, provides a further commentary on the importance to a company of protecting its intellectual property.

By David French

In previous posts, we have addressed procedural issues relating to patents. In this post, we wrestle with the fundamental premise: Is it worth what we’re spending in obtaining patents?

“How can we find out whether we’re getting value for all the money that we’re spending on patents within the company?” That was the question that had been posed in my conversation with the chief financial officer of a local business. And it is a question that I’ve heard before. It is a tough question to answer.

Corporations today are spending considerable amounts of money on intellectual property. This includes not only patents but also trademarks and copyrights and, occasionally, industrial designs. All these items should be addressed in the modern high-technology environment. But a difficulty exists, particularly with respect to patents: how to determine whether money invested is money well spent.

There is a story going around that companies should have a large portfolio of patents in order to protect them in case they are sued by a competitor. The theory is that if you are sued, then you will counter-sue, relying on one or more patents in the patent portfolio. But there is a fallacy involved in this scenario.

How is it that the person who’s suing you suddenly qualifies as infringing one of the patents in your portfolio? Clearly if they were infringing something in the portfolio, then you should have previously considered suing them on your own initiative. The truth is, it’s unlikely that when a company takes the initiative to sue another corporation for patent infringement, this company will, all of a sudden, serendipitously, be found to be infringing part of their opponent’s portfolio of patents. This is always a possibility, but it’s a strange scenario, approaching fantasy. Nevertheless, this is one of the grounds used by companies to justify obtaining many patents.

But let us return to the main theme:

“Are we getting value for our investment in patents?”

This is a question that is not asked often enough. It’s a question that certainly hangs in the air when a CFO reviews annual billings from law firms that sometimes are well into five figures.

Patents are costly. One quote that I have heard for preparing a patent application (that is, preparing the specification that is the key part of an application) is that the cost would be between $10,000 to $20,000, possibly more, sometimes less. Processing fees are in addition. So, patenting is an expensive exercise whether it’s being done properly or not.

If a company simply proceeds on the basis that it’s essential to establish an inventory of patents, a “portfolio,” then one day it will find itself carrying the costs of quite a considerable number of patents. Some will be issued, others will still be pending. Virtually all of them will be subject to annual renewal fee payments. Such annual fees cost, initially, on the order of $300-$500 a year per patent, including patent-agency fees. But annual maintenance fees rise over time.

If a portfolio has been accumulated, making the regular decision to pay such annual costs will be complicated by the fact that it would be an expensive exercise to do a regular analysis of each individual patent to determine its worth to the company. It may be cheaper to simply pay renewals than to carry out such an analysis. This reality is a factor that contributes to the accumulation of large patent portfolios. But many properties in the bundle will have little or no commercial value.

If the analysis path were pursued, then some patents may immediately leap out as being important. For example, the founding of the company may have been on the basis of a master patent. But thereafter, further patents will likely be in the nature of optional improvements or potential opportunities that may or may not have matured over time. Even just identifying whether the patented feature of an issued patent is present in the products of a corporation can be a costly exercise. It is because of this reality that it’s often cheaper to simply renew patents and pending applications year after year rather than carry out such re-evaluations. But there is another way.

Ask the hard questions first

The other way is to do the patenting right in the first place. What does “right” mean? We have already addressed this issue in previous postings. In these circumstances, it means understanding and documenting the rationale for each and every patent that is being sought. This procedure will ensure that only relevant patents are pursued in the first place. And it will lay a foundation that will reduce the costs of subsequent re-evaluations years later.

The persons who are best able to evaluate a patent are the inventor and someone from the marketing department. The best time to do such an evaluation is when an invention is initially presented as a candidate for patenting. The next occasion to address such an evaluation is just short of the year after a first patent filing has been made. This is just before the deadline to make final patent filings worldwide, taking advantage of the delay permitted by relying on the “priority year.”

The business potential of an invention may not be known at the beginning of the process. If for no other reason than to provide a roadmap for future evaluations, the business rationale for obtaining any patent should be meticulously recorded at the beginning of the exercise. That way, future evaluators will be better equipped to make a decision to drop an application or a patent. This is not an easy process to initiate or maintain. It requires considerable discipline to do this job properly.

Get marketing involved

Inventors, typically engineers, are not accustomed to providing a business justification for patenting their inventions. As inventors, they have a biased point of view. They think of their concept as a glorious newborn baby with enormous potential. They see the ingenious character of the solution that has been achieved to solve a technical problem. But an ingenious invention does not necessarily give rise to a meaningful patent which is effective in terms of its impact on the marketplace. Someone has to bring reality to this situation.

The marketing department can bring substantial value to the process of evaluating a patentable concept. They can see whether it has appeal to potential customers. If they are a well-organized marketing department, then they will also know whether competitors are already making something that is nearly equivalent, or are likely to do so in the near future. Therefore, expertise drawn from the marketing department has a key role to play in establishing the business case for patenting. Together, a representative of marketing and the inventor should address this issue, and make a detailed record for posterity.

Don’t expect it to be easy

If this type of invention analysis is pursued at the beginning of the exercise, the groundwork will be laid for future evaluations. The challenge is to get the patent started on this basis in the first place. Someone in the organization has to exercise the discipline to do it right. This individual has to know the correct way to evaluate a technical innovation in terms of its business case. It’s not a skill which is readily available. This capacity has to be created within the company. Ensuring that this is done takes initiative and persistence by management. To maximize the prospects that expenditures on patenting are likely to serve the organization’s bottom line will depend upon this expertise being in place and being put to good use.

David French is the principal and CEO of Second Counsel Services, which provides guidance for companies that wish to improve their management of Intellectual Property. For more information visit www.SecondCounsel.com.

David French is available lead a discussion group in Ottawa, a Quality Patenting Forum where people can discuss intellectual property issues relating to business startups. If you are interested in participating, please e-mail David.French@secondcounsel.com.

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