IP strategist: The challenge of misaligned patent portfolios

It is mystifying how few IP departments can articulate the value that their patent portfolio brings to the organisation, or could clearly outline to an incoming CEO the importance of continued investment in its development and maintenance. It is difficult to think of any other area of a business where resources would be deployed, year after year, without an understanding of the appropriate level of investment and the expected return ‒ even if not necessarily expressed in monetary terms.

Yet with the exception of certain industries and companies, patent portfolios are often developed without these fundamental questions being asked. It is therefore unsurprising that most patent portfolios include a significant number of assets that are of no use to the business. There are several reasons why maintaining portfolio alignment is challenging, even with robust portfolio optimisation processes in place. These include macro-level factors such as:

• shifts in the industry structure – new entrants, consolidation or converging technologies;
• corporate developments – mergers, acquisitions and disposals of business units; and
• products being phased in and out at a faster rate than the time it takes to get a patent granted.

At the micro-level, there are changes in the scope of each patent arising from the prosecution process.

A costly corporate problem

From a budget perspective, every patent family that is irrelevant to the business represents a net cost of around $100,000 by the time it gets granted, if filed in a reasonable range of jurisdictions, plus $75,000 if maintained to the end of the patent term. Even presuming that every patent application filed will have some relevance to the business, and hence that all irrelevant patents will become redundant only at some point in their lives, it is clear that without proactive portfolio optimisation, the patent budget will spiral out of control and significant resources – financial, time and human – will be wasted.

Yet the potential cost extends beyond this. A robust patent portfolio holds substantial competitive potential. Broadly speaking, if exercised, the competitive power of a patent portfolio will result in one or more of the following:

• a bigger market share than would otherwise be possible;
• a price and/or time to market advantage; and
• a lower cost base.

These potential benefits – which are the cornerstone of any successful business – can materialise only when the portfolio is aligned to the business strategy.

A misaligned portfolio constitutes a missed opportunity to deliver a competitive advantage and the cost can be enormous. This is perhaps most evident when a company cannot adequately respond to patent challenges by third parties, often resulting in a net royalty outflow. Of course, an aligned portfolio is not enough, in itself, for a company to derive a competitive advantage; but it is a necessary condition.

Further, assets which are of little value to the business are effectively languishing when a proportion of them – admittedly, a small fraction for most portfolios – could be of value to third parties and hence monetised.

Embedding corporate strategy into strategic portfolio management

Many companies have policies and processes to manage their portfolios. Often these are focused on controlling direct costs and their scope is inward looking (eg, jurisdictions, life remaining, citation levels and whether the patents are in use by the company). This approach may result in a portfolio that is seen as adequate in size and within budget. Yet it fails to deliver a competitive advantage potential from the investment into the portfolio and to identify opportunities for value realisation.

What is missing is the link to corporate strategy. Defining the reasons and objectives for having a patent portfolio, and therefore what it needs to look like, requires the integration of corporate strategy into patent portfolio management. This is an iterative process: a deep understanding of the portfolio can also inform corporate strategy, but this requires a proactive and influential IP function with access to senior management.

It is vital to understand internal and external factors. Internally, it is important to consider the medium to long-term corporate and product development plans, not just the current product or services. Externally, it is crucial for the IP team to understand the evolving competitive environment, the industry structure and the supplier and customer dynamics.

With an adequate understanding of these factors, it is possible to evaluate each patent family in the portfolio across four dimensions:

• strategic fit;
• defensive contribution;
• leverage potential; and
• monetisation opportunity.

Scoring the portfolio on this basis will reveal surplus assets to be abandoned or monetised and expose gaps in the portfolio which may require a targeted acquisition process – which is an option that most businesses would consider if faced with a gap in the product portfolio, technology expertise or market reach.

Shaping the portfolio on the basis of these findings on an ongoing basis and in close synchrony with changes in corporate strategy will yield one that is truly aligned with the business strategy and fit for purpose. Such a portfolio will hold the potential to deliver substantial competitive advantage, underpinning the significance and relevance to the organisation of its intellectual property.