Patent annuities management in a crisis

In our webinar looking at patent management in challenging times, Novagraaf's Cédric Gaspoz offered advice on reducing costs and driving efficiencies in patent annuities. Here, we summarise the guidance and tools discussed.

It's clear that today's environment is not business as usual for IP rights holders. Patents are being abandoned at a much higher rate, reflecting both internal pressure on budgets and a wider lack of optimism about business growth and even survival in these COVID-19 times. Since annuities can represent a large percentage of corporate patent budgets – in some cases up to 50-75% of the budget – it’s crucial to have a clear abandonment and renewal strategy in place if you are to effectively manage costs, but where should you start? In our 7 May webinar, we shared best practice on how to begin the process of building a strategy for effective patent renewal management, including:

• Getting organised: Auditing what you own and use, and budgeting accordingly;
• Setting the strategy: Aligning IP decisions with wider business goals – short and long term;
• Streamlining payments: The benefits of consolidation and automation through technology.

Getting organised

We’re often asked by clients what the typical percentage of budget allocated to annuities should be. Answering this question is not easy, because it is different for each business, depending on several factors, explained Cédric Gaspoz, Managing Director, IP Services Patents at Novagraaf. He gave as an example a client that has filed more than 30,000 patent applications worldwide over the last four years. These patents are very young and, therefore, most of them had no annuity due, meaning their annuity budget is very low compared to the overall portfolio cost: probably less than 10% of their budget at the moment.

In comparison, a more mature business with a large portfolio of granted patents, with only a few new innovations per year, will have a much higher annual cost for annuities: as much as 50-70% of their total budget. There is no typical percentage to use as a benchmark for what you should or should not be spending, therefore. However, if you are under pressure to cut budget and annuities is a large percentage of your current spend, then there are some steps that you should take, whether you’re looking to justify (and retain) that budget or build an effective abandonment strategy to reduce it.

1. Know what you own

As we set out in a previous article, a budget-cutting exercise may provide the often-necessary prompt for an in-depth audit of patent portfolios and annuity payments. Not only may there be opportunities to make some initial cuts without impacting the overall risk picture, but such an exercise will also put IP counsel in a good position when discussing budgets in general. It’s important to know what you own if you are to be able to justify its cost.

A patent data audit is clearly the crucial first step: Not only in terms of assessing what rights you have in place, and in which territories, but also when it comes to the integrity of that data. For example, are the rights accurate and valid: Is the named owner and status up to date?

Data analysis will also help to budget and forecast future activity, and inform any strategy for maintenance and abandonment. Patent portfolios typically include groups, or buckets, of patents with differing objectives and some of these buckets will be easier to prune than others. Clearly, patent rights that protect and support core innovations should be safeguarded. So too should any that make the business money; for example, through licensing or aftermarket parts protection. Other buckets (for example, non-core protection or non-core markets) may be pruned more vigorously. (For more detailed guidance here, please read our article ‘Patent annuities: when and what to renew’.)

2. Budget accordingly

Taking an average patent with 13 claims as an example, Cédric explained in the webinar that the team could see from its analysis that the first 10 years of annuity payments represents a small proportion of the total cost in most countries (between 10-30%). This rises significantly between years 11 and 15 in most countries, and then rises significantly again in the last five years, representing the highest cost in all countries.

An exception can be found in cost management for European Patent (EP) filings. These show different trends, because usually these applications are granted between three and six years, depending on whether the PCT or the EP direct filing route is chosen. Annuities are then due in the validated countries rather than at the European Patent Office (EPO).

Therefore, if budgets need to be reduced, it’s recommended to start by reviewing all cases from the tenth year, as that is the point at which you can really start to make cost savings.

3. Use the right technology

Modern patent annuity services should provide IP owners with the data and insight they need to track their assets in a holistic manner, if  to make timely decisions, and track spend and forecast future costs.

The Novagraaf Patent Annuities portal, built on Force.com, has a financial dashboard that captures budgets and costs, and dashboards to track the current status of the portfolio; for example, granted patents, and filed, abandoned, expired rights, as well as cases by country, annuity number (so you can see the average age of your portfolio), and the type of case (patent, design, utility certificate etc).

The dashboards have been specifically designed to help patent owners manage their costs proactively, including making decisions to renew by age (e.g. between years 11-15 or 16-20), or to sift cases specifically by cost of renewal. For example, Cédric explained that if you are auditing your portfolio with the express aim of making cost savings, you can choose not to see patents where the renewal cost is lower than a certain amount, given that it may be more time and cost effective to simply renew them all. Instead, you can filter by age or projected cost in order to focus your attention specifically on those that require you to examine the rights or family of rights in more detail in order to make an informed decision on whether or not to renew.

Because the system is linked to our own database and those of the various patent offices, it also functions as an IP portfolio management tool, by storing all relevant documentation in one place, as well as enabling the user to send individual and batch instructions for renewals.

Getting started

Of course, no one wants to lose budget, but if a company has to tighten its belt, everyone within the business should have a good look at their current spending to see what they can do. Given enforced cuts and knee-jerk can often prove more costly in the long run, it make sense to take the time now to step back and assess portfolios in a structured and informed way. To find out more about Novagraaf’s patent annuity services and portal, or to request a quote, please view our service description or get in touch below.