Optimizing the Quality to Cost Ratio for Patent Portfolio Development

In recent years many companies that acquire large numbers of patents have aggressively cut budgets for drafting and prosecuting patent applications.  The patent department, having achieved a cost savings per patent application, has saved the company money, and certainly the chief financial officer and his or her superiors are glad to see expenses go down in the short run.   But do these budget cuts really save the company money?  The answer is an unqualified maybe.  One can also wonder about the opposite result: do these budget cuts cost the company money?  The answer again is maybe.  In fact, it is possible that these apparent “savings” may actually be costing the company money in unseen or unmeasured says.   The unfortunate reality is that most if not the overwhelming majority of companies have no good way to determine whether a cut in prosecution budgets actually saves money, is cost neutral, or ends up costing more money to build a quality portfolio.  For example, if cost cutting is too aggressive, it is quite possible that a reduction in quality of the patents in the portfolio actually results in a loss of portfolio value that vastly exceeds the savings achieved on prosecution expenses.

There are a number of factors that make “right-sizing” the budget for patent application work, and in turn the budget for a portfolio as whole, quite difficult to achieve.  They include, for instance:

1) The highly unique nature of each and every patent application, and in particular the highly nuanced nature of determining what scope of claims the invention is entitled to in a “perfect world.”

2) Tremendous variances in the examination process that make prosecution unpredictable and therefore make it difficult to correlate variances in outcomes to changes in prosecution “inputs.”

3) The relatively long length of time between drafting and filing an application, and the ultimate use of the patent, making it difficult to correlate policies or practices in patent acquisition to outcomes.  In other words, changes in practices today are not typically felt by the company for years to come.

4) The lack of any consistent measurement of portfolio quality that can be used to detect changes in the direction, if not the magnitude, of portfolio quality.

5) The often large disconnect between what a patent actually covers and what the non-patent staff of most companies think it covers, allowing sub-optimal patents and patent prosecution to go unnoticed and uncorrected by product managers, engineers and other company leadership.

While no doubt some companies have figured out how to right size budgets according to a systematic measurement of outcomes, it is equally apparent that at least an equal number have not, or at least are only new to this level of sophistication.  Quite surprisingly, most companies do not know, across the board, which patents cover which of the company’s products, if any product at all, although they often will be aware of their most important patents.  Mind you, this is not any easy thing to keep track of for a company with thousands of patents, but on the other hand most of these patent assets costs tens of thousands of dollars to acquire, so having no documented value proposition for them, like which products they cover or don’t cover, in a searchable database, is puzzling. On the other hand, there have to be difficulties and dynamics driving these apparent deficiencies of information helpful to establishing portfolio value.

In my estimation, one reason there is not as much documentation correlating patents in a portfolio to company or competitor products (current or future) is because it is very time consuming to “read” claims on products, when approached in a conventional manner.  As such, I believe that any methodology that can speed this process of reading claims on products, or determine which ones do not at least, will increase the ability of patent owners to determine the value of its patents at least on a gross scale (i.e., does the patent at least cover a product or competitor product?) and therefore better close the loop between patent acquisition and patent quality assessment.  It goes without saying that the more the patent department and company management knows about the quality of their portfolio, the more likely they will be to improve it.

In the spirit of increasing the discourse of how to better determine the cause and effect of patent budget “right-sizing” and manage the allocation of resources to patent acquisition and to portfolio management, I have put together a PowerPoint presentation, and I welcome any comments or feedback: Value Driven Patent Portfolio Development

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