InnPerspective

A Series of Industry Focused Articles

Read about the latest trends and updates in the intellectual property industry from the Innography perspective.

Maximize Value; Minimize Cost. Your IP and You.

Saturday 28, February 2009 by Tyron Stading

My last few blogs have focused on — or at least acknowledged — the sputtering economy. And while that reality is an important aspect of any business, it’s equally important to realize that a lot of our best businesses practices are applicable regardless of the state of the economy. The suggestions I’ve previously offered regarding IP and how to manage it make sense in both good times and bad.

That’s because the Total Cost of Ownership (TCO) of your IP is staggering. It’s estimated that the average cost over the course of the 20-year life span of a single patent is about $100,000.00 — or roughly $5,000 per year in maintenance fees. And that doesn’t begin to cover the initial investment, which on average is about $150,000.00 to develop a single patentable invention. That’s due in part because the U.S. patent office currently rejects about 65% of all patent applications.

Then there’s the cost of IP litigation, which is estimated at approximately $4.5 million dollars in attorney’s fees as well as the costs associated with financial compliance regulations such as Sarbanes Oxley. Also, if licensing is part of your business model (as it should be), there’s the cost just to manage your licensing pipeline. Add it all up and you’re talking about a huge investment.Given the TCO of individual patents, companies should strive to get a healthy Return on their Investment (ROI). One of the most effective things you can do to maximize your ROI is to embrace the concept of Open Innovation networks.

Open Innovation helps you create new revenue streams while simultaneously reducing your required R&D investment. Companies like Proctor & Gamble did exactly that and experienced a great deal of success as a result. According to Larry Huston, a senior fellow at Wharton’s Mack Center for Technological Innovation, Procter & Gamble extended its innovation process, to comprise 1.5 million people outside the company.

In his article, Innovation Networks: Looking for Ideas Outside the Company, Huston writes “Innovation networks are people, institutions and companies that are outside the firm …. They are intellectual assets that companies can link up with to solve problems and find ideas, while beginning to think about those assets as an extended part of their organization — and therefore quickly create top-line growth and bring new things to the marketplace.”

If you choose to build everything in-house, you ensure your inability to be as agile and creative as your competitors. The sheer number of innovators outside your corporate walls makes it impossible for you to effectively compete with everyone. While R&D is a key function, some companies are now requiring a percentage of their product lines and technologies to be externally acquired. R&D costs can be significant compared to the benefits of licensing from the outside when considering time to market and lost opportunities.

Externally sourcing innovation could save you a lot of money and resources, while simultaneously providing the added benefit of accelerating your time to market.

Another way to improve your ROI is to vigilantly ensure your IP investment continues to make sense. Having a blanket business policy of always maintaining everything in your IP portfolios can significantly, and often needlessly, increase costs for your business. Today’s market requires a process to understand the value of the patent — both to you and to potential licensees — so that your business strategy drives renewal decisions based on evolving market conditions.

Using objective metrics to determine whether to continue investing in maintenance fees will have a positive impact on your bottom line. If you find that, by judiciously analyzing your portfolios, you can eliminate a portion of your IP because it’s no longer relevant to your business, you also eliminate a lot more than maintenance fees. You cut the other associated costs I mentioned as well.

You can also consider the possibility of out licensing such patents so that you can continue to collect revenue while offloading the costs to others who do find the patent valuable. It’s a little like renting your house to a tenant rather than selling it to a buyer. You keep the property while letting someone else pay the mortgage and taxes as well as collecting a nice premium from the renter.

It’s also important not to overlook the patent jurisdictions represented in your portfolios. Initially, it may have made sense to file a patent in a particular jurisdiction. That doesn’t mean it makes sense to keep renewing it in that jurisdiction for the entire life of the patent.

The point is that while IP portfolios are extremely valuable, they are also very costly to create and maintain. Like any other business asset, you need to recognize those costs and do all you can to get the greatest ROI from them. You also need to understand when it’s time to let them go because they no longer have the value to you that they once did.

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