Balancing Patent Quality and Patent Quantity to Maximize ROI

Do you know the number one question being asked in board rooms around the globe? Here’s a hint: Kevin Rivette’s book, Rembrandts in the Attic, Unlocking the Hidden Value of Patents.  Sure, the book was written in 1999 – but it’s even more relevant today for one simple reason: board members and executives are seeing the billions of dollars that are potentially attached to the value of a portfolio of patents.

So everyone is taking a hard look at their own decorative patent walls and they’re asking or being asked:

• Are we realizing the true value of the patents we generate?
• What determines the value of our patents?
• What return on investment (ROI) could we realize from these assets?

How do you answer those questions?

You have to treat your patent portfolio like any other part of your business to realize maximum value. That means developing a patent strategy that is based on a clear understanding of the market opportunities and threats. Specifically, to address those questions and fully leverage your patent portfolio, a strategy should:

• Ensure your intellectual property plan supports existing corporate priorities and is aligned with business unit goals
• Have high confidence about what is (and what isn’t) in a patent portfolio
• Include an invention (or acquisition) program that fills strategic holes and expands and improves your patent portfolio
• Develop, or consider developing licensing and enforcement programs that support the strategic and business goals of your company

Should you focus on patent quantity or quality?

While this is an ongoing debate the truth is you need to focus on both. Striking a balance between patent quantity and patent quality enables you to meet your strategic IP goals by extracting value from a portfolio. But it’s easier said than done!

Typically in our experience only about 3% to 5% of a patent portfolio consists of “star patents.” These are the patents that are demonstrably valuable because they claim technology that is commercially useful today or in a very near future market. Finding this small percentage of good patents is the name of the game.

That’s why until very recently the prevailing strategy for many companies was “the more the merrier” with a strategy that focused more on patent quantity. Companies filed as many applications as they could, fueled by the belief that they would ultimately hit pay dirt with a percentage of the resulting patents generating value.

To put that shotgun strategy in context, in 2014, 615,243 patent applications (utility, design, and plant) were filed with the U.S. Patent and Trademark Office (USPTO) and 325,407 patents were actually granted. This represents an increase of about 1% for applications, and 7.7% for grants over 2013. While modest, it’s also the sixth year-over-year increase in the number of applications and the eighth year-over-year increase in the number of patents granted.

These year-over-year increases boil down to one thing: the conviction that patent quantity is a key success factor in extracting value from a portfolio. Specifically, that a large and growing portfolio will provide the broad and deep coverage that is required.

Here’s the rub. Focusing too narrowly on patent quantity can result in a scattered and unfocused approach that will, at the end of the day, result in a relatively measly 3% to 5% of valuable patents. Can you do better than that? Yes.

Focus on generating fewer total patents but more valuable patents

To do this you or your patent prosecution team must answer the following key question: How can I maximize the potential of my patents? To answer this question you’ll need to consider the following:

• Define and measure patent quality – incent and reward the creation of quality patents
• Focus your invention program on developing patents that broadly support licensing, the IP strategy, and therefore the business strategy
• Create or expand a continuation practice that strengthens patents and improves the probability of generating valuable patents

Defining patent quality

All of this begs the question: how do you define patent quality? The fact is, not all patents are created equal. Yet there is a need to rationally and objectively predict the value that a patent can generate.

While there isn’t a “one size fits all” definition, there are two aspects to patent quality: one is technical and the other is legal. In the end, you must be able to prove some non-obvious innovation to the Patent Office.

Here’s a broad definition of patent quality that melds these ideas:

A quality patent exceeds the minimum USPTO and legal standard of novelty, utility and non-obviousness, its claims are fully supported by specification, while its claims are as broad as possible they ultimately narrow to specific implementations of the technology, its claims read on high-revenue products and its claims are strategically constructed for robustness and validity challenges.

Defining patent value

A patent’s value is largely situational and dependent on two main factors: quality (as discussed) and how the owner uses it. To extract value from high quality patents, you’ll need to demonstrate the following:

• The patented technology is being practiced or used by your company
• It is contributing measurably to your company’s revenues or being used by others, and as a result, is reducing your company’s revenues
• Evidence of use can be generated through technical analysis or product documentation

Litigation-tested patents are thought to have proven quality and potential value, based on a court’s validation of the patent and a court-tested claim interpretation.

Successful revenue-generating strategies and market protection strategies generally rely on evidence of use to map patents to products. When this can be done, value can be generated from a variety of offensive and/or defensive campaigns.

Offensive campaigns for protecting your company’s products and IP can include licensing programs. However, effectively using patents when in a defensive position is also a value extraction. The ability to minimize or eliminate licensing fees being paid by finding patents that read on aggressor’s products can drive this.

Measuring quality and value

In a perfect world IP groups could feed the goal of their IP strategy into a software program and with the touch of a button, presto! Out comes a list of patents best suited to achieve that goal. Unfortunately there’s no magic software solution that accomplishes this convenient miracle.

It’s true there are many useful tools available for cataloguing, rating, and mining patents. And the output of these various tools increases the understanding and high-level view of a patent or patent portfolio.

In the end, these tools realize process efficiencies to enable better and faster decision-making. Ultimately, reading a shorter list of expected quality patents to find evidence of use is the most important step in the patent evaluation process. In all cases a subject matter expert (SME) must review and actually read patent claims to find the value patents hiding in a portfolio.

Fortunately, quality and value are indicated by many factors that can be measured. For example, metrics for quality indicators include number of:

• Words in claims that are not supported in the specification
• Cited patents and non-patent references – indicating disclosure completeness and therefore robustness to prior art
• Office actions – can be a proxy for their resulting patent claim breadth (more actions generally results in narrower patents)

Similarly, metrics for value indicators can include:

• Patents that have been supported and licensed OR litigated successfully
• Past, present and future revenue of potentially infringed patents
• Technology-specific limiting language constructs used

Each of these factors may increase the probability that a patent is high-quality and potentially valuable. These are useful for prioritizing and increasing the effectiveness of SME reviewers that are always essential.

Business value through prosecution

You can also use focused claim language to maximize the potential business value of a patent portfolio. Here the key is to leverage the patent continuation process to ensure that your granted patents will better support your end goals.

By observing market and IP trends, you can identify (or predict) existing or up and coming high revenue products in a technology space. Your claim language in open applications can be adjusted to better read on those products to maximize business value through prosecution.

Conclusion

Maximizing the value and ROI from your patent assets requires a balanced approach that considers patent quantity and quality. You need to ensure broad and deep enough patent coverage to mitigate risks and protect the markets defined by your product roadmaps. While there are many valuable software tools on the market, quality monitoring, feedback from licensing professionals and ultimately a SME with broad market knowledge will be required to increase the percentage of high-quality and high-value patents produced to support your IP strategies and achieve corporate goals.