IP Due Diligence: Why Fortune 500 Companies Abandon a Huge Chunk of Patents Every Year
The current global economic scenario has compelled IP-centric businesses to adopt several cost-saving measures in an attempt to manage their budgets effectively. In such circumstances, maintaining a patent portfolio has thus become an expensive ordeal. One of the ways to overcome this challenge is to exercise IP due diligence and assess patents based on their importance. It can help businesses to decide whether to renew them by paying the maintenance fees or abandon them if they no longer hold much value.
Abandoning weak patents can generate a reverse cash flow that can be effectively utilized to streamline other important aspects of businesses. To detect unnecessary patents that can be abandoned, businesses often resort to patent pruning. This article defines patent pruning and explains its importance in context of the Fortune 500 companies that often abandon some of their patents every year.
What is Patent Pruning?
It is a process of identifying patents that can be abandoned. Execution of this process requires an in-depth understanding of the business as well as the IP objectives so that no valuable patent is lost.
While patent portfolios of companies usually comprise of a large number of patents, statistically, most of them do not generate any economic value for the owner. Moreover, owners are required to pay continuous maintenance fees during the patent’s lifetime. For example, in the US, one has to pay maintenance fees thrice during the complete life of a patent.
|Patent Years||Small Entity (USD)||Micro Entity (USD)|
|Due at 3.5 years||1,000.00||500.00|
|Due at 7.5 years||1,880.00||940.00|
|Due at 11.5 years||3,850.00||1,925.00|
The figures above highlight that the maintenance fee during the last tenure of the patent is mostly twice the previous one. It is generally assumed that the older patents are maintained because they once generated a higher market value for the innovations they protect. However, with time, the technology for which the patent was obtained may become obsolete. Therefore, there is a need to look into the worth of patents in their final years of existence. Generally, as per Sagacious IP’s experience in the IP sector, 20% of the patents create 80% of the value for a company. Depending on this, the questions that are bound to arise are:
- What happens to the remaining patents? Are they worth such a high investment?
- How many of those patents are still worthy of generating monetary value by protecting an existing or a future product?
- Can those patents be used to generate any sort of licensing or sales opportunity?
IP Due Diligence: Why is Patent Portfolio Pruning Necessary?
Considering the above scenarios, it becomes crucial to identify underutilized, and unused patents from a portfolio. This is because there might be patents that are no longer applicable to the organization’s current business objectives. Therefore, it is wise to protect the right patents and have a comprehensive patent valuation to make informed decisions.
Trends suggest that top patent filers also top the list of companies that prune considerable patents. For instance, Fortune 500 company IBM topped the US patent list in 2020. At the same time, it has been abandoning patents up for renewal at a rate of more than 50 percent. One of the main reasons behind this is that patents lose relevance to businesses and therefore pruning them helps these companies save renewal fees. As per Sagacious IP’s estimation, the rate at which Fortune 500 firms abandon the patents within 4 years of their issuance generally ranges from 13% to 30%. The figure below lists 3 of the main reasons why such companies abandon these patents:
To prune patents for companies with such a vast portfolio, it becomes vital to analyze which patents are worth keeping and which ones should be abandoned. After all, the patent maintenance cost for 100-1000 patents can run into millions!
Reinvest the Saved Money in Future Filings
There’s no doubt that patent pruning helps in cutting off excess patent protection expenses. In addition to that, the money saved by abandoning patents can be utilized in R&D activities, new IP filings, or for paying other patent’s maintenance fees. However, one needs to keep in mind that before abandoning, it is important to have a strategic macro-level analysis of each patent. This is because simply pruning patents is not enough, one needs to do it strategically.
Sagacious IP’s patent due diligence service enables businesses to assess the quantity, quality and enforceability of their patent or the complete patent portfolio. Our team of 300+ techno-legal professionals can assist organizations to make strategic decisions regarding their patent portfolio. To watch a webinar on the subject, click here.
- Amit Kumar (ICT Licensing) and the Editorial Team