Everything You Need to Know About Patent Pruning
A few decades ago, filing a patent application was considered a big deal. It was a time when one valued quality more and applying for patents was more than just a game of numbers. The count of casual filings was low, and one typically valued granted patents highly in terms of both their quality and face value. However, as times changed, the patent application methods changed too. Companies began submitting hundreds of patent applications each year to secure a monopoly on technology, leading to massive patent portfolios that began to weigh on companies’ financial resources. This led to the need for patent pruning. Today, patent pruning is considered one of the best ways to optimize a patent portfolio.
This article discusses patent portfolio pruning, why it is essential, its process, objective as well as subjective analysis, and more. But first, let us understand the costs involved in maintaining patent portfolios and how patent pruning can help bring them down.
Costs to maintain Portfolios & Patent Pruning Method
The core idea behind performing patent pruning is to reduce the overall costs for the patent owner. Usually, research and development (R&D) expenditures, patent filing and prosecution costs, and maintenance fees are significant monetary investments involved with obtaining and maintaining a patent portfolio. Furthermore, these costs increase year on year, adding to the financial pressure on the IP owner.
This expense rises exponentially for patents retained for more than a decade as they are presumed to hold a much higher market value. Companies must therefore assess their patent portfolios, determine unessential patents, and eliminate them to avoid unnecessary maintenance fees. One can perform an additional study on the patents that do not belong to the core business and rank lower on the quality metrics to determine whether removing them is a good choice. This is where the concept of patent pruning comes into play.
Patent pruning – also referred to as patent portfolio optimization – is the process of analyzing patent portfolios to identify, categorize, and optimize patents. It is a method to determine and prioritize which patents should be maintained and which ones should be sold and otherwise eliminated. Patent pruning makes it more feasible for companies to enhance their patent portfolios to preserve a notable amount of funds continually wasted on retaining extrinsic or substandard patents.
Researching an IP portfolio to define key value drivers and determine the items that may fall outside the business’ objectives can help augment the organization’s potential value and free up resources that were otherwise used in maintaining useless patents.
The following section discusses the importance of patent pruning to help you further your understanding of the idea.
Why is Patent Portfolio Pruning Important?
Intellectual property assets add value to a company’s profile. However, robust and economically viable IP assets provide an added financial advantage to the business and provide an edge in the market. Patent portfolio pruning helps companies eliminate the extra economic burden levied by their unused, unproductive, and non-profitable intangible assets.
Patent pruning involves the analysis of a company’s patent portfolio to identify and categorize patents into core, non-core, high and low-quality categories. Such segmentation helps abandon low-quality patents for increasing the total patent portfolio value. Every person, business or any other organization that maintains a substantial number of patents in a portfolio must have a robust patent pruning process. Furthermore, one of the main reasons for performing pruning is that patents usually lose value for the owner over time. Therefore, including them in the pruning process saves money, which one can reinvest in new IP filings, R&D activities, maintaining patents, and much more. Without this process, patent owners would never realize which of their patents are no longer beneficial and are putting avoidable financial pressure on the company.
In short, patent pruning helps identify:
- High-quality patents that can be retained or renewed.
- Low-quality patents that can be abandoned.
Importance of Patent Pruning for Large Companies
Pruning is a common strategy used by companies, of all sizes, holding patents to optimize their portfolios. One might say that the importance or need of patent pruning is directly proportional to the size of the patent portfolio. This happens because as the patent portfolio size increases, so does the cost of maintaining it. For instance, a company managing a portfolio of, say, 100 patents, would be spending a lot more on renewal and prosecution than another company with a portfolio of mere 10 patents. Realizing this, several of the world’s industry leaders are optimizing their patent portfolios through patent pruning to bring maintenance costs down.
Let us now look at an example. In 2021, one of the largest corporations in the world and biggest names in the technology domain, IBM, announced its plan to retire more than 50% of its patents that are up for renewal. The graph below shows IBM’s US patent abandonment trend. It is easy to see that, while earlier (2002–2010), the company mostly discarded patents when they were up for renewal a second time (7.5 years), more recently it has begun to do the same with patents that are up for renewal the first time.
While it may appear to be a foolproof task for patent holders, there are certain risks involved in patent pruning, if not performed in a correct manner. Let us now understand all such risks.
Risks Involved in Patent Portfolio Pruning and Ways to Overcome Them
Patent portfolio pruning can be a risky task. If not performed with utmost care and precision, one risks losing an asset that probably had the potential to generate income. It often requires multi-industry specialists to see the complete potential value of a patent in an entirely different space than the business that currently holds it. For instance, a patent you hold in your industry may have licensing or selling opportunities in another sector of the economy.
Thus, it is highly recommended to avail the services of an expert before opting to sell or abandon any patent in the portfolio. Moreover, an amateur and novice patent analyst conducting patent pruning may lead to the abandonment of an intellectual property that may be critical for the functioning of the business or may have some latent value that could be exploited through licensing or selling.
There are numerous ways to overcome the risks involved in patent portfolio pruning. Amongst the most common methods is conducting IP valuation through skilled experts to help identify and eradicate inefficiency and generate guaranteed substantial new business growth. To do so, one should get an expert consultation before abandoning patents or allowing any intellectual property to lapse. Experts can accurately determine the IP’s potential value, find selling and licensing opportunities, and help patent owners decide on keeping or abandoning the IP.
Recognizing and pruning under-utilized and unused patents from an IP portfolio is a small piece of the much bigger picture – optimal IP management. It is immensely advantageous to use industry experts who also have excellent technical knowledge of the field so as to create and maintain a perfect plan for your IP. Knowing the worth of the parts that make up the whole can help in deciding which should be kept and which can be discarded.
Understanding how critical the value of a patent is in the patent portfolio pruning process is a key element. Without understanding the current and potential value of an IP, no expert can rightly prune a portfolio. Therefore, in the next section, we will highlight some important factors that determine the potential of a patent.
How to Determine the Potential of a Patent
Before one decides to abandon even a single patent that does not belong to the core of the business and ranks lower on the quality bar, a detailed study or analysis is required. The objective of this research is to decide the infringement potential and licensing of a patent.
The following critical factors must be considered while gauging the potential value of a patent:
- The scope of claims and whether they are limited or broad in nature. Broader claims can boost the likelihood that you will be able to license the intellectual property in markets that you are not directly competing in.
- Size of the present and projected markets for the technology covered by the patent.
- Whether third-party products are currently utilizing the proprietary technology.
- Whether the technological sector is in demand and there is active research taking place in that field.
Comprehensive research around these factors can help a patent expert find the potential of a patent as accurately as possible. The patents that appear to have potential can be further assessed for monetary gain through licensing, enforcement, or sale. Moreover, there are specific criteria to be followed when pruning a patent portfolio. The below section talks about measures that one should look for when performing patent pruning.
Criteria for Pruning Patent Portfolios
It is noteworthy that patents which are completely unused are not the only ones that get pruned (sold or abandoned), and companies may even prune patents that are extensively used by the owner. However, there are several important things to take into consideration here. The following is the criteria for pruning patent portfolios that continue to be part of a product:
- If the method or technology that is protected by a patent grant has an obvious workaround.
- In case a prior art that can easily invalidate the patent has suddenly come to light.
- If a country no longer offers your product or technology, any commercial potential (one can evaluate country-specific pruning).
As you must already know by now, one of the most critical elements of the patent pruning process is the analysis, and categorization of patents into core, non-core, high and low quality. This is where objective and subjective analysis of a patent portfolio appear into the picture. Let us understand the two with examples.
Objective Analysis of a Patent Portfolio
The primary goal of objective analysis is to identify core patents—patents that are directly related to a company’s goal. It can easily be done by assessing the patent tags. Patent tagging is performed either in-house or through IPC/CPC classification codes. One of the most significant tagging parameters is ‘core and supplementary,’ which one uses to check whether a patent corresponds to the products of the company or not. If yes, one considers it as a core patent, else tags it as supplementary. At the end of this exercise, all the patents categorized as core can be retained, whereas the ones categorized as supplementary through this activity can be potentially pruned. Moreover, detailed analysis at a later stage can help make decisions about licensing, selling or abandoning supplementary patents.
Apart from the core and supplementary tags, other tagging parameters can further help in shortlisting patents for pruning. For instance, we can check if the patents relate to other products or organize the patents as per multi-tier technology and applicability tags. For objective analysis, the quality indicators are – the rate of forwarding citations, variation of forwarding assignees, diversity of patent families, diversity of IPC/CPC of forwarding citations, etc. The process is usually automatic, with an algorithm used to determine a patent’s strength based on a variety of criteria. Based on the study of these factors, one can determine the rank or strength of a patent.
Example of Objective Analysis
A cloud service provider’s patents might be marked as per the tagging parameters to identify supplementary and core patents. Here, technological tags can help achieve the desired tagging results. Therefore, networking and content delivery patents (i.e., those linked to the cloud network or cloud category) would be essential to the business and will be retained after the patent pruning process is complete.
While objective analysis may garner accurate results, it is not always the best option. For instance, one may seek to gauge the quality of a company’s patent portfolio for merger & acquisitions (M&A), investment, licensing, and other purposes. In such cases, instead of objective, a subjective analysis may help get more suitable results. Read on to understand this type in detail.
Subjective Analysis of a Patent Portfolio
Being entirely manual and goal oriented, subjective analysis is often carried out by an experienced searcher. It is primarily done for non-core patents to check which of those can be renewed for licensing or selling, and which ones can be discarded. Subject matter specialists conduct the search based on the client’s goals and evaluate the patents on the following factors:
- Portfolio Relevance to the Product Line: When the objective behind the analysis of an IP portfolio is to determine the profitability in buying the portfolio, it is crucial to assess how relevant the portfolio is to one’s line of business. This can help decide whether or not the transaction should go through. Even though there may be good potential for infringement and a healthy market for the patents in the portfolio, they may not be worth much if they do not solve a technical problem for the potential buyer.
- Current Phase of Technology Covered by Patent: The lifecycle of the technology covered by the concerned patent is a crucial aspect that may determine how much the invention is worth. Patents filed during the development phase of a technology often carry a high value due to fewer players exploring the space. In addition, patents issued during this phase frequently serve as the foundational patents of technology.
- Litigation Potential of Patent Portfolio: The two stages of a patent’s lifecycle are prosecution and maintenance. It is frequently observed that only a handful of patents invite litigation during the maintenance phase. But patents with the possibility of litigation are much sought after due to their potential to generate revenue for the owner.
Example of Subjective Analysis
Using objective analysis, a large network device manufacturer’s patents can be categorized into core and non-core. The non-core patents are then assessed using a variety of additional factors. As a result, while some patents will have a high claim scope and high ease of identification, others will have a medium claim scope and low ease of identification.
Additionally, as per the F3 analysis model, fringe patents comprise lean and obsolete patents that have the least possibility of value generation. While lean patents have no family member under prosecution, obsolete patents are not used in any current products/services. Therefore, by combining objective and subjective analysis, we can determine which patents can be removed and which ones need to be renewed to earn revenue.
The next section talks about the steps involved in performing patent pruning effectively and efficiently.
Patent Portfolio Pruning Process
The three steps involved in the patent pruning process are explained in detail below.
1. Identify Core and Non-Core Patents: Finding core and non-core patents is the first step in optimizing a patent portfolio. Core patents cover an organization’s fundamental technologies and safeguard its products and services. The rest of the patents are regarded as non-core. Market applicability and future relevance of the protected technology are two additional factors that can help in the shortlisting of patents for pruning.
2. Pack Similar Patents Together: After categorizing the patents, it is critical to find those that are similar and group them together for additional analysis. One can accomplish this by employing sophisticated similarity algorithms and business intelligence approaches or using patent landscape techniques utilizing the international patent classification (IPC)/cooperative patent classification (CPC) codes. The aspects that one can consider for patent bundling include areas of application, jurisdictions, technical domains, etc.
3. Patent Sets Sorting: Given the precise risk-tolerance and decision-making bandwidth, the patent sets or patent bundles that are selected for pruning can be further categorized based on a few essential criteria that aid in producing distinct viewpoints. Some of these crucial factors include:
- Patent Life: While patents typically last for 20 years, this term can shorten if the owner does not pay the necessary maintenance costs. Furthermore, the required maintenance fee rises in tandem with lengthening a patent’s term. It means that businesses should carefully assess the market viability and long-term relevance of their existing patents and weed out the unnecessary ones to reduce costs.
- Patent Family Size: The size of a patent family is another crucial factor in sorting out patent sets. Such a distinction is essential since a large patent family is bound to cost more to file and maintain. There are often two different categories of members within a patent family. While one protects certain features of the invention in the same or different jurisdictions, the other protects a similar innovation in multiple jurisdictions. Therefore, patent family members can be abandoned or maintained based on a comprehensive analysis of particular invention potential in a jurisdiction.
- Forward Citations: A forward citation is another factor that can influence a patent’s significance. It is because other vital players in the technology area will frequently cite a relevant patent. A patent with a sizable number of forward citations indicates that other businesses operating in the same field believe it to have a lot of potential. So, one can filter patents with few or no forward citations for pruning.
- Citations Per Year: This is another crucial factor that can weed out patents with growing market potential. An increase in the number of citations each year indicates the growing market potential of the patent. Such patents are essential for businesses because they aid in keeping rivals from stealing market share.
- Self-citations: This parameter establishes the significance of a patent-protected technology for an organization. It is so because a company will only mention a patent that covers a product or the technology that goes with it. The likelihood that a patent is connected to the company’s core technology increases with the number of self-citations.
Companies learn about irrelevant patents after completing the final stage of sorting the patent sets. Such patents ought to be pruned through selling or abandoning. In case of a high infringement potential, such patents can also be offered to relevant buyers. And patents that are neither relevant nor have any potential for infringement can be abandoned.
Why Choose Sagacious IP for Patent Pruning
Our team of patent experts analyzes each patent for current core offerings as well as overall strength. We have helped companies from around the world make informed decisions about selling and abandoning their patents. Here is why we are the first choice for several businesses for their patent portfolio optimization needs:
- Quick identification of core/non-core patents
- Analysis of around 2000 patents per year
- Proprietary process and ranking mechanism for swift objective analysis and scoring to identify low-quality patents
- Prudently curated subjective parameters to identify Fundamental, Future and Fringe patents
- Thorough analysis for making business-critical decisions
Taking a systematic approach to the portfolio pruning process can help keep your IP portfolios in line with the current business objectives. One can reduce a few of the difficulties posed by this time-consuming process by utilizing the best tools for patent analysis. Redundancies in the patent portfolio can result from various reasons, including mergers and acquisitions and purchasing or selling items. Additionally, some patents may become non-core to a company over time. IP managers should maintain a patent portfolio that is in sync with the company’s principal objectives and discard any patents that are no longer necessary, saving money on maintenance and annuity.
Working with industry and technical specialists is beneficial when developing and maintaining a plan for your IP portfolio. They can help identify and remove underutilized and unused patents. This is where Sagacious IP comes into play. Our team of experts provides patent pruning service wherein it identifies core and non-core patents and performs quick objective analysis and scoring to identify potentially low-quality patents. Moreover, our experts also carry out subjective analysis of non-core patents to provide a more in-depth opinion for patent pruning. Visit the page to learn more about the service.
– Honey Mago (ICT Licensing) and the Editorial Team