Setting a strategy for patent annuities
No one wants to lose budget, but if a company has to tighten its belt, everyone within the business should have a good look at their current spending to see what they can do. While IP counsel should of course challenge harsh and potentially damaging cuts to IP protection budgets, an early offer to reduce cost in a reasonable manner may be seen as good leadership.
Step 1: Audit what you own
A budget-cutting exercise may provide the often necessary prompt for an in-depth audit of patent portfolios and annuity payments. Not only may there be opportunities to make some initial cuts without impacting the overall risk picture, but such an exercise will also put IP counsel in a good position when discussing budgets in general. It’s important to know what you own if you are to be able to justify its cost.
Step 2: Track what you currently pay
The annual cost for renewal payments is (or should be) pretty easy to estimate, so it shouldn’t come as an unexpected bill each year. However, portfolios can balloon over time, as it can be easier to add a patent than to cut one. With deadlines pending, it’s natural to play safe and keep a patent alive, unless the decision maker is 100% sure something can be cut.
Some companies set specific budgets for renewals forcing X% of cuts to be made each year. This will lead to tricky decisions; for example: should I cut one old and expensive patent, or two new and less expensive patents? Also consider if you could save money by switching to an alternative provider.
Step 3: Develop an abandonment strategy
Of course, it’s often difficult to be sure that a patent considered non-core today may not prove valuable in the future. Likewise, it can be difficult to put a value on individual patents. Some can be compared to a sleeping guard dog at a warehouse; the warehouse never got burgled, but was that due to the dog?
If you have to make cuts, where should you start? A patent strategy that includes a maintenance/abandonment strategy will definitely help. Patent portfolios typically include groups, or buckets, of patents with differing objectives and some of these buckets will be easier to prune than others. Clearly, those rights that protect and support core innovations should be safeguarded. So too should any that make the business money; for example, through licensing or aftermarket parts protection. Other buckets (for example, non-core protection or non-core markets) may be pruned more vigorously.
Step 4: Set parameters for decision-making
Going through large numbers of renewals each month, quarterly or six-monthly is no fun for in-house counsel or business people. It could trigger a lot of email chains trying to come to a decision, working out if the technology is in use, and so on. Setting some guidelines for review is often beneficial in such instances, and can ensure that the approach is consistent and well-managed. The exact approach will vary by business, but age and cost parameters are often a good place to start; for example:
- everything over 10 years should always be reviewed to see if the technology is still relevant;
- everything under five years should always be reviewed to see if the technology actually made it through testing and is as valuable as was initially thought;
- automatically renew all those patents that are between 5-10 years old.
- automatically renew all patents that cost less than 500 USD (or equivalent currency) to renew.
A combination of age and cost models can also work well.
Step 5: Avoid common pitfalls
When making decisions on which patents not to renew, there are a number of red flags to keep in mind. One particular thing to watch out for is the potential impact of successive years of pruning on the geographical scope of coverage of a portfolio. US patents are up for renewal every four or eight years, whereas in most other countries annuities are paid annually. Let’s say a company is pruning its portfolio back over a period of three years. This provides three opportunities to cut for example a European Patent (EP), but a US patent will come up for consideration once at most and possibly not at all during this cost-cutting cycle. Without due care and attention, the portfolio could easily become skewed towards a US patent heavy portfolio, as the non-US portfolio may get trimmed excessively. Such a scenario is unlikely to represent the best interests of the business.
Other measures to consider
Allowing rights to lapse isn’t the only option when seeking to prune a portfolio, there is also the potential to sell or license unused or unwanted rights. It’s important to note, however, that this is generally a slow process and not something that can normally be done quickly when budget cuts kick in. Nonetheless, IP counsel should consider the possibility of sale or licensing as part of their ongoing patent strategy if it makes sense for that particular business.
Please contact us for additional guidance and advice on managing patent annuities, including how IP technologies and solutions can help to streamline associated portfolio management and data-updating tasks.