Patent quality: implementation insights for the C-suite
Poor patent quality undermines a corporation or start-up’s investment in innovation and leaves it vulnerable to assault by sophisticated competitors and non-practising entities (NPEs), which can block a key product launch or demand large infringement awards. Patent quality has a dramatic impact on the success of small firms, as the issue of patent strength is quickly raised by potential investors. Should they succeed in launching a new product or service, their patents will be tested by new entrants eager to exploit their success and design around existing patents. In addition, a potential acquirer will conduct thorough IP due diligence to ensure that the target has strong intellectual property that will support freedom to operate and block competitors from moving into the space.
High-quality patents should meet key functional requirements: they should protect a corporation’s investment in innovation by covering key technologies and new products; provide a means for blocking competitors; confer insurance against opportunistic attacks by NPEs and new entrants; and align IP strategy with business strategy.
Despite the importance of patent quality, only a small minority of firms take the steps necessary to achieve this goal. Many firms are tripped up by false perceptions and institutional factors that contribute to low patent quality; indeed, a divergence has emerged between actual patent quality and patent quality goals.
The following insights derive from over 30 years’ first-hand experience, including invalidity searches against patents involved in litigation, thousands of freedom to practise searches and accelerated examinations and due diligence supporting potential purchasers seeking to assess the IP strength of acquisition targets. The analysis is based on work conducted closely with innovative start-ups and major players in the software, semiconductor, telecoms, biotechnology and medical devices industries.
Institutional factors undermining patent quality
Poor patent quality reflects the institutional factors outlined below.
Quantity over quality
Many firms emphasise quantity over quality, with a typical target being a 10% to 15% increase in patent filings over the previous year. It is easy to measure the number of patents filed and use this metric to demonstrate to senior management that the firm is innovative and gaining on competitors.
Patent filing quotas are easily achieved when quality is ignored with no or limited prior art searching. Operating in a vacuum, everything seems innovative.
Reliance on misleading metrics of patent quality
Understanding patent quality requires effort. The flawed perception that patent quality can be measured using a simple metric such as citation analysis and its variants is tantalising. While citation analysis is frequently used and easy to implement, there is no evidence that patent quality is correlated with the number of citations. While breakthrough patents are often cited, studies have also shown that highly cited patents are often of poor quality, while high-value assets may have few citations.
Ignorance is bliss
Many firms operate under the credo that ‘ignorance is bliss’. When filing patents, they select minimal prior art coverage (typically four to eight hours), knowing that this approach fails to uncover much of the relevant prior art. The ‘ignorance is bliss’ model allows firms and their promoters to claim that they have a unique technology and no competition and avoid the thorny issue posed by prior art. Unfortunately, prior art cannot be ignored.
Race to the bottom
Over the last six years, overall patent quality has remained low as the focus on cost at the expense of quality has driven a race to the bottom. Increasingly, companies opt for minimal search coverage at a time when the body of prior art that should be reviewed has expanded to include US, EU, Japanese, Korean and Chinese sources.
Patent quality literature
In order to assess and enhance patent quality, it is essential that it can be accurately measured. A review of the literature germane to measuring patent quality finds diverging perspectives or reliance on factors such as future litigation, which will not be known for years. For instance, John Allison found that litigated patents are more valuable, while a Mariagrazia Squicciarini study of European Patent Office (EPO) patents filed from 1978 to 2012 identified 12 possible measures of patent quality, including citations to non-patent literature, grant lag, patent renewal and proxy measures for originality and radicalness. Citation frequency was linked to the value of patented inventions by Dietmar Haroff; conversely, a more recent study by Jean Lanjouw and Mark Schankerman found that citation alone is not a good measure of quality, and that the four important indicators of patent quality are forward citation, backward citation, number of claims and family size.
One weakness with the patent quality literature is that it is dominated by economists and academics who often lack an understanding of intellectual property and rely on regression analysis or similar techniques to identify factors behind patent quality. In contrast, IP professionals tend to think in terms of strong claims and the ability to withstand a prior art challenge – critical factors missing in the analysis by economists. While IP experts are under-represented in the literature (most likely due to the pressing needs of clients), there are several references that warrant comment.
In True Patent Value, Larry M Goldstein provides an excellent overview of ‘good patents’ and ‘seminal patents’ and the critical importance of ‘validity’ and ‘claim scope’. The importance of patent validity and claim scope is discussed by Bruce Berman (IAM May/June 2015); patent scope and patent claim to product mapping is discussed by Mark Stignani (IAM May/June 2015); while Tao Zhang discusses factors to consider when building a high-quality portfolio, such as the ability to withstand an invalidity challenge, the difficulty of designing around and the creation of key claims that are fully enabled by the specification (IAM November/December 2014).
Understanding patent quality
Senior managers, board members and heads of start-ups need to understand what makes a patent valuable and the process that a potential licensor or acquirer will employ to assess the strength of any patent. Before signing off on expenditures totalling millions for R&D and IP filings, it is imperative to know the potential pitfalls and the process for creating strong IP assets.
Every company operates in a crowded space. Given this reality, the strength of a patent rests on three main factors.
A patent is valid only if the claimed invention is indeed novel. A party asked to license a patent or conducting due diligence in support of an acquisition will usually conduct an invalidity search (ie, for prior art that might invalidate the patent). An invalidity search is significantly broader than a patentability search as described below. Experience suggests that 90% of granted patents can be invalidated by an aggressive and skilled prior art search. During the due diligence process, prior art that could have been uncovered early on and distinguished from by skilled claim drafting frequently emerges as a serious problem.
Broad claim coverage
A patent may be novel, yet have little commercial value if the claims are narrow. A potential licensor will conduct a claim scope analysis to determine whether the patent actually corresponds to its product. Limitations in the file history may also limit the claims.
Coverage of commercially valuable product space
Claim drafting entails great skill and the interaction between an experienced IP attorney (or patent agent) and inventor has a major impact on the value of a patent. A patent that anticipates and covers commercially successful products or enabling technologies can be worth millions, while a patent filed at the same time with poor claim construction can have limited value.
Patentability searching versus invalidity searching
The three common search approaches are the patentability search, accelerated examination search and invalidity or due diligence search. The coverage associated with these three generic search approaches and the associated likelihood of uncovering critical prior art are summarised below.
A patentability search typically entails five to 24 hours’ effort. It provides minimal coverage and is intended to identify ‘low-hanging fruit’. The likelihood of a patentability search uncovering strong prior art relevant to the focus ranges from 5% to 20%, with the variability reflecting the coverage, the searcher’s background and the implementation. Since the prior art uncovered by a patentability search is limited, any resultant patents are vulnerable to an invalidity challenge.
Accelerated examination search
The broader coverage of an accelerated examination search is likely to uncover 25% to 40% of the critical prior art affecting a patent. The accelerated examination search requires five to six days to cover the outlined sources and provide critical input for claim drafting.
A potential acquirer, or someone asked to license a patent, will typically assess the patent’s strength by authorising an invalidity search which extends the coverage associated with an accelerated examination along several fronts. A good invalidity search will uncover 45% to 90% of the relevant prior art, with the variability reflecting the searcher’s background, whether the most relevant sources are reviewed and whether the foreign search covers native language sources rather than English abstracts.
Understanding high-quality patents: the power of visualisation
Assessing patent quality is challenging since most firms operate in a crowded IP space that contains hundreds or thousands of patents. In reality, a patent’s quality cannot be determined in a vacuum, but rather requires analysis within the context of a complex IP landscape. This requires the identification of relevant patents worldwide, followed by detailed analysis of these patents against technical and product features of interest, as well as by effective priority date. Since each patent uses different terminology, the analysis must be carried out by specialists with in-depth knowledge of the relevant technology in order to flag important references using non-standard terminology. A meeting with senior management or the development team at the start facilitates confirmation of the technology and product features of interest and project goals. The analysis then proceeds offline to minimise the demands on management’s time. Such high-quality, customised analysis allows senior management quickly to understand critical trends as well as the ‘white space’ that supports the creation of quality patents.
For this process to work, the IP landscape must be accurate and complete; thus, every relevant patent is uncovered and captured. Simultaneously, every patent on the map must be relevant and patents which use relevant terminology but are outside the focus must be excluded. These rigorous criteria are difficult to achieve with the current generation of computer-generated landscapes. Fortunately, smart technology implemented by skilled analysts exists to create accurate landscapes and the customised analysis that decision makers need.
Figure 1. IP landscape for file system integrity protection systems
Figure 1 illustrates the complexity of an IP landscape. Here, the project’s goal was to identify and assess the IP landscape for file system integrity protection systems. Since the work was carried out in 2005 and resulted in the filing of a number of seminal patents, some high-level findings can be shared. For this project goal, the technology was sub-divided into six components:
- parametric response;
- file change tracking;
- file finder;
- file analysis;
- selective file access; and
- code extraction.
In this crowded space, more than 10,000 US and European patents were reviewed, identifying more than 600 to be categorised in the database. Each patent was analysed using 40-plus attributes key to file integrity protection. From those, 153 highly relevant patents disclosing the most critical attributes were selected for inclusion on the technology timeline.
The map enabled the client quickly to understand the opportunity space and identify options for filing solid patents that were distinguished from the existing art. For example, it became apparent that parametric response for intrusion detection was a less crowed area; the first relevant patent was filed in 1993 by IBM, followed by only four assignees several years later. In contrast, the technology branch “Selective File Access” contained more than 60 relevant patents. In addition, the findings allowed the client to assess various technology and design options, gaining insight into which design ideas were dead ends while narrowing the options for filing strong patents.
The end result was that the insight derived from the map and the database back-end facilitated the filing of six seminal patents, each of which added more than $1 million to the client company’s valuation. In addition, the IP insight enabled the client to guide its product development efforts effectively and capture critical technology and product features that elevated it over competitors.
The map also allowed for communication of the firm’s IP strategy (which was previously quite abstract) to investors, board members and the product development team. This provided a critical high-level view of IP positioning and strategy without requiring senior managers to read individual patents.
Poor patent quality undermines a corporation’s investment in innovation. This outcome reflects two broader problems with IP management. First, many companies operate blindly, with a limited understanding of the IP landscape affecting their business units. As a result, patent decisions are made in a haphazard manner, key opportunities to file strong patents are missed and millions of dollars are devoted to product development efforts blocked by existing intellectual property.
A second major issue is that senior managers lack effective metrics to measure patent quality and monitor improvement. While simplistic measures have gained wide usage, more meaningful patent quality measures are available that allow senior managers and board members to monitor IP and patent quality trends.
Whether a firm is patenting in the correct areas, whether its filings cover critical features and whether a filing imbalance exists are high-level strategic issues. They should be within the purview of senior management and the board. Innovative tools are available that provide an effective means for getting a grip on IP strategy and patent quality, without the need to delve into the underlying patents. Senior managers should make high patent quality a top priority and facilitate the steps to make this happen.
Global Prior Art, Inc
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Bruce Rubinger is managing director and founder of Global Prior Art, a pioneering firm in the field of IP research and analysis with a rich history spanning 30 years. He has led many prior art and due diligence efforts in such fields as cellular technologies, business processes and semiconductors on behalf of joint defence groups and law firms.
This work is complemented by his innovative efforts in IP strategy, which include creating tools for accurately analysing the IP landscape. The GlobalMap is widely used to develop strong IP portfolios. Since 2009 he has been recognised in the IAM Strategy 300 for his pioneering work. Dr Rubinger holds a BSEE, an MSEE and a PhD in systems science.