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Searching for operational cost reduction? Patent portfolio efficiencies can save $ millions

This article has been taken from The Gen newsletter - Autumn 2010.

The economic turbulence of the past two years and a fragile global recovery is forcing many organisations to review and reduce costs. Patent portfolio maintenance is an often overlooked place to start. Many patent portfolios have a poor cost benefit ratio and are a significant drain on resources. Here, we consider the financial impact of a poorly aligned patent portfolio, how this misalignment comes about and how such a portfolio can be optimised to fit with an organisation’s business and technology aims.

The cost of maintaining patent portfolios and their associated fees within large organisations is typically $ millions per year. The 20 year cost of a small patent family alone, with a single US, EP and JP filing, is in the region of $60k, and for companies filing 50 patents per year continually annual maintenance costs rise to a minimum of $3 million. Sagentia’s research in this area has shown that many businesses continue to accumulate cost around their patent portfolios because they aren’t sufficiently ‘tuned’ to their corporate and technology goals. While it is readily accepted that patents are a critical element of the innovation process, most portfolios will contain a high volume of ‘waste’. Portfolio optimisation can however lead to significant cost savings.

A leading European telecoms company recently engaged Sagentia to assess the fit between its patent portfolio and its strategic technology plans. Whilst the overall alignment was good, Sagentia identified €5 million of cost savings through the termination of patents that supported non-current technologies. Additionally, several hundred patent families were identified that had high value licensing potential. These are currently being taken to market by the client and Sagentia.

What are the primary contributing factors for portfolio misalignment? Often it arises as a consequence of fast technological ‘churn’ and goes hand in hand with internal processes that are risk averse. This is especially true in markets where the pace of technology innovation is high – for example IT, telecoms, consumer electronics and medical.

There is also a tendency towards ‘vanity’ patents – patents that have been filed with an eye on the kudos of having one’s name associated with an invention, regardless of any commercial utility.

Another issue is a lack of due consideration about changes to the product range or external market / technology evolution. This can lead to unnecessary maintenance of patents that support discontinued products and technologies, or products that did not succeed commercially.

Finally, the consolidation that follows M&A activities typically leads to a ‘disconnect’ between the more efficient merged businesses and their now inefficient patent portfolios.

Underpinning the problem is the tendency towards taking the easy option, especially when times are good, of continuing to pay maintenance fees and not look too deeply at what really fits with the current / future direction of the company.

At Sagentia we take a broad systematic approach to patent portfolio optimisation. We use a well tested, proprietary, formal methodology which culminates in us giving our clients a clear view of those patents that fit with the future business / technology aims of the organisation and those which are inefficient. For those that do not align, we look at opportunities for licensing / sale and advise on which ones should be allowed to self-terminate.

A portfolio optimisation exercise will also reveal key understandings about the organisation’s patent management processes. This information can be used to determine whether these processes are appropriate and effective and to recommend changes where needed. The overall outcome is to generate a patent portfolio that is strategically aligned with business objectives, generates additional licence revenue and is cost effective to maintain. With a real and sustained focus on reduced operating costs, patent portfolio optimisation is set to become an established practice within large, technology based organisations.