Quality or quantity – defining and building the ideal patent portfolio

The road to successfully deployed technologies is paved with visionary but abandoned inventions. Electric cars were popular in the 1880s, until cheaper production costs, petrol and electric-engine starters made combustion-engine cars more popular. Who remembers the Japanese electric car Tama from 1947? Unfortunately, the current rise of electric vehicles does not reward the efforts of the early inventors of electric mobility.

In fact, the merit of every invention is uncertain, as it largely depends on future events that are neither predictable nor related to the invention per se at the time of its creation. This uncertainty can be addressed by assuming a gambling approach to any patent portfolio development and simply increasing the number of patents in the hope that at least the statistical probabilities work in one’s favour. However, building and maintaining large patent portfolios requires time. It is expensive and difficult to manage, which naturally limits the number of patents in any large patent portfolio – quantity is not an infinite number. The overall (monetary) value of a large patent portfolio is determined by only a small percentage of patents. If the monetary or strategic value of patents is considered as a measure of quality, then this small percentage of valuable patents forms a quality patent portfolio worth considering.

Challenges

How do we know that what we are developing will make up a quality patent portfolio? Without an a priori measure indicating either the strategic or monetary value of a patent portfolio, we simply do not know.

Clearly, the most reliable and direct indication of a quality patent portfolio is its infringement. The problem is, future infringements are unpredictable. A considerable number of infringed patents have been analysed in order to reveal the common characteristics of infringement. Most infringed patents addressed solutions to market-related needs rather than technology-centric implementation problems – inventions satisfying a market need are not only more likely to be implemented and therefore infringed by a third party, but they are also less challenging to prove than technology-centric inventions (eg, incrementally improving existing software implementations).

This observation provides a first hint towards developing a quality patent portfolio: inventions should preferably address solutions to market needs. However, these inventions should also be patentable. The challenge is this: nearly all participants in the patent value chain – namely engineers, patent attorneys and the EPO – require a (technical) problem that is technically solved by technical means rather than a market need.

Another challenge that cannot be neglected is proper timing.

Timing: when to start with portfolio definition

A patent portfolio of the highest hypothetical quality may be worthless when the timing is wrong (ie, when the patent portfolio has been developed either too early or too late with respect to the lifecycle of a respective technology). The lifecycle of every technology usually begins with an emerging technology stage, followed by a technology growth stage and a technology saturation stage.

The emerging technology stage is often initiated by a disruptive catalyst, such as the famous apple prompting Isaac Newton to discover the law of gravity. In the emerging technology stage, there is plenty of room for new inventions and less IP competition, so that valuable IP assets with significant scopes of protection can be secured at reasonable costs. However, it is impossible to know if and when an emerging technology may take off. Therefore, investment in building a patent portfolio in the early emerging technology stage may be premature, particularly when there is no clear market vision. With the progression of the emerging stage, an emerging technology platform matures, which is indicated by the first applications in the markets. The late emerging technology therefore provides a possible opportunity for spotting the first technology trends.

The technology growth stage is initiated by early technology adopters and is associated with incremental technology development driven by R&D activities. In the growth technology stage, the number of patent applications and therefore prior art increases, which reduces the available scopes of patent protection and increases the patent prosecution costs. As the growth technology stage progresses, the inventions are increasingly technology-centric and the innovation increment decreases. On the other hand, investing in patent development in the growth technology stage appears less risky, as there is a market vision justifying R&D investment. The early technology growth stage therefore appears to be a good choice for defining and building patent portfolios.

The technology saturation stage is associated with technology monetisation through products. In the technology saturation stage, the innovation increment is small and the maintenance of the patent portfolios is the essential cost factor. Therefore, most IP owners abandon patents or consider patent monetisation at this stage. The technology saturation stage is followed by the technology decline stage, associated with diminishing market shares. Clearly, neither the technology saturation stage nor the technology decline stage appear to provide the best opportunities for patent development.

The sweet spot at which to begin building a new patent portfolio appears, therefore, to be at the transition between the emerging technology stage and the growth technology stage. At this transition stage, the technology lifecycle curve indicates increasing interest in a given technology and technology deployment acceleration. The key, however, is how to detect the different technology lifecycle stages.

Fortunately, a technology lifecycle is not a theoretical construction. In fact, it can easily be spotted in the stock market (see the long-term stock charts of General Electric (NYSE: GE) or Tesla (NASDAQ: TSLA)). The emerging stage is often flat, until the number of transactions picks up, whereby the growth stage is initiated and the stock prices rise. The saturation stage and the decline stage follow. The stock market provides the earliest indication of the acceptance of a technology by a market and therefore serves as an indicator expressing the trust of (in this early stage, mainly institutional and therefore well informed) investors in a given technology.

Another timing indicator is provided by the patent application charts indicating the number of patent applications that are published (eg, by the EPO). You can compare the patent application charts of blockchain and combustion engines to gain an impression of how the technology life stages are reflected by the corresponding patent application charts.

The timing indicators tell us when a certain technology is gaining momentum, which may be the right time to consider a respective technology as a foundation for a new patent portfolio. However, inventing in the early technology stages differs from inventing in the later technology stages.

The inventing dilemma in early technology stages

Traditionally, technology development is allocated in the technology growth stage, and is based on an incremental innovation in order to improve an existing product, such as the combustion engine known since 1892. Incremental inventions, and therefore incremental technology development, aim to improve the existing technology that is typically well known to engineers, who are well educated and experienced in solving technical problems (eg, an electronic circuit that consumes less energy). Therefore, inventions happen as a by-product of incremental technology development and are also incremental themselves.

However, one characteristic of the emerging technology stage is the development of the technology platform ‘as such’, which often occurs in a disruptive fashion. Unfortunately, engineers are neither trained nor educated in systematically developing patent portfolios and find themselves caught in a dilemma – what should be invented without an existing technology platform?

The inventing dilemma is amplified by the fact that patent offices, in particular the EPO, often refer to the incremental character of an invention, starting from an existing technology platform as prior art.

Clayton M Christensen has stated that disruptive technologies are often neglected by established technology companies at the beginning of a technical development (The innovator’s dilemma: when new technologies cause great firms to fail, Boston MA: Harvard Business School Press, 1997). This is due to the fact that technology trends, unless driven by well-established companies, often have their beginnings in less profitable market niches and are usually associated with overcoming major technical difficulties. Moreover, not every new technology trend turns into a profitable technology. Once it does, however, the engineers in charge of its development will be under significant time pressure to transfer that emerging technology from a niche market to a profitable market.

An example of an emerging technology is blockchain, which is disruptive and non-incremental – blockchain-based cryptocurrencies replace rather than improve traditional banknotes. The non-incremental nature of blockchain makes it difficult for engineers to recognise an invention in a given blockchain development because there is often no technical increment that can serve as an orientation anchor to systematically capture inventions when developing new blockchain-related concepts.

In addition, blockchain is implemented in software, which may prevent the detection or reporting of inventions by R&D engineers who believe that software-implemented inventions are generally not patentable. In fact, software-related inventions require specific patent drafting skills and profound patent attorney experience in order to circumvent well-known software patenting problems. Patent applications will otherwise be rejected as not patent eligible, which may in turn confirm the scepticism of some engineers regarding patenting software-related innovations. Valuable inventions may therefore get unwillingly lost.

Market need versus technical problem to be solved

In the emerging technology stage, the inventions result from satisfying a new market need rather than from solving a given technical problem in order to improve an existing technology. With reference to the blockchain example, the catalyst for the development of cryptocurrencies was a market need for anonymous electronic payments rather than a technical problem associated with existing banknotes.

In contrast, an essential patentability criterion deployed by, for example, the EPO, is a technical solution of a technical problem by an invention as claimed in a patent application. In fact, the EPO neither requires nor awards a solution of market need.

How to create valuable and patentable inventions

The EPO’s patentability criterion provides a framework for harvesting patentable inventions. However, the question of how to systematically harvest valuable inventions remains.

The market need defines a purpose of a technical invention rather than a technical problem. For example, the purpose of an undoubtedly technical smartphone may be online shopping, which is a non-technical exercise.

The essential task of invention creation is to define a suitable technical problem that is, on the one hand, associated with the market need and, on the other hand, reflects the EPO’s patentability requirements. Focusing on a technical problem when inventing also simplifies the inventing process, because engineers know how to solve technical problems. In order to obtain such a technical problem, the market need must be transformed into a technical domain.

By way of example, in the context of blockchain technologies, the market need was a secure and anonymous electronic payment scheme. This market need can be transformed into a technical domain of electronic security, which significantly simplifies deriving a variety of technical problems such as securely generating and transmitting and representing a digital currency as an electronic token. A (simplified) technical solution to this exemplary technical problem is a concatenated cryptographic signature scheme: blockchain.

Lean invention approach

The identification of an existing market need is the starting point for harvesting valuable inventions. However, the market need often neither defines a technical problem nor does it define a technical solution to a technical problem (ie, a technical invention). However, both are required by the EPO in order to obtain a patent claiming the invention.

To satisfy the market need, a minimum viable product can be designed, providing basic functionality that satisfies the market need (see Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (17 October 2017)).

To identify an existing market need as a starting platform, the lean start-up approach can be used. However, the timing indicators provide guidance towards already identified market needs, which assists in avoiding artificially invented market needs. The identified and existing market need is then transformed into a technical domain, which allows the identification of technical problems.

The last and least tangible part of the journey towards creating patentable inventions is, however, inventing. Inventing appears to be understood as an engineering discipline, requiring inventing skills, education, experience and a structured working approach. By way of example, it takes a minimum of three years of study to learn how to develop electric circuits. Comparable education is required to master the engineering of inventions.

Comment

Large patent portfolios are expensive, less focused and difficult to manage. Moreover, only a small percentage of valuable patents in a large patent portfolio appear to have a monetary or strategic value, if any. Therefore, when building a new patent portfolio, it is advisable to concentrate on developing valuable patents and to build a smaller quality portfolio that is less expensive and more manageable than a large patent portfolio.

Valuable patents are associated with market needs rather than with technology-centric problems and, preferably, can be developed in the transition stage between the emerging stage and the growth stage of a given technology lifecycle.

Developing a quality patent portfolio, however, requires a dedicated inventing approach, specific inventing skills, as well as patent attorneys having the necessary technical expertise in emerging technologies, entrepreneurial spirit and a profound knowledge of the patent practices of various patent offices, particularly relating to software-implemented inventions.

The lean invention approach has been verified in a considerable number of invention creation projects in emerging technology fields such as security, 5G, the Internet of Things, fintech or Big Data for various clients including Fortune 500 companies, start-ups and investment funds.