Innovations in Patent Portfolio Management: Maximizing IP Rights in the COVID-19 Era and Beyond
Editor’s Note: Part of Dilworth IP’s ongoing commitment to the intellectual property community is leading timely conversations on the state of IP strategic and legal practice as well as discussions on the future of IP innovation through our Counsel-to-Counsel program.
This article highlights some of the latest contributions to this continuing discussion as expounded in the firm’s August 2020 webinar with a leading panel of IP counsel and advisors. As technology firms continue to respond in the aftermath of the COVID-19 health crisis and forge a path forward in the post-pandemic era, the question at hand centers on how the IP legal community can help them maximize intellectual property rights in the most cost effective manner by leveraging innovations in patent portfolio management. The following represent key takeaways from this discussion.
Efficient Prosecution of Patent Applications
This issue goes to the heart of cost containment, as it focuses on how to maximize the value of IP while minimizing the costs. And the answer starts with ensuring that you maintain a clear understanding of what matters most in your portfolio. Knowing what your short-term and long-term product roadmap is will allow you to accurately prioritize your patents so you can focus resources accordingly and start to remove assets that are less valuable or end-of-life.
In evaluating your portfolio it’s crucial to consult closely with a balanced representation from various departments including R&D and financial to ensure that your valuation and decisions align with established business goals and agreed-upon strategy. Part of this conversation should be identifying key IP by developing a ranking system for your IP assets. Which are the ones that are essential for covering your products, which are simply nice to have but not critical, and which are truly unnecessary? Patents are often used as deterrents, but if there is little likelihood you will ever enforce a patent in a given jurisdiction, it may fall into the nice-to-have category rather than the essential one.
You can also optimize your portfolio by partnering with your business and marketing teams to understand where the business is going globally. This will help you to evaluate where to file and maintain patents, and where it may be possible to cut back. Adjustments can be made efficiently without dropping entire patent families by making strategic cuts within the family in specific jurisdictions.
Keep in mind that decisions about filing and cutting back should be based not just on where you currently sell or produce, but in consultation with your marketing team who can provide guidance on which markets may be up and coming. When you categorize your IP, then, you can do so based both on priority and geography.
Beyond this, it helps to be proactive with a regular portfolio review and clean-out every two years or so.
There’s one final note about efficient patent prosecution, and that is that efficiency is lost if filing and prosecution related to highly valued assets is delayed for too long. While it can be tempting to push the cost of filing and prosecution, doing so often just delays costs rather than reducing them, and may even create new problems that increase costs over the long term. Instead, focus on what’s of greatest value in your portfolio, and continue to file and prosecute for those key patents as aggressively as you always have.
Invention Disclosure and Patent Prosecution: Maximizing Protection while Minimizing Costs in the Prosecution Phase
When it comes to cutting costs, there are also considerations to be made as to whether to file for provisional or non-provisional patent applications. Generally speaking, provisional patent applications can be an economical first step, allowing you to at least get your stake in the ground at a lower cost. This gives you time to develop your overall strategy as products or innovations become more clearly defined. Provisional patents can also save expense if you strategically determine which provisionals to convert after one year. In some instances, simply filing a second provisional and abandoning the first can delay cost in certain circumstances, but also effectively extend the protectable life of the invention.
Examiner interviews are also a key strategy that can help streamline prosecution by reducing the back and forth of arguments that may or may not grasp the crux of the issue. In some cases, it may even be possible to have two interviews—one to gain an understanding of the examiner’s position, and if there is time, a follow-up interview. From there one could file a response that could potentially bring the case to an end.
When it comes to foreign filing, a potential cost-cutter is pairing up with a reliable outside foreign associate who can provide valuable input on the best strategies for proceeding in their own jurisdictions.
Maximizing the Value of Your Existing Patent Portfolio
Maximizing the value of your existing patent portfolio involves taking into account certain general or overriding considerations, managing cost, and extracting value. The following are ten key strategies to help you achieve this aim.
1. Acknowledge uncertainty. Recognize that uncertainty is a given and, instead of worrying about it, embrace it. When you take uncertainty into account, you may even decide to increase patent prosecution in certain areas or execute a strategy that helps maximize claim coverage and/or communicates strength to the competition. Letting competitors know that your company has the power to pursue broad protections could prove an effective strategy.
2. Be crystal clear on the purposes and goals for your portfolio. Is there a short-term strategy? A long-term strategy? It’s difficult to manage a patent portfolio budget without a strategy by which to evaluate your patents. On the other hand, knowing precisely why you own the patents you do and what your goals are for them provides a framework for budgetary decisions.
3. Develop a crisis plan. The recent pandemic is clearly an example of the need to be prepared to take action quickly in challenging and changing circumstances, but it is only the most recent example, and it won’t be the last. Economic, social, and market fluctuations will continue to occur, necessitating a plan that can anticipate and ready your company for challenges. This will involve ranking the patents in the portfolio regularly. For best results, the ranking system should involve patent review committees that include colleagues from multiple disciplines within the company, as well as building a planning matrix specific to your company. For best results, the ranking system should include several criteria, including the importance of the technology, geography where patents exist, and the amount of time remaining in the life of the patent, among others.
4. Manage your budget. The only way to get ahead of the game is to communicate proactively about how the budget is organized and executed and what strategies underlie it. Another key to budget management is recognizing areas where outsourcing is beneficial such as IP legal counsel, patent filing firms, searches, patent annuity filings, global filings, and docketing services.
5. Use outside counsel. Long-term trusting relationships can lead not only to close alignment on goals and strategy but to more significant cost reduction. As you develop your operation, you may also bring some of the work in-house; the ratio depends upon your company, your budget, and the amount of IP you’re handling. Whatever balance works best for you, however, the key is partnering with your outside counsel to secure updates as quickly as possible from them as well as provide them with regular communication so they can work most effectively on your behalf.
6. Stratify work. Take advantage of labor arbitrage.
7. Leverage fixed fees and alternate fee arrangements. Consider how to manage this process effectively, perhaps with fixed fees that provide soup-to-nuts service on actions ranging from patent searches to global filings.
8. Transform your IP and legal department into a profit center, not a cost center. It’s important to articulate that your IP legal department is there to generate profit. Make it clear that you’re not going to own or enforce patents unless they add value, and back up this position with a clearly defined strategy to monetize your patents.
9. Exploit opportunities to acquire or enforce patents as other companies are struggling. Patent litigation has increased in 2020, market, and economic uncertainty notwithstanding. Enforcing your patents in this time is another way to extract value.
10. Partner with your tax department. Having an open, ongoing, and productive relationship with your tax department is critical.
Tax Treatment of Patent Portfolios and Patent-Related Expenses
When it comes to tax treatment of patents, companies often assume that when they are creating a new asset they must capitalize those costs rather than treat them as deductible. However, the IRS code allows for immediate deduction of research and experimental expenses, or for amortization over five years. While expenses like marketing would not qualify here, anything related to patents does, such as patentable technology, legal fees, etc.
While tax deductions reduce your taxable income, tax credits reduce the amount of tax you actually pay. Depending on your circumstances and the states in which you do business, you may prefer a deduction or a credit.
That having been said, there is a specific tax credit for R&D expenses—approximately 20%. Even companies that don’t yet have taxable income can usually carry a net loss forward, and in the case of tax credits some states make provision for companies with <$70M of revenue to convert state-level R&D tax credits to cash at $0.65 on the dollar. Some countries do this as well—the U.K., France, Canada, and Australia all provide a refund for unused tax credits.
Another factor to consider is value accretion. Especially if your company is creating IP that can have a multinational impact, it’s critical to plan for where you want that value to reside. The focus here should be on where the value will accrete, what entity will own the IP, and where that entity will be located.
Keep in mind as well that strategies that worked previously may no longer be advantageous. For example, the 2017 Tax Cuts and Jobs Act (TCJA) created a new type of offshore tax called the global intangible low-taxed income (GILTI) specifying that whatever you earn in excess of 10% of the value offshore, you end up with a 10% minimum U.S. tax on that income.
Finally, there is the question of what to do with patents that are of limited value. Companies used to donate IP to charities to get a tax deduction and, in some cases, the charity would agree to license the IP back only to that company, or agree to never actually license it to a different company. But the amount you can deduct for donating a patent to charity has been minimized under tax reform, and the process is now generally used only for patents acquired by purchase or for patents generating royalties from which the charity gains the benefit of an ongoing royalty stream.
Ultimately, the key to maximizing IP rights and reducing costs lies in thorough and ongoing portfolio valuation guided by careful planning in alignment with business goals and strategies and in concert with trusted partners including outside IP legal counsel.
This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.