Optimising operational outcomes for peak patent performance
A considered and well-articulated portfolio management strategy can drive greater efficiencies in a company and help in-house IP teams gain substantial buy-in from senior management
While the stereotypical inventor is often imagined as a genius in a garage or a Thomas Edison type, the business of managing inventions and patent filings is often just as crucial to successful outcomes as that original innovative spark.
Among the many challenges that portfolio managers face, particularly in difficult environments, is how to effectively manage a tight patent budget on behalf of themselves or their clients. Equally important is clear reporting on objective metrics to general counsel and often the company’s chief financial officer (CFO). This communication can help to ensure that the portfolio manager has a valued seat at the executive table, where they can justify the patent budget.
In public companies, predictability of patent spend is often a high priority for both finance and the legal departments, and keeping the CFO happy is just as important (sometimes more so) than keeping business unit clients happy. In leaner times, the patent budget may be seen as an easy savings target and is often scaled back. To counter this misperception, portfolio managers must effectively communicate the value that the patent portfolio represents, while demonstrating robust discipline on spend management and persuasive reporting to stakeholders.
This article discusses some best practices for managing patent spend, predictability, legal operations, portfolio acquisitions and reporting metrics to executive, finance and legal audiences.
Strategic planning drives budget predictability
When a portfolio manager lays out a strategic plan for patent filing and prosecution activity for the year, they lay the foundation for a predictable budget and resultant spend. By making conscious advance choices around what patent applications to file, in which countries and when, the resulting framework helps to encourage clear decision making in prioritisng specific applications.
This strategic planning process is most effective when business stakeholders (eg, business units, competitive teams or licensing partners) are considered at this planning stage. Therefore, the business of intellectual property benefits from the joint expertise of the legal team, the product team and often the defensive licensing or competitive team, where appropriate.
By planning the year’s activities in advance, a reasonably precise budget framework can be established. Over the course of the year, day-to-day patent activity is aligned with this framework and with a fixed-cost model to deliver highly predictable spend.
Granularity aids precise modelling
The more actions factored into the model, the more precise it will be. At a high level, the model should include all planned new filings (including continuations, divisionals and provisionals), issue fee payments and office action responses. These will likely make up the bulk of US prosecution spend. Other line items to track in the model include grants. Companies with a strong continuation practice may consider setting up a one-to-one ratio between the number of granted patents and the number of projected continuations to be filed. The remaining line items will be specific to the particular business. If the portfolio manager frequently files information disclosure statements, appeals, terminal disclaimers or expedited (ie, Track 1) examination requests, those actions should have their own entry. This is an iterative process, which should employ a feedback loop. Therefore, it is worth taking the time to check the invoices received to ensure that no significant spend is unaccounted for in the model.
How does the prediction work?
First, an effective fixed-fee model should be implemented for day-to-day patent filing and prosecution tasks. Once this is in place, the fixed attorney fees and expected patent office fees can be fed forward into a task/cost model. The key to maintaining annual budget accuracy lies in the predictive ability of the model, which allows a user (typically the portfolio manager) to foresee actions and associated spend at least one calendar quarter ahead. Considering that the nature of patent prosecution involves due dates that are typically three or more months out, this visibility can be obtained using an IP management tool, which may be configured to report when upcoming one, two or three-month (and beyond) actions are due. With a known fixed fee per action, the user can predict the spend for any number of months by multiplying the actions to be filed that month by the associated fixed fee. This enables them to consistently hit a budget mark on a quarterly, and ultimately yearly, basis.
What components does the model include?
One model incorporates fixed and variable portions of budgetary spend. The fixed spend includes annuities and maintenance fees, which are known far in advance. The variable spend includes a discretionary current quarter spend, plus a prediction spend based on past run rates.
Upcoming quarter spend is the summation of:
- fixed spend (annuities and foreign filings, known a year in advance);
- variable spend (discretionary spend, known two-plus months in advance); and
- predicted spend (a run rate-based estimate for less predictable activity).
Managing fixed versus variable spend
On the fixed portion, a user may have visibility into which decisions are due for domestic and foreign filing (eg, Patent Cooperation Treaty (PCT) filings), as well as upcoming spend on annuity and maintenance fees, at least a year in advance. This allows planning to take place for strategic long-term global portfolio growth, which has a slower timeline but is more consistent than shorter-term tactical activity.
Therefore, as each quarter begins, the user already knows what the precise committed spend will be and how much money remains for new discretionary activity. In addition, the model allows for flexibility in response to business needs, such as simply dialling down (or up) other domestic and foreign discretionary activities. This data-driven predictive model may provide such a high degree of granular insight that the user can determine which individual filings to accelerate or delay in order to ensure strict budget compliance.
Realising further benefits through automation
A further improvement may be realised through automating predictive analytics capability by merging the predictive spend model directly into a fully integrated IP management tool. As a company scales in revenue from millions to multi-billions, automated predictive budgeting has real value. This automation enables the team to scale its support of the business, without necessarily growing headcount, while maintaining unparalleled budget accuracy.
For example, automated tools may provide a preview of the year’s upcoming foreign annuities and PCT fees, along with selections of what to pay, which can be incorporated directly into an automated spend management system. When the relatively predictable upcoming US docket data is combined with fixed spend information and with historical averages for foreign prosecution spend (discussed later), it is possible to carry out a relatively precise automated calculation for the upcoming quarter.
Due to variable foreign fees and currency fluctuations in foreign prosecution, a portfolio manager often cannot accurately predict foreign spend beyond one quarter. However, they can model past run rates (the sum of invoices per quarter) for prior quarters. This run rate, along with a scaling factor, often accurately predicts future spend for the quarter.
Integrating IP management tools into portfolio management
A key pillar in a sturdy portfolio management framework is to know your assets. A patent is a tool that can be used for different purposes – as an offensive weapon or a defensive shield – depending on the strategic goal. Being able to harness a company’s strength in patents requires the portfolio manager to have a broad array of data points to make meaningful decisions on what to pursue, who to keep an eye on and how to keep actions within budget.
The strategic selection of which patents to pursue requires both internal and external business intelligence. Internal business intelligence is the understanding of your company’s technology, whether it is used and in which product, in which countries the corresponding product is sold and what differentiates your technology from that of your competitors. External business intelligence includes understanding the technological advances being made by competitors and the industry, as well as standards-setting activities and other factors relevant to the company.
Understanding how your company’s technology is positioned with respect to the industry requires analysing where there are potential overlaps and gaps between your technology and that of competitors. For example, if the industry is moving to adopt a new feature and your company has no protected intellectual property covering this area, it could be considered a technology gap. On identifying this, an experienced portfolio manager would work with the engineering team and shepherd resources to identify and protect any new innovations relevant to filling the gap. In contrast, if the company owns a large number of patents relating to the new feature, it could be considered an overlap. As discussed later, whether there is a gap or an overlap, patents should be written with competitors in mind.
‘Who’ to keep an eye on is just as important as ‘what’ to pursue. A company’s products often face competitive threats from existing competitors, as well as new market entrants. This requires regular monitoring of competitors’ public products and collateral to determine whether a company’s patent portfolio is appropriately aligned to serve its strategic interests. Admittedly, in today’s ever-changing business landscape, keeping up to date on competitor offerings and every new market entrant can be a full-time job. Fortunately, for many larger companies, a competitive team is often already in place, perhaps as part of the sales and marketing organisation. A patent portfolio manager should build strong working relationships with the competitive team and leverage their knowledge of the business landscape as a guide on ‘who’ to keep an eye on and what is most relevant IP-wise to those competitors.
Once you know which technologies to protect and which companies to keep an eye on, how do you get it all done within budget? One way is to control spending on assets that do not further your strategic goals. A significant way of controlling spend is by applying fixed fees during prosecution – discussed earlier. For assets that have issued, maintenance fee payments may take up a significant portion of the patent budget; deciding not to pay these fees on non-valuable assets is an effective way to cut costs. However, to minimise risk, it is important to establish a framework under which to analyse assets to determine whether they have value to the company. This might include the following questions:
- Is this invention currently being used in any of the company’s products?
- Is this invention part of a product or feature that generates revenue for the company (rather than being given away for free)?
- Is this invention currently being used in any competitor’s products?
- How difficult would it be to detect – and provide for – whether a competitor is practising the claimed invention?
- Could an infringer easily design around this invention?
- How much is the maintenance fee payment and how much life is left in the patent?
While this list is not exhaustive, balancing these factors can be helpful in deciding whether to continue to invest further in the issued patent. To properly answer these questions, it can be useful to get input from engineering or technical advisers.
A good IP portfolio management tool (eg, IPFolio) will allow you to capture the relevant information needed to make decisions on what to pursue, who to keep an eye on and how to manage the portfolio budget effectively. Having a powerful IP intelligence tool (eg, Innography) may assist further, as these tools allow users to easily identify gaps and overlaps between their patents and the competition. A good IP management tool should capture both internal (non-public) and external (public) business intelligence.
Using invoice management tools in portfolio management
Portfolio managers seeking further automation may consider deploying a modern software as a service (SaaS) e-billing management tool (eg, SimpleLegal) tightly coupled to a modern IP management tool (eg, IPFolio). Such tools can be combined to provide detailed granularity on spending on all legal matters worldwide, with easy-to-use reporting and executive dashboards. Architecting an automated data-sharing process between these tools can save time and accelerate spend analysis, thereby allowing more nimble legal operations.
An additional benefit of integrating IP and e-billing management tools is simpler reconciliation of tasks and spend, especially when Legal Electronic Data Exchange Standard codes are consistently utilised. By extracting the data of all cost-bearing events that occurred over the course of a quarter and comparing it to the forecasted patent budget, the portfolio manager can fine-tune the model based on real-world results.
A modern SaaS e-billing tool may include a self-service matter request intake form with a simple, user-friendly interface. This may encourage broad adoption by other (non-patent) support teams across the company, with significant cost efficiencies.
In addition to providing accurate budget predictions, this model also allows the portfolio manager to generate detailed reports and ‘what if’ scenarios for strategic portfolio development and associated spend. The portfolio manager, in close partnership with business strategists, can then balance the long-term geographic expansion of older portfolios with tactically advantageous shorter-term acceleration on specific key innovations.
Automating documentation and signature processes
Many patent filers use e-signature tools for both patents and contract signature processes. One popular application is Docusign, which can be integrated with a commercial Salesforce database and related packages. During the selection process, companies should weigh the efficiencies of any e-signature tool under consideration, including its the ability to manage large document volumes, often across multiple signatories globally, while providing effective tracking among document administrators. Ideally, anyone on the legal team should be able to track the signature status and file location of any document, including patent documents.
While the initial price to acquire and deploy e-signature and document management tools may seem high, the cost of not having these may quickly become exponential as a company scales its business. Such costs include the manual administrative effort required to track down the status or location of a document, the time potentially wasted negotiating an outdated document sent in error or the lack of visibility of workloads that may require immediate review. In addition, by creating a reporting dashboard of all activity across the business for patent, trademark, open source and transactional matters, succinct executive reports may be quickly generated and updated for the management team.
Ensuring a successful deal
Onboarding a large portfolio comes with many challenges, as well as opportunities. While on acquisition, it may seem like everything needs to be done at once, the following tasks should be addressed right off the bat:
- Compare the executed patent assignment agreement against the list of assets that were due to be acquired. You will need to ensure not only that all promised assets are listed, but also that any recent European patent validations are listed out individually. This will avoid many headaches when it comes to filing the assignment change in the validated European patent countries.
- When patent owners plan to divest assets, they often stop paying the maintenance fees and/or annuities. The acquirer must promptly ascertain which assets have maintenance fees/annuities that are overdue and within the grace period (generally six months). Until the acquirer has set the assets up for payment through its annuity payment service provider, the assets must be triaged on a case-by-case basis, with manual payments made by US outside counsel or foreign counsel.
- When onboarding data, the acquirer must figure out where the cleanest data resides. Does it live with the former patent owner (assignor) or does it live with the former patent owner’s law firm? With this knowledge, the portfolio manager must work with the assignor or law firm and its docketing vendor to obtain a comprehensive file that is suitable for upload into the acquirer’s docketing system. This will require coordination with many parties but will jumpstart the onboarding. The costs, while initially appearing high, are easily offset by the reductions in administrative time (which could amount to thousands of working hours).
- Where possible, it is best to retain the law firm that was prosecuting the portfolio, at least until knowledge transfer is completed, which may take up to a year post-acquisition. The institutional knowledge and value-add that the firm can provide cannot be understated. The portfolio manager should pay the firm for its time to help them understand and digest the portfolio. It is beneficial to establish a fixedfee schedule upfront so that costs are predictable.
- The portfolio manager should begin by analysing every cost-bearing event. It is helpful to determine upfront whether to continue prosecution before authorising outside counsel to draft an office action response or other prosecution. Review any allowed claims to weigh business relevance in the event that they are issued, and if no relevance can be found, consider declining to pay the issue fee. In addition, before approving a new continuation filing, verify that the family is not already open for prosecution elsewhere.
Feeding, pruning and efficient allocation of resources
Important inventions should typically be drafted with detailed specifications covering a multitude of embodiments, along with many drawings. Such a weighty specification will enable the patent owner to later mine and develop the inventive concepts through multiple continuation filings. An invention could be considered important if it covers a differentiating feature of the company’s product (or a competitor’s product) that protects meaningful revenue. The protected revenue may provide business justification for the considerable investment required to keep a patent family alive (open for continuation filings) over its full lifecycle.
To manage a portfolio efficiently, it is useful to periodically prune out patents in technology areas that the company is no longer pursuing and which are unlikely to be relevant to competitors. At regular checkpoints in a patent’s lifecycle, the technical and business relevance of the patent should be re-examined with consultation from the company’s technical and business experts. At a minimum, these inquiries should happen on filing and issuance, and before paying maintenance fees.
When pruning the portfolio, the following claim considerations can be beneficial:
- Could the claims be mapped on a relevant product, or are they so deep in the weeds that determining infringement is difficult?
- Does the claim recite the actions of a single infringer only, or does it require multiple actions to be infringed?
- Does the claim address a problem that no one else is likely to have?
When deciding where to allocate limited patent budget dollars and patent attorney time, portfolio managers should meet with their business counterparts to assess new market opportunities and relevant competitive data, before making portfolio decisions. This is true for both new patent filings and managing an existing portfolio through continuation filings, maintenance fee payments and foreign filing decisions. In high-tech markets where technology frequently changes (eg, semiconductors, computer hardware and software), portfolio management decisions must be made with the most up-to-date business data. Relevant input should be gathered regarding current products, future business plans and competitors or potential customers that may be affected. In this manner, stakeholders can make a thoughtful and conscious decision regarding the development or disposition of patent assets.
Integrating acquired patent portfolios – separating the wheat from the chaff
A useful case study is a particular technology company that recently acquired a large patent portfolio, which more than doubled its asset count. As part of the portfolio onboarding process, the company rapidly integrated the portfolio into its docketing and invoicing systems, allowing precise and granular spend information to help drive strategic management of the portfolio. This spend data was tied into available competitive information to create an overall dashboard of relevance across the market and industry. The acquisition has provided excellent return on investment and the company’s executives have been highly satisfied with the outcome.
As part of the post-onboarding portfolio development, the portfolio manager was already well into the process of identifying key ingredients for a long-range continuation portfolio to serve as a deterrent against potential disputes. The acquisition more than doubled the size of the company’s patent portfolio, all while maintaining a constant headcount within the IP team. By adopting the approaches described here, the vast potential offered by the acquired portfolio was rapidly transformed into an arsenal of strategic defensive assets.
By practising the operational processes and cost-management efficiencies outlined earlier, patent portfolio managers can save substantial time and money, while generating strategic and business-relevant patent assets. In short, doing more with less, and achieving better results. Who would not want to demonstrate that to their general counsel and CFO?
Contracts generated by the transactional team should always derive from a single source, such as a contract management system that is closely tied in with the company’s CRM system. This helps to ensure consistent use of the most up-to-date terms and can be used to identify when a document is created and sent to a particular customer or outside party. By utilising a robust contract management system (combined with an e-signature solution and good data management), the legal team will always know when a document has been created (and sent) to an outside party. What is more, the team will also know when a document has not been returned or remains unsigned. Such systems provide an overview of the volume of documents that may be outstanding or may require negotiation at a given point in time, thereby avoiding items falling through the cracks.
Effective portfolio managers may employ a proven predictive analytics model to achieve annual budget accuracy well within 1% of target. In fact, one particular company following this approach recently saw its multi-million-dollar IP budget land within 0.28% of target.
- This predictive model enables the portfolio manager to implement a disciplined data-driven approach to budgeting, while remaining flexible to respond to and support the needs of a dynamic business environment.
- Further efficiencies may be realised by integrating this model directly into an IP management tool.
- Successfully using this approach can be highly valued by finance departments for delivering budget predictability and value to the company.
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