Top 5 Reasons To Audit Your Patent Portfolio In 2013

Anyone who knows what “IP” stands for almost certainly also knows the three-letter acronym “AIA.” (America Invents Act, in case you’re not one of those people.) Many companies rushed to file big boluses of patent applications before March 16, 2013, when the final provisions of AIA went into effect and the United States converted to a first-inventor- to-file patent system. But simply filing patent applications quickly is only a small part of building a strategic, valuable patent portfolio. In fact, just filing applications quickly but haphazardly when a company’s inventors toss invention disclosures over the wall is very unlikely to produce meaningful patents that yield significant return on investment.

What many companies could use, is a thorough, in-depth review of their patent portfolios, prior art, competing products and competitor IP — sometimes referred to as an “IP audit” (or “patent audit”). Although April 15 is another date in the not-too-distant future, and the word “audit” evokes feelings similar to those evoked by the phrase “root canal,” an IP audit can actually reduce pain and increase opportunities for revenue. A thorough IP audit can and should jump-start a company’s patent program, provide the company with an IP strategy and plan, set the company on the right track toward creating truly valuable intellectual property, and potentially even save the company some money.

Though there are many reasons to conduct an IP audit, but I’ll limit it to a top 5:

1) You file patent applications but do not have a strategy for selecting what and when to file.

Many patent attorneys and companies give lip service to “patent strategy,” but if you ask most senior managers (or even their patent attorneys) to describe their company’s patent strategy in one sentence, you typically get a blank stare. Ideally, a company’s patents will be directly aligned with the company’s business mission, strategic plan and products. Patents should also cover products and methods of competitors and potential competitors, as well as actual and potential future products of the company and competitors. This is no easy feat, but if you are filing patent applications, you should know why. Patents are expensive to get and expensive to maintain. If the entire return on investment of your company’s patent portfolio is a wall full of patent plaques at the home office, you have wasted a lot of money.

In an IP audit, a patent attorney will review your company’s mission and vision, your patents and pending patent applications, your products and product pipeline, your competitors’ products, and your competitors’ patent portfolios. With all this data fresh in the attorney’s mind, he will then help you develop a strategy and a plan for executing on the strategy.

Ideally, the patent attorney who performs your IP audit will be a new attorney you have not worked with before — someone different than the attorney(s) who prepared and filed your patent applications. The advantage of hiring a new lawyer to do the audit is that she represents a fresh pair of eyes that is not emotionally or monetarily attached to your patent portfolio. A new attorney is more likely to review your patent portfolio objectively, discover its strengths and weaknesses, and develop innovative ideas for improving your IP position. If performed well, the IP audit will include establishing an IP mission and set of goals and strategies for achieving them. At the end of the audit, senior management and the company’s patent attorney(s) should be very familiar with the company’s IP strategy.

2) You may have gaps in your patent coverage that competitors can work around but that you can fix.

An attorney who takes a fresh look at your patent applications and issued patents as well as your competitors and their products will inevitably find gaps in your patent coverage. For example, your patents may focus primarily on products you have made and commercialized, while one of your competitors is selling products that skirt your patents and provide a close second-best alternative to your product line at a lower price. If your patents covered 10 different variations on your product line, instead of just your product, they would cover your competitor’s products and also the third-, fourth- and fifth-best alternatives. If your competitors have to make the 11th-best product because your patents cover the top 10 alternatives, you have won.

Your patents should also cover the commercial advantages of your products. At many companies, the invention disclosure and patenting processes are managed by the research and development team. As such, patents often tend to focus on research and development innovations, rather than commercial innovations. Ironically, in the marketplace, the commercial innovations are almost always more important.

For example, the research and development team of Acme Surgical Inc. may work for a year on a novel adhesive for attaching one part of a surgical tool to the tool’s handle. Acme’s marketing team, meanwhile, discovers from talking to physicians that if Acme painted the surgical tool bright yellow, it would be the first company to do so, and the yellow color would stand out visibly in a bloody surgical field, thus making the tool extremely more desirable to surgeons. The company’s customers (the surgeons) do not care how the handle is attached to the rest of the tool, only that it stays attached, but they do care that the tool is yellow. It may seem silly to file patent claims focused on the color of a surgical tool, but if Acme Surgical can get those claims, and if surgeons truly crave a yellow tool, Acme has a valuable patent.

A good IP audit will uncover gaps in your patent coverage — places where you have patented the adhesive but not the yellow color. Oftentimes, the audit will find these gaps while patent applications are still pending or while continuation applications can be filed, so that pending claims may be amended and new claims can be added. The IP audit will also identify what competitors are doing and whether any of your pending patent applications describe what they are doing. If so, your attorney can draft patent claims directed specifically at your competitors. Audits will also often lead to brainstorm sessions and new inventions targeted to possible future products and improvements on competitors’ products. This kind of strategic inventing and patenting will not usually happen without the kind of diligent attention to a company’s patent strategy that comes from an IP audit.

3) You may be able to save money by abandoning some of your patents that no longer have value.

A company that files patent applications regularly will, over a period of years, build a portfolio that includes three basic types of patents: (1) patents that directly align with the company’s strategy and commercial products and that, therefore, are valuable; (2) potentially valuable patents that might someday cover a competitor product or prevent an obvious design around; and (3) patents that cover old, irrelevant or completely impractical technologies that have no chance of ever generating revenue or blocking competitors.

An IP audit of a mature company’s patent portfolio will identify and categorize these three types of patents, and a company may often save significant amounts of money by jettisoning the Category 3 patents from its portfolio. Maintenance fees, annuities, and in the case of pending applications, even attorneys’ fees, can all be saved by abandoning an unused portion of a company’s patent portfolio.

4) You may uncover previously unknown opportunities and risks.

A thorough IP audit will include a review of all of a company’s patents and pending patent applications, as well as any patents and pending patent applications in-licensed or out-licensed by the company. The audit will also include a review of competitor IP and competitor products. This thorough review, again typically performed by a fresh pair of eyes, may uncover a potential infringer of the company’s patents, which may lead to a revenue-generating license agreement. A review of the licenses currently held by the company may uncover patents or applications that are not covered but should be. The review of patents and applications that are in-licensed may also sometimes reveal that the company isn’t infringing any of the in-licensed IP and thus should not be paying royalties. Thus, a thorough audit of your company’s licenses may reveal opportunities for revenue generation or gaps that should be filled.

In some cases, reviewing competitor IP may reveal a risk of potential infringement of one or more competitor patents by the company. Instead of discovering this infringement via a complaint filed in court by the competitor, if the company discovers the potential infringement early on, it may be able to design around the patent in question or prepare a solid non-infringement/invalidity opinion.

IP audits also work very well in preparing a company for IP due diligence that takes place during a financing. Audits help a company get its “IP story” straight, which the company can then convey clearly and concisely to potential investors. The audit may also uncover potential freedom-to-operate and patentability issues, which the company can then tackle before IP diligence starts.

5) You might be missing opportunities to file patent applications for valuable inventions.

Most small companies, and even some larger ones, do not have in-house patent counsel. Typically, these companies lack IP infrastructure and procedures for mining inventions and converting the inventions into filed patent applications. Thus, a frequent complaint of company managers is that they worry that they are missing opportunities to protect their companies’ valuable intellectual property.

A high-quality IP audit will include meetings between the patent attorney and the company’s senior management and inventors, to understand how the company mines and processes inventions, what the company’s IP goals are, and who is in charge of the patent process at the company. Companies that do not have in-house IP counsel (and even some that do) typically do not have a well-developed process for mining invention disclosures from inventors, deciding which invention disclosures to turn into patent applications, deciding where to file those patent applications, reviewing draft patent applications from the outside patent attorney, and so on. As part of the IP audit process, your patent attorney can help you set up streamlined, simple IP infrastructure and procedures that will help your company capture and protect its intellectual property.

Scott Smith, M.D., J.D., is a partner in Dorsey & Whitney’s Palo Alto, Calif., office. He is a registered patent attorney and focuses his practice in the field of medical devices.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, the Stanford Biodesign Alumni Association, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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