This article appeared in the October 2020 issue of Technology Transfer Tactics. Click here for a free sample issue or click here to subscribe.

Peter Gordon, a founding and managing member of Patent GC, a team of IP, patent and trademark attorneys, began learning through “grace under fire” some of the keys to managing patent portfolio costs, and he shared those lessons, along with key tools and techniques, with the attendees of an October 5 webinar hosted by Technology Transfer Tactics entitled, “Maintaining a High-Quality Pa­tent Portfolio Under Severe Budget Constraints.”

Like many TTOs in today’s environment, “I was asked to reduce the patent budget to one-third of current spend,” he related. “Also, the [client company’s] CFO and CEO wanted me to explain how the budget grew to the current state. I was given a few weeks, and when I made my proposal, they then asked how much further I could cut it without hitting bone.”

Gordon said the framework of his overall strategy for doing “more with less” falls into three key areas:

• Cost Model (generating a budget and analyzing costs);
• Value Metrics (is the IP worth it?); and
• Organizational issues

Controlling costs

The cost model, Gordon noted, can be used to generate the budget, analyze and track costs, and run through some “what if?” scenarios. “It’s primarily based on data about the portfolio and decisions and actions you will take on each matter,” he explained. The “key takeaways,” he shared, are how to use time to disposition (the average time it takes for you to make a decision of either abandonment or patent filing) as a key control in the budget, and how to manage the problem he calls “death by a thousand cuts.”

The structure of the model is divided into two key components — the portfolio, and variable costs. The portfolio, he explained, encompasses new invention disclosures and filings; existing and pending matters; and the maintenance and renewal component. Variable costs have two parts — “health” and “hygiene.” Gordon explained that he derived his denotation of health and hygiene from the works of former Harvard Business School professor David Maister on managing professional service firms. Health, he explained, includes “big” things like diet and exercise that contribute to long-term health, while hygiene refers to “little” habits that help you stay healthy.

“The first prong of attack on budget control is managing decision and action costs (and how to make decisions); the decision-making process affecting time to disposition; and things put in place to control death by a thousand cuts,” he summarized.

In analyzing the portfolio, Gordon further delineated the filings into several components. New filings include number of invention disclosures, number of first filings, and number of conversions. Existing filings included the number of pending U.S. cases and pending non-U.S. cases, and maintenance and renewals were placed under the number of non-U.S. renewals or the number of U.S. granted by year (maintenance fees). (See Figure 1.) All of this data falls under “Decisions and Decision Costs” in Gordon’s model. “Action Costs” cover outside counsel selection and filing type. (See Figure 2.)

“First filings are clearly a percentage of invention disclosures, but others, like conversions, are dependent on decisions that may have been made by other people,” Gordon noted. “When you look at pending cases and maintenance and renewals, particularly pending, that is a function of all your previous filings and time to disposition. Maintenance and renewals depend on previous filings and a lapse in grant rates.”

If you decide to proceed further with with any innovations, there will be an action cost, he noted. “The key drivers on those costs really depend on filing type, outside counsel selection and fee schedule,” he explained.

Although in one of his slides Gordon stated that you don’t control the number of disclosures, he tells TTT in a follow-up interview that this is not necessarily the case. “I’ve seen some interesting work at universities,” he shares. “Some look at how to encourage faculty and increase the number of disclosures, but on the flip side you can decrease them [to boost overall quality] — but you do not want to do it in an arbitrary way. I recommend having some level of hurdle, like the need to provide some level of information; for example, it needs to be pertinent to the decision-making process. I’ve seen just two slides and a PowerPoint presented; can you succinctly say what you think is inventive about what you’ve done? Is there anything you know of prior work, at least in the same field? Adding a requirement for some information helps the decision-making process.”

Rein in time to disposition

Gordon then presented a hypothetical illustrating one of the keys to controlling costs: time to disposition. In this model, reducing time to disposition by one year would result in a 20% reduction in costs. (See Figure 3.)

“What is interesting is with just the initial number [of IP assets] the cost goes up based on time to disposition; that continues to grow until disposition through abandonment or grant, and they pop out of the queue,” says Gordon. “The graph shows the portfolio growing over time, when basically you’re doing the same thing every year with new filings.” He adds that you hit a “steady state” until year 10, 11, or 12.

So, what are some of the keys to controlling time to disposition? “Anything that delays the patent application from getting to the examiner’s queue will delay getting it processed,” noted Gordon. “The other factor relates to knowing what you want to get out of the patent application at the time you’re filing it. If you do not have a good idea, a lot of time is spent flailing about. Have some strategy, some objective you want to get out of the application.

“Sometimes,” he continued, “you get prior art and it shoots down your goal. You need to be able to make a decision: are we going to be able to proceed or not? Going back and forth with the patent office can go on pretty much forever if you want it to; you have to decide when you’re done. A claim allowed is the easy one; the hard ones are when you have to decide to let go.”

An even trickier issue, Gordon tells TTT, is knowing what’s going to be effective in convincing the examiner to allow a case. “Rule number one is, you have to interview the examiner,” he asserts. “I’ve seen way too many counsels who have not picked up the phone. Very often the examiner will have some issue they want to see overcome; they’re reading the application in a particular way, and you will not know that unless you talk to them.”

How do you avoid such problems? “Tell the counsel to do that [call],” says Gordon. “It’s one of the guidelines to give to outside counsel.” You can provide incentives to do that within the fee structure, he noted. “A lot of places have fixed fee arrangements,” he pointed out. “If there’s a separate fee, they’re more likely to do it. You have to pay for it eventually, so work it into your expectations.

“There must also be certain process points where there’s a clear expectation,” he added. “You get an office action, you respond, and then there’s another ‘final.’ The general rule is at some point in the process the law firm should be directed to say, ‘Don’t recommend any further steps to us unless we’ve talked to the examiner.’ I’ve seen five, six, seven or eight office actions charged without talking to an examiner; that’s not making progress.”

Health and Hygiene

Variable costs that fall under “health,” Gordon explained, are “large average costs that are key in any decision taken — like the cost for filing a new patent application.”

“Hygiene,” on the other hand, refers to “how costs vary from matter to matter based on how well or consistently they are executed.”

He focused on “death by a thousand cuts” (hygiene) as an area of particular attention when it comes to controlling costs, offering the following examples that make up those “thousand cuts”:

• Excess claim fees
• Filing surcharges
• Incomplete applications
• Late/urgency fees
• Excess page fees
• Translation costs
• Petitions
• Corrections or drawings and specification
• Other corrections
• IDS fees
• Multiple touches
• Document churn
• Reminders and requests for instructions
• Repeating issues in non-U.S. jurisdictions

“These little costs aggregate across the entire portfolio and have significant impact,” said Gordon. “There is a lot of variability in base costs due to wildly variable standards and how decisions are executed.”

Excess claim fees are Gordon’s pet peeve. “I reviewed a patent portfolio of about 150,” he recalled. “In reviewing how much was paid in excess claim fees upon filing, the average was $500. If you do the math, that’s $75,000 in excess claim fees.”

Each item on the list, he continued, can be managed by setting appropriate expectations with counsel, such as guidelines specifically directing that they not file cases with excess claim fees, or that they should file complete applications to avoid surcharges, or IDSs should be filed in a timely way so that a large number of reminders isn’t necessary, and so on.

“Health-oriented costs and costs related to hygiene, and how decisions are made affecting the number of new filings and existing filings, particularly affect your time to disposition, and the maintenance and renewal decision-making process affects your lapse rate,” Gordon summarized. “From the budget cutting point of view, if you get down to the individual matter level, which matters I give scrutiny to and target are things that have been around for a long time — like a bunch of maintenance fees. If these cases are old, they are less likely to generate revenue if they have not already. The same goes for those pending — if they’ve been around a long time, they’re not likely to be successful, and they drive up costs. So, you may want to flush them out of the queue.”

To keep, or not to keep?

Even if you can control the various factors outlined in the cost model, Gordon noted, “it still might not be enough to reach your target budget level. You might have to target particular categories for specific review — and maybe do some cutting from the portfolio.”

That’s where value metrics come in. Gordon explained that value metrics involve “things that you use to determine whether any IP is worth pursuing.” The two key components, he added, are the legal strength of patent rights and the commercialization status of the invention.

The three most important considerations in legal strength, said Gordon, are claim strategy and scope, patentability, and enforceability. They were broken down as follows:

• Claim strategy: What would, could, should be, or is, claimed?
• Claim scope: What does it cover? Can somebody solve the same problem using something not claimed in the invention, and still do it in a commercially viable way?
• Patentability: Prior art and eligibility, or enablement, or utility;
• Enforceability: Identifying if there is any meaningful, direct infringement by a desirable licensee.

Gordon dug a little more deeply into the enforceability issue. “Can you detect whether direct infringement is occurring?” he posed. “Take a secret chemical process, for example. Even if you could detect, could you prove it? How much reverse engineering does there need to be?”

Other important factors, he added, include specification quality (how well is it written; is it clear?) and prosecution quality (has all prior art been cited? Have assignments and inventorship issues appropriately been addressed?).

When it comes to commercialization, Gordon noted a “given” as it pertains to licensing status. “If it’s unlicensed you generally do not pursue,” he noted. Beyond that, the question becomes whether the licensee is productive. In terms of the development spectrum, you should ask how well the inventor has developed the innovation, or how active has the field been in that area of research? “If the researcher has moved on, it might be a good clue the invention may not be of much interest anymore,” he noted.

Using a scoring system

In order to quantify his decisions, Gordon uses a scoring system that enables him to rank inventions. “Rank matters in the portfolio, so you can take any cutting actions necessary,” he explained. “For this, all you need to do is relatively rank any two matters; if you have to make a decision, how do you pick one over another?”

To make his decisions, Gordon relies on relative ranking and low score accuracy bias. “This often does not show up in general in value metrics, but you do have data for it, and you can use it as it relates to commercialization strength,” he asserted.

This, he pointed out, makes his system unique. “Some tools out there generate scores for patents using interesting algorithms that cover all the data about a patent and give you some value indicator,” he shared. “They rely heavily on citation analysis — but you can’t assess a patent on that if it’s just been filed — and none that I’m aware of get into commercialization status.”

Gordon went on to explain why he recommends a low score accuracy bias. “If you give something a low score, you want there to be more certainty,” he says. “Higher scores may have less certainty. That tells you that with things having low scores you need to be pretty sure they have low scores. If you focus on scoring by just trying to identify those things of value, you might miss something of value. This gets you to focus on things that are not likely to be successful.”

To do this, Gordon ranks the scope, patentability and enforceability of each asset from 1 to 3, with 1 being the lowest (See Figure 4). He then ranks them by total, from lowest to highest (See Figure 5.)

“This identifies those things least likely to be successful,” he stated. “It helps identify liabilities; it does not necessarily attempt to identify which might be valuable assets.”

When it comes to budget control, Gordon asserted, this approach represents “a really important change in mindset. If the data does not support pursuing a matter, you do not have to worry about not chasing something you’re afraid could be that big fish. You don’t have to worry about the one that got away.”

Take the team approach

In your process to review pending applications, Gordon pointed out, you should focus on ‘team first,’ followed by processes of implementation, setting objectives and goals, and strong communication within the organization.

“There has to be someone whose job it is to lead, but you can’t act in a vacuum; your leader needs buy-in,” he offered. That buy-in, he continued, must come both from the “high-ins” and from the rest of the group.

“Say you have a disgruntled professor who is unhappy you did not go ahead with their patent application; they may go to your boss or your boss’s boss,” he posited. “If those people are not informed about what you’re trying to do, it makes that conversation more difficult. If they can explain what you’re trying to accomplish in the department, the professor may then go back to your office and ask what they can do to make the result more positive.”

In terms of the rest of your department, “you should not come up with a process and solutions yourself and say, ‘Here, I figured it out, let’s do this,’” Gordon cautioned. “I’ve been more successful treating it as a collaborative problem-solving process. You may have identified the problem and have certain data, ideas or suggestions, but work with your colleagues. Get them involved in helping you solve the problem — they’ll be more likely to buy into the solutions if they’ve helped.”

Run these reports

In terms of operational processes, Gordon recommended generating reports as follows:

• Now: All pending cases (status report);
• Every 30 days: Pending cases with live actions in the next 90 days (docket report); and
• Flag pending cases > X years; > Y office actions.

“Generate reports and have meetings about which cases need to be reviewed more closely, and so forth,” said Gordon. “You have to work out with your colleagues what will be effective in helping you get this job done.”

When it comes to objectives and goals, he continues, “determining what the budget needs to be might be more on the leadership level, but you might also need goals for numbers of filings, and what type of cutting you’re going to do. They all derive from the leadership level, but you won’t know what to do until you have set goals and objectives.”

For example, you must determine how many pending applications you can afford to keep, how many you need to decide on, and how goals must be set to keep the budget in control.

“The other piece involves how you’re going to decide whether to do a first filing, whether to keep them, and how to handle that decision making, what type of scoring system you want to use, whether you’ll use a spreadsheet or database for tracking and analysis, deciding on who’s going to make the evaluations, and how and when you may need to ask counsel for the data you need in this process,” he adds.

You must consider what data you have about your portfolio internally, and where you have to go externally to sources like patent databases or law firms, he emphasized. “The more granularity you have about the type of costs, and specifically having costs tracked at the per-matter level,” is of great importance, he noted. “It lets us do an analysis of how much we’ve spent on particular types of activities and particular matters.”

When considering reporting and analysis, he continued, many times you may have people who manage databases, whether through financial or IT management tools. “Get those people involved in the problem solving; tell them it will be really helpful if they can tell you what data can be easily obtained out of your systems,” he suggested.

Gordon also offered these additional tips on internal and external communications: Internally, tell relevant individuals (licensing officer, P.I., etc.) when their case is targeted for review. Externally, tell your law firms about your review process, and inform them when a case they handle is targeted for review. Whether with staff, faculty, or counsel, explain that to meet your budget you may have to cut a specified amount. “Encourage very frequent internal and external communication,” he concluded.

Contact Gordon at pgordon@patentgc.com.