Building a Business > Intellectual property

Published online: 21 October 2003, doi:10.1038/bioent772

The patent gamble: strategic insights for playing the worldwide patent game

*William A. Barrett is at Nobex Corp., P.O. Box 13940, Research Triangle Park, North Carolina 27709, USA bbarrett@nobexcorp.com

Biotech companies face the challenge of cutting costs to make their resources last through the economic downturn, while continuing to seek international patent protection for their inventions to ensure long-term viability.

These days, even small, entrepreneurial biotechnology companies must play the international patent game. When the product is handed off to a mid-cap or large pharmaceutical company that will take it to market, the larger company will want to know that the product is protected around the world. Yet few small companies understand what they are getting themselves into as they begin the process of allocating resources to build an international portfolio of patents. Companies often grow their patent portfolios without the advantage of a clear strategy, resulting in misdirected investment and out-of-control patent costs. This article discusses strategies to rein in an unruly patent program and begin the process of proactively managing the development of an international patent portfolio.

Playing the game

How do you make decisions about patents? Who has the responsibility for deciding whether you will protect an invention in 5 countries or 50 countries, or whether you will spend $50,000 or $500,000? Most entrepreneurial companies would not spend $500,000 on a research project or piece of equipment without significant forethought and planning; however, it is easy for a company to commit to a $500,000 patent strategy without even realizing it.

Here's how it happens. Your patent counsel sends a series of letters over several months informing you of an impending line in the sand: the deadline for filing your application in foreign countries. The letters accumulate in that special stack in the corner of your office with all the other letters from your patent counsel. Two weeks before the deadline, after a string of phone calls and desperate e-mails, your faithful but now frantic patent counsel stalks you to your office. Clinging to your ankles in the hallway, he/she pleads, "You're going to lose all your foreign patent rights if you don't make a decision!" To keep the counsel quiet and avoid further embarrassment, you pony up a list of countries.

Your patent counsel then sprints back to his/her office and posts an assistant at the fax machine to manage the loathsome process of sending huge faxes to foreign agents around the world requesting the filing of last-minute patent applications. In many countries, you will accrue exorbitant translation fees, as translators stay up all night and through the weekend attempting to accurately translate your application before the deadline.

A month later you get an unexpectedly large bill. And you may not realize it, but your attorney has now hired, on your behalf, patent agents in all the countries you selected. These agents are diligently working for you, communicating with their countries' patent offices and with your attorney, prosecuting your application and billing you by the hour. Not only that, but your attorney is now busy receiving all these communications, writing cover letters, interpreting them for you, preparing responses to the agents' letters and, of course, billing you by the hour. You're paying attorney fees, foreign agent fees, translation fees, examination fees and maintenance fees. The bills won't stop coming in for decades.

Years later, when your executives are scrambling around the country looking for the next round of financing, and you're looking back on where the money went, you may be asking yourself, why did we spend all that money protecting inventions in Saudi Arabia? The fact remains that if you are a technology-based company for whom patent protection is a crucial component of your strategy, large patent costs are inevitable. But you can take steps to ensure that the money you spend is targeted to patenting your most valuable inventions in a set of countries where the patents will provide the largest benefit. The key is developing a strategy for placing the right chips on the right countries on the worldwide patent playing board.

Taking stock and building a strategy

Many companies accumulate patents in an ad hoc manner, rushing to file patent applications when inventions happen to surface, omitting patent applications on potentially valuable inventions because their value is not understood, and as already noted, rushing to make patent investment decisions (such as foreign filing decisions) at the last minute. This approach to managing patent procurement can result in a misdirected allocation of resources, yielding a patent portfolio that omits important coverage and includes coverage that is of little or no value to the company's business strategy.

A formal patent strategy helps to avoid these problems by carefully guiding the process of building a patent portfolio. A patent strategy is informed by, among other things, the realities of your company's inventive capabilities, opportunities, values, existing patents and other intellectual property. Your inventive capabilities are a function of your people, their skills and the resources available to them. Your opportunities are the market needs that line up with your present or potential capabilities. Your values are the collective values of your people, as integrated and focused by your business strategy; they determine the problems you decide to conquer, and they motivate your employees to come to work every day.

Understanding your inventive capability and opportunities in light of your values enables you to construct a focused patent strategy that directs your resources towards the patents that will benefit you the most. In a targeted, strategic approach, every patent in your portfolio should support your strategy. When inventions arise that are outside your patent strategy, the only rational options are to change the strategy (e.g., to invest in the new inventions or spin them out) or not to spend the money to protect the inventions. The alternative to a strategy-directed patent program is often a shotgun approach—scatter your resources across the map in the hope that you hit something valuable.

Assessing value

Whether building a new strategy or reining in an old one, companies need a way to quickly and consistently assess the value of their inventions. Consistent assessments of value lead to consistent decisions about the amount of money to invest in protecting each invention. 'Assessing value' does not mean undertaking a full-blown valuation that assigns a precise dollar value to each invention, though this exercise will undoubtedly be helpful in some cases. Instead, the invention should be examined in light of a consistent set of factors that helps to assign to the invention a relative level of importance to your company's business strategy.

Examples of criteria for assessing value include invention type (composition of matter, method of making, method of treatment and method of use), novelty (incremental, moderate and paradigm shift), and likelihood of successfully solving the problems needed to take the invention to the market (high, medium, low). In the biotech and pharma industries, invention type is a key parameter. A patentable new drug compound (a composition of matter invention) is usually the Holy Grail. In the contract manufacturing industry, the goal may be to patent intermediate compounds, synthetic steps and methods, or chemical manufacturing systems.

The relative value of an invention is a crucial component of making foreign filing decisions. Core inventions should warrant the expense of filing in a broader set of countries or regions. Other less important inventions may warrant protection in a smaller set, for example, in the Big Five: the United States, Europe (that is, members of the European Patent Convention), Japan, Canada and Australia. The geographical aspect of this analysis varies widely among industries and even among products within an industry. One way to get a feel for the countries in which patents are valued by your industry is to conduct a worldwide patent search on the key patents covering similar products of your successful competitors. This list of countries will provide a baseline for thinking about your own foreign filing strategy.

In addition to the industry-specific or product-specific analysis, factors such as patentability, patent strength and market size vary from country to country. Some countries, like the US, Japan and the Western European countries have consistently strong patent protection and substantial markets. Other countries, like India and China, have substantial markets, but relatively weak patent protection. Still others have small markets and weak protection. To further complicate matters, this landscape can often be expected to change during the pendency of the application and/or during the 20-year term of the issued patent.

Fitting your approach to valuing inventions together with your assessment of geographic regions can yield a valuable approach to the decision-making process: a screening tool for quickly assessing the value of your inventions using criteria that are meaningful in your business. Input your inventions at one end, and they come out the other end in a specific patent category with a predetermined value and a predetermined set of countries. Given the complexity of deciding in which foreign countries to file patent applications, thoroughly analyzing the issues for each invention would be onerous. Yet not only do many companies repeat their analyses each time, they also compact the process into 15 minutes right before the deadline. To avoid mistakes, it pays to establish the evaluation process or screening tool well in advance of the moment when your patent counsel is clinging to your heels in the hallway pleading for a list of countries.

Accounting for cost

A key advantage to using predetermined categories is that companies can analyze the cost of the strategy in advance of the foreign filing decision. After factoring in the prosecution fees, foreign agent costs, maintenance fees and the like, you may be surprised to learn that even a relatively modest foreign filing strategy can put you on a path towards an expenditure of hundreds of thousands of dollars for a single patent application family. If your inventors are regularly yielding up new inventions, you may find that you are spending millions as you pursue protection for the patent families in countries around the world.

It is tempting to analyze the decision to file in a specific country in terms of whether investment in that country is expected to yield a profit. It may sound like a good deal to pay $10,000 for a patent in a country with a $20 million market for your product. However, if this choice forces you to forego spending the same $10,000 to obtain a US or European patent on a next-generation platform invention, then protecting the $20 million market may not be worth the opportunity cost.

A first step in implementing your patent strategy is to apply it to your presently existing portfolio of patents and applications. What kinds of patent chips do you own and where have you placed the chips on the worldwide playing board? Remember all those foreign agents that you hired? Does your patent strategy suggest that you need to stop or slow the burn in certain countries so that you can focus your resources on countries offering a better return on your patent investment? Is there value that can be readily extracted by out-licensing or selling off portions of your portfolio?

The timing factor

The patent prosecution process is deadline-intensive. A few of the many important deadlines include the deadlines for deciding whether to file an international application under the Patent Cooperation Treaty (PCT), for deciding whether to file patent applications in countries that aren't members of the PCT, for filing national applications based on a PCT application and for filing improvement patent applications before publication of the parent application. One of the most difficult aspects of implementing a working patent strategy is coming to grips with the timing of decisions. Decisions made under pressure at the last minute are likely to produce outcomes that are less desirable than decisions thoughtfully made well in advance of the deadline.

Patent firms typically use docketing systems to track filing deadlines. If your patent counsel is like most, he/she sits in his/her office with a comprehensive list of deadlines, identifies the important ones and sends out an endless series of discrete form letters notifying you of them. If you are like most clients, the letters wind up in that special stack in the corner of your office. In effect, this practice takes a usefully compiled set of information about deadlines and changes it into a less useful, distributed set of information. To make the information truly useful, you would then have to recompile the information into another list!

Why not skip this inefficient process and ask your patent counsel for a list of foreign filing decisions coming up in the next year? You can then schedule a series of monthly meetings with appropriate decision makers to ensure that the significant decisions are made well in advance of the deadlines to take full advantage of your patent strategy.

Conclusions

Most entrepreneurial companies recognize their need for a patent strategy only after the bills start pouring in. Preparing such a strategy requires an initial time commitment as you gather the appropriate decision makers to reflect on your capabilities, opportunities and values, consider the value of patent protection in various countries for your inventions and make a plan that is in step with the timing of the patenting process. However, this initial time investment can pay big dividends as you streamline the decision-making process, eliminate last-minute decisions, reduce patent costs and build a strategically targeted patent portfolio with your patent chips well placed on the worldwide patent playing board.