The Profitable and Low-Risk Approach to Patent Portfolio Pruning
The very idea of a patent portfolio that needs pruning is offensive to some—isn’t it wasteful to grow something so large that you need to regularly shear huge chunks off it? Not necessarily.
Business realities mean that allowing a patent portfolio to become overgrown—and then pruning it—might just be the most competitively advantageous approach to patent portfolio management.
As Marian Underweiser, Senior IP Counsel at IBM, explains in this IAM Magazine article, “In our industry, individual inventions may have different lifecycles – in other words, they may be immediately valuable or have delayed implementation, and they may be used for a long time in the industry or only a short time.”
She adds, “The laws governing the procurement of patents force inventors to file promptly when an invention is created, especially under the America Invents Act. Inventors really need to file promptly—likely before they know the true commercial value of the invention.”
This reality shapes how companies file and maintain patents.
Marian and her colleague, Manny Schecter, were interviewed because IBM is high on a list of companies that intensively grow and then prune their patent portfolios.
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IBMs approach may not be perfect, but the alternative seems more costly.
One need look no further than Xerox's failure to patent it's invention of the graphical user interface (GUI). At the time, Xerox didn't see the GUI as integral to its core business—and the company's patent strategy had lost rigour.
Xerox ended up missing out on an estimated $500+ million in royalties, from sales of Macintosh and Windows OS computers (which had the GUI as a core technology).
Former Xerox CEO, Paul Allaire, commented, "If we had been really good, we could have [patented it]. We probably should have."
Patent-intensive organisations file aggressively because having tasted (or missed out on) the nectar of fully budded IP assets, they become intent on seizing every new opportunity.
However, not all flowers produce nectar.
So, the skill of deciding which IP assets to nurture and which to prune becomes necessary. As a corollary, the skill of avoiding pruning IP assets which will eventually yield nectar (but are yet to do so) becomes equally vital.
In this article, I will discuss:
- The top patent-filing fields and companies (and why they’re so patent intensive)
- Simple metrics and frameworks for assessing the health of a patent portfolio
- A tool that increases the effectiveness and speed of your portfolio pruning process
Top PCT patent filers (industries and companies)
Research by the World Intellectual Property Organisation (WIPO), released March 2017, shows the top five fields of technology by number of published patent applications:
- Digital communication
- Computer technology
- Electrical machinery
- Medical technology
The same piece of research includes Huawei, HP, Sony, Samsung, LG and Mitsubishi on its list of top 10 PCT applicants.
These are all companies with mature innovation and IP functions. This lends credence to the idea that the more well-equipped a company is to patent its inventions, the more likely it is to do so.
Not just because the company is capable—but also because it takes huge resources to build and maintain an IP function. Therefore, such a company is more likely to seek opportunities for earning a return on its investment in those resources.
As Marian Underweiser explains in the IAM article I cited earlier:
“Because of the uncertainty regarding how marketplaces will develop, multiple applications increase the likelihood of receipt of patents of significant value. And as noted above, an invention may have a short lifetime in which case it may be valuable immediately after issuance, but it may nevertheless make sense to abandon it later.”
She goes on to discuss the importance of value saying, “We review the value of our patents throughout their lifecycle. Keep in mind that given the significant costs to maintain patents, especially as they get farther from issuance, it should be expected that patents that have not proven to be commercially valuable will be abandoned.”
In other words, if I pay for something, I don’t simply want to own it—I want it to provide the value for which it was purchased.
Considering patent filing and renewal costs can go into the tens of millions of dollars, the question of value cannot be overlooked.
This is where the idea of “patent portfolio pruning” or “patent portfolio management” becomes attractive—you don’t want to keep paying for assets that deliver no value… but do want to free up resources for investment in assets that support commercial growth.
To do this effectively, we need to identify meaningful metrics and acquire tools to measure ourselves against those metrics.
Metrics to support patent portfolio pruning
Duncan Clark, Head of Product Marketing at PatSnap, has drawn on his extensive experience as an analyst and created the “4 V’s of innovation” (based on the 4 V’s of big data, by none other than IBM). He describes this as a simple (though not all-encompassing) way of assessing the health of a large patent portfolio.
The 4 V’s are:
- Volume—the total number of patents filed by an organisation (over a defined period)
- Velocity—the frequency and regularity with which patents are filed by an organisation
- Variety—the diversity in technological fields covered by the patented technologies
- Value—the business advantages afforded to an organisation by its patented technologies
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For this discussion, I would like to focus on the last “V”—value.
In the book by Kevin Rivette and David Kline, “Rembrandts in the Attic”, a method for assessing the value of patents is set forth—the Grow-Fix-Sell triage.
The idea of this triage is that you organise your patent portfolio according to two data dimensions:
- Business unit growth (relative to country GDP)
- Product application (over time)
For example, patents tied to high-growth business units and active product lines are worth keeping. But patents which are tied to shrinking business units and have no foreseeable product application should be abandoned.
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IP audit map from "Rembrandts in the Attic", by Rivette and Kline
In between those two extremes is a large grey area containing scenarios that will require more nuanced strategies.
However, the fundamental rationale for assessment remains the same:
Is this patent tied to a business unit or product application that could significantly impact the organisation’s revenue, now or in the predictable future?
This Grow-Fix-Sell strategy could be augmented to account (more specifically) for conditions outside your organisation. For example, you could evaluate the value of a patent by plotting its position on a graph containing these two data dimensions:
- Potential product applications (across industries)
- Number of high-growth industries (relative to country GDP) with potential product applications
You can combine analysis from this graph with insight from the original one by Kline and Rivette, to make informed decisions.
For example, a patent which has product applications across 50 industries, but with 90% of those industries in decline, may not be worth keeping. Such a patent, if it has no ties to a high-growth business unit or existing product line, may be great for licensing opportunities.
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IBM patent sales and out-transfers to companies including Twitter (Source: PatSnap platform)
This article by GreyB illustrates the dangers of not looking at conditions outside one’s organisations when deciding which patents to divest. It uses as an example a patent owned by HP, which may have led to licensing deals with StarKey and Siemens (among others) had it not been pruned.
But before getting to the fancy stuff, many organisations fail at the first hurdle—the ability to see their entire patent portfolio in one place, organised to reflect the value and renewal costs of each patent (or group of patents).
That’s why we’ve launched a portfolio pruning tool that makes these challenges obsolete.
PatSnap Portfolio Pruning Playbook—see your full patent portfolio, organised to reflect the value and renewal cost of each patent
Our new portfolio pruning tool organises your entire patent portfolio in a user-friendly interface, then lets you analyse by:
- Industry (or IPC codes)
- Patent valuation
- Patent expiry date
- Patent renewal due date
- Patent renewal cost
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Once you’re done with your analyses and have selected a list of patents to be pruned, you’ll be able to see your maintenance fee forecast and savings based on your prune list.
This tool compresses into seconds manual labour that would otherwise take days (or even weeks). It’s an excellent starting point for analysing which IP assets to grow and which to prune. You can then export reports or your prune list for further evaluation, based on strategies like the Grow-Fix-Sell triage.
If your patent portfolio were a garden, you’d be using our tool to create the equivalent of the Royal Botanic Gardens—carefully constructed, eye-catching and in impeccable health.
And, as part of our commitment to empowering innovators, we’re offering a free patent portfolio management consultation alongside the launch of our tool.
Claim your free patent portfolio management consultation
From NASA and MIT, to Vodafone and PricewaterhouseCoopers, organisations using PatSnap to maximise the value of their IP assets are leaders in their fields.
For a limited time, we’re offering a free consultation to share strategies which will improve your portfolio pruning process and help increase the ROI of your IP portfolio.
This consultation will be completely confidential and personalised to the needs of your organisation.
If you’re interested, please click below to tell us a bit about your needs and book a slot.