Adam Wylie looks at the factors you need to consider when trying to predict future patent portfolio costs.
For in-house IP managers, patent budgeting is one of the core aspects of their role, yet it remains one of the most difficult to get right. Few, if any companies offer unlimited IP budgets for their in-house departments. Having to operate within strict budget constraints means that accurately predicting the future costs associated with patent portfolios is often a source of frustration for IP managers. Patent budgeting is notoriously complex and hard to get right. Bringing expenditure in line with a proposed budget within acceptable levels of variance using the various guesstimate approaches which companies may adopt can be an enormously time-consuming process fraught with difficulties and many variables. Arriving at a workable figure that can be relied upon takes years of experience and in-depth knowledge of the likely patent costs expected to be incurred in various territories, which most companies apart from large corporations simply don’t have.
The complexity of patent budgeting is down to the many cost variables associated with filing patents internationally, and the points in time that these variables occur. There are often wide variances, particularly in the number and frequency of prosecution or office actions and the time to grant. Budgets are typically set on an annual basis. However, typical times to grant and prosecution actions occur over several years. Companies at the start of the patent process with just one or two patents, filed in a small number of countries, may find that they can put together a budget for their future patent costs with an acceptable degree of accuracy. However, as we will see, filing only a small number of patents in multiple international territories can rapidly become difficult to manage and costs difficult to predict.
A single patent application can, and usually does, morph into a family of granted patents in several countries where the applicant seeks to protect their invention, or restrict competitors, with each country that the application is filed in having different fees, requirements, prosecution times, time to grant, and ongoing renewal or maintenance costs.
If a company files by the common route of the Patent Convention Treaty (PCT), the costs associated with the national/regional filing stage are delayed until 30-31 months after the priority filing date. If an applicant forgoes the PCT and files directly with the patent and trademark offices (PTOs) where protection is sought at or before the end of the convention year, again, the timing of the costs is predictable. Beyond the national/regional filing stage, whether it is at 12 months or 30/31-months from priority filing, the points at which costs occur become highly unpredictable.
In its 2009 Annual Report, The European Patent Office (EPO) statistics showed that, on average, a granted patent was published 43.1 months after the application was received. However, the figure varied between 35 months and 57 months depending on different technologies1. In reality, the figure may be closer to 66 months to grant, according to members of the UK IP Federation in a report in 2009.2
Empirical evidence from our in-house IP manager clients suggest wide variances in times to grant and the number of office actions in closely related technical areas within the same patent office! One of our clients cites two EPO applications filed within one month of another. One grants at two-and-a-half years after filing, the other is still under examination five years after the initial filing.
The time to grant varies enormously from country to country. The most recent figures from the United States Patent and Trademark Office (USPTO) for 2011 showed an average patent pendency of 33.7 months.3 In March 2012 David Kappos, director of the USPTO, stated that their goal is to reduce the average patent pendency time to 18.3 months by the end of financial year 2016.4 If this target is met, it will mean that the costs associated with prosecution and grant of applications will be incurred significantly earlier than at present.
There will also be variances in the size of the costs according to the following factors:
The length of specification will obviously affect costs in countries where translations are required, as a 10 page document requires less translation and will cost less than one with 100 pages. Several issuing authorities level punitive charges for claims above a certain number. Despite efforts at harmonization across the various PTOs, different offices will sometimes treat unity of invention differently. This means that applicants may be faced with filing a divisional application in some countries and not in others.
New areas of technology can sometimes take longer to examine at patent offices due to a lack of resource in examiners who are versed in the technology. Similarly, applications in a crowded technological field with much prior art combined with overworked examiners mean that the number of office actions are high and the resultant times to grant are longer.
As there are often costs associated with the grant of a patent, predicting when these costs will occur is difficult. Some countries, particularly in less developed markets, have relatively low official and attorney fees. In well-established economies, official fees and attorney costs can be high. There is a balance to be struck of where to seek the most effective coverage from a ‘bang for the buck’ perspective.
If patent protection in Europe is sought via an EPO application, validation costs in Europe can be high depending on the number of territories where protection is sought, and the requirements for validation of each individual contracting member of the European Patent Convention (EPC) which still vary.
For IP managers, as patents within one family are granted at various stages in their lifecycle, the point at which costs occur is difficult to keep track of. The subsequent renewal of these patents over their 20-year lifecycle must be monitored and reviewed in order to get the most from a patent budget.
These factors make effective patent budgeting a very uncertain process; so how can an IP manager manage all these variables and unknowns, and get the most from their patent budget?
Putting in place an intelligent filing strategy that aligns with a company’s business plan is a solid foundation on which to adhere to a patent budget. Consider implementing a patent review committee that looks at the company’s inventions, and where they fit within the company’s platform. Is the invention core to the company’s main area of technology and likely to lead to continuing applications, or is it a one-off of secondary importance? A ‘tiered’ approach will help organize inventions in order of importance to the business and will influence which to seek patent protection for. Decisions over which inventions should proceed into patent applications must be informed by the costs of filing, prosecution and maintenance of a granted patent in the designated states, and then defending and enforcing the patent in each territory.
Assuming a PCT application has been filed, the critical phase in a patent application timeline is when the PCT application reaches its regional/national phase. While this is a known and fixed point, the direction the patent family takes from there onwards will be a factor in the impact that the patent family has on the patent budget. Analyze the PCT search and examination report and choose the most appropriate filing strategy. Future costs from that point can be controlled depending on your filing strategy and in particular whether a European patent proceeds to grant and in how many countries. Consider the future maintenance and translation costs which are likely to be incurred in the selected European member states.
Optimizing your patent portfolio does not end at the point of grant. A periodic review of your granted and pending applications will inform decisions over which patents to renew and which to allow to lapse. The portfolio should be viewed in the context of its commercial relevance; to that of your own products, and that of your competitors. Patents which are underutilized can potentially be licensed to generate additional revenue streams.
As portfolios grow and extend across many different patent offices, tracking the actions and managing the costs becomes more complex and time-consuming. The guesstimate approach works to an extent with smaller portfolios, but regardless of portfolio size, this may not be the most effective use of an IP manager’s time. Software tools produce estimates which take into account a combination of prediction methods, and crucially, allow the user to model applications based on their complexity. Our corporate client users of IP Forecaster report an increased level of accuracy in predicting future patent costs compared to their previous methods, as well as reduced time taken to extract the data. Our attorney clients are able to provide accurate patent cost forecasts, generated in minutes, to their clients upon request.
To get the most from your patent budget, implement a patenting strategy and review it frequently, as an organization’s IP strategy should evolve with the business. Reviewing your patent portfolio can identify patents which are not central to the business and may be licensed, and those which are surplus to requirements can be allowed to lapse or applications abandoned. In particular, as a patent portfolio expands you should assess whether your methods for patent budgeting are delivering an acceptable level of accuracy. Cost savings made by fine tuning a patent portfolio and more accurate budgeting can present opportunities to expand the filing program and increase revenue.
1 European Patent Office Annual Report 2009: http://www.epo.org/about-us/office/annual-report/2009/business-report/patent-process.html
2 IP Federation report 2009: www.ipfederation.com/document_download.php?id=92
3 USPTO statistics 2011: http://www.uspto.gov/about/stratplan/ar/2011/oai_05_wlt_04.html
4 USPTO statement, March 2012: http://www.uspto.gov/news/speeches/2012/KapposTestimony120301_FINAL.pdf
Adam Wylie, CEO, Patrafee UK Ltd.
Adam has overseen the growth of the UK office of Patrafee, a provider of patent annuity services, IP management software, and the patent budgeting tool IP Forecaster. Adam was previously Managing Director of IP Pragmatics Ltd Services division, and prior to which he worked for two different UK based private patent attorney firms. Adam holds a BA from University College London.