27 January 2013

Six Tips for Your Business to Avoid Wasting Money on Patents

Money ManagementFor many small and medium sized businesses, it can seem difficult to justify spending thousands of dollars on the preparation and filing of a provisional patent application, let alone spending tens of thousands more on obtaining actual granted patents over the subsequent years.

On the other hand, those same businesses may have annual salary costs in the hundreds of thousands, or millions, of dollars.  And they may think nothing of spending ten thousand dollars or more on attending an international trade show to promote their products or services.  These expenses, along with many others, are simply the cost of doing business.  After all, you have to spend money to make money.

A patent can protect innovative features, which differentiate a product or service in the marketplace, from copying by competitors.  Those features may have cost tens or hundreds of thousands of dollars in direct and indirect costs to develop, promote, and bring to market.  They may be the result of particularly innovative thinking on the part of highly-valued (and highly-priced) key staff within the business. 

If this sounds like the kind of thing that happens in your own business, why would you not be looking to protect this investment against copying?  Part of the problem seems to be that many businesses lack experience with intellectual property management and protection, and therefore do not have a sense of what constitutes a ‘reasonable’ cost for these activities.  Intellectual property, by its very nature, is intangible – it is very difficult to determine exactly what it is worth.

So if you are looking to build a patent portfolio, how do you know if you are getting good value for money?  And how do you avoid ‘wasting’ money on services and IP assets that do not contribute value to your business? 

There are no simple answers to these questions, and certainly none that are universally applicable.  Nonetheless, here are a few tips that may help you to avoid some of the mistakes that many businesses make, which cause them to waste money on patents and advice that are not adding corresponding value to the business.

1. Do Not Apply for Patents

If you are not spending money, you cannot be wasting money!

There are many situations in which the right decision for a business is not to be applying for a patent in the first place.  For example, one circumstance where this might be so is when an invention is embodied in a smartphone app.

Obtaining and maintaining patents is an expense.  Like any business expense, there should be a supporting business case to establish that the cost is justified.  This could be because patents will increase revenues to the business, for example by enabling you to charge a premium price for products having patented features that your competitors do not offer, or by generating income from licensing royalties.

Alternatively, patents may enable you to avoid greater costs, or to mitigate business risks, i.e. a similar justification for spending on insurance premiums, even though you may never make a claim.  However, it is important to understand that, unlike insurance, patents do not come with a policy document assuring you of the outcome when particular conditions are satisfied.  Many people wrongly believe that owning a patent on a novel aspect of a product or service will protect them against being sued for infringing somebody else’s patents.  However, the defensive power of a single patent is typically limited, although a larger portfolio of patents can sometimes be deployed in cross-licensing deals with patent-holding competitors.

You may need to seek professional assistance to develop an intellectual property strategy that is suitable for your business.  But it could be that patents are not a big part of such a strategy.

2. Seek – and Accept – Professional Advice

OK, this may seem a bit self-serving coming from a patent attorney, but you will probably need to spend money to save money.

Think of it this way: if you do not know much about engines, you pay a mechanic to service your car; you probably pay accountants and lawyers to help you with your books, tax returns, contracts and so forth; and you might well be outsourcing other functions in your business, such as maintaining your web site, or managing your marketing.  So why would you skimp on obtaining professional advice in relation to something as important to your business as intellectual property?

Sure, patent attorneys are expensive – and patent attorneys who are experienced and skilled IP analysts and strategists even more so.  But the skills and training involved in providing such advice are considerable, ideally combining relevant technological, legal and commercial experience.  Attempting to hire such a person into your business would almost certainly cost you a six-figure salary, even supposing you can justify a full-time role, so this function is a prime candidate for outsourcing.

Find an advisor you can work with, and trust.  By all means question, challenge and test their advice.  If necessary, get a second opinion on really important matters.  But ultimately, if you are not going to accept considered professional advice, you are wasting your money paying for it.  This may seem self-evident, but you might be surprised at how often some clients decide to ignore advice that they do not want to hear.  There is a good discussion of a very common situation in the trade marks field in a recent article on the IP Kat blog.

3. Treat Your Professional Advisors as Partners in Your Business

As you read through the remaining tips, you will realise that obtaining and maintaining patents is a long-term proposition.  If you have an IP–intensive business, and your intention is that it live long and prosper, you are going to need to develop, implement and evolve a long-term IP strategy that is aligned with your business strategy and objectives.

A good professional advisor will be invaluable in helping you to do this.  Your patent attorneys will want you to succeed – quite aside from anything else, if your business fails, it is lost as a client.  But more importantly, the lengthy processes involved in invention, innovation, commercialisation and protection of IP mean that every client relationship is one that can potentially last for many, many years.

Believe it or not, many patent attorneys end up caring greatly about their clients.  That does not mean we will not charge you – we have a business to run, too – but it does mean that we actually want to provide you with good value, and help you to succeed.

The fact is that the more your advisors know about your business, the better able they will be to provide you with useful strategic advice at reasonable cost.  If your patent attorney knows immediately which one of a number of available options is best for your business, they will not need to spend time informing you about the inferior or irrelevant alternatives.  If you keep them updated and informed about developments in your business and you industry, they will not need to spend so much time asking you for input every time you need some advice.

Treat your attorney as part of your trusted team, and you will get better value.  And if your attorney does not seem sufficiently interested in your business, consider finding another attorney!

4. Budget Properly for IP Advice and Protection

Too many businesses – particularly small businesses just starting out in their efforts to identify, manage and protect their intellectual property – do not make the effort to budget properly for this activity.

In all of the excitement of having come up with a great new idea, and realising that you might be able to get a patent on it, it is all too easy to just dive in and start the process, scraping together the cash from existing reserves, or at the expense of investing in other aspects of your business.

This is no way to run a business.  Even the most generic strategy for obtaining patents on a single invention requires a long-term commitment of funds.  You might be able to find a few thousand dollars now, to get a provisional application prepared and filed, then another few thousand for a decent prior art search.  A year later, you might need a few thousand more to proceed with an international application, which will only serve to defer by 18 months or so the much larger costs that may be incurred if you want to apply in a few different countries.  Then you will have further costs of examination and grant to look forward to, followed by years of paying periodic maintenance fees to keep the patent in force.

Worst of all, once you have stepped onto the patenting treadmill, the only way off is to abandon your applications.  The process involves deadline after deadline, year after year, and failing to take the necessary actions by any one of those deadlines results, in most cases, in a permanent loss of rights.

Here is a little secret – patent attorneys hate being asked to project costs.  This is not because we are secretive, difficult or incompetent!  It is because it is a really hard thing to do.  There are so many variables in the patenting process that we invariably end up just doing our best to land in the ball-park, particularly once we are looking more than two or three years out from an initial filing.

But you need to obtain estimates, and you need to plan and budget as best you can within the limitations of your advisor’s ability to predict the future.  Because the alternative is that you will end up putting your hand in your pocket every time one of those deadlines pops up.  You will have no control over what you are spending.  If you never hit a budget limit, you will never be forced to stop and consider whether the right choice is to let something go to reduce costs, or to re-evaluate your budget to preserve valuable rights.  Inevitably, you will waste money.

5. Be Realistic in Your Goals

Almost everybody who wants a patent, wants to have it everywhere.  But there is no such thing as a worldwide patent right.  Ultimately you have to make a decision about the countries in which you are going to pursue granted patent rights.

Most patent attorneys in Australia will be accustomed to clients coming through the door and announcing that they want a patent in China, because if they can ‘capture just 0.01% of the market, there are millions to be made!’

OK, so what is your business plan for capturing 0.01% of the Chinese market?  Do you know how to do business in China?  Do you speak the language?  Do you understand the culture?  Do you have trusted partners who do?  And what part, exactly, is a patent going to play in your market development strategy?  Oh, you do not have a market development strategy for China, but you think you should get a patent anyway, just in case?

Well, yes, maybe you should.  But there still needs to be a sound business justification for spending at least $10,000-$15,000 to obtain a Chinese patent.  A better reason might be that you are planning to have your product manufactured in China, and you want to know what you can do if the manufacturer decides to make a few extras on the side, and sell them more cheaply to the local market, or to your competitors.

And while China is a particularly stark example of the issues to be considered when developing an international patenting strategy, you should be asking similar questions about every foreign market.  All too often, Australian businesses think that it will be relatively easy to break into the US market because they speak (roughly) the same language there, and we are exposed to plenty of representations of the culture on our various screens.  The reality, sadly, is that for most Australian companies the US market is no easier to crack than many other foreign markets.

In short, if you are spending money pursuing patent rights in countries where you will never see a return on that investment, you are wasting that money.

6. Be Ruthless

If a patent or an application is not performing as originally planned, you may need to drop it.  This can be a tough decision.  You may have a lot personally invested in the invention it represents, and you may have spent a great deal of money getting this far.  But neither of these are sound reasons to send good money after bad!

Some applications end up costing far more than anticipated.  Perhaps you encounter a difficult examiner, or some unexpectedly close prior art.  Even if you can overcome  objections to the application, this might require a narrowing of the scope of the patent such that it no longer provides commercially useful protection or licensing opportunities.  Or maybe you have hard-won patents that no longer cover your products, or have been superseded by new technology.

What is the business case for continuing to pursue difficult applications, or continuing to maintain outdated patents?  If there is none, then abandon!

Conclusion

All of the above tips can be summarised in a single ‘meta-tip’:

Align your IP strategy, including your patent strategy, with your business strategy.

You need a plan for where you business is going, not just for the next year or two, but including long-term goals and strategies.  Of course, such a plan will necessarily need to adapt over time to changing circumstances, but that is no reason not to have a plan.

And your patenting strategy is not separate and independent from you business plan.  Your business strategy informs you patenting strategy.  If you plan to grow the UK market, maybe you should plan to file your patent applications in the UK. 

And your patenting strategy may also inform and influence your business strategy.  Imagine that you have a particularly aggressive competitor in the US which is making one of your products unprofitable in that market, and a corresponding patent application has been repeatedly rejected.  In this situation, you probably have some tough decisions to make about not only the fate of the patent application, but also whether it is worth persevering with that product in the US market.

Managing and protecting your intellectual property is a cost to your business.  But so are product design and development, marketing, sales, distribution, and accounting.  You do not avoid spending money in these important areas, but at the same time you are hopefully getting value from them, and not wasting money.  If intellectual property is important to your business, then your approach to it should be no different.

Do you have any other tips for cost-effective patent portfolio management?  Or any war stories to share about costly patenting mistakes?  If so, please feel free to share in the comments below.

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