Patent Pruning: Aligning Portfolios with Commercial Value

“Patent pruning aligns a portfolio with its commercial value, ensuring that patents, individually and as a set, still have enough value to justify their ongoing cost.” — Bhupinder Randhawa

Patent pruning is the exercise of examining and reviewing a company’s patent portfolio and cutting out patents that no longer provide value.

Given the enormous costs of maintaining large patent portfolios, why don’t more organizations take a strategic approach to pruning them?

The economics are hard to dispute: generally speaking, maintenance fees escalate over a patent’s life, meaning that maintaining a patent family in 10 to 15 countries can run between US$100,000 and US$250,000. By contrast, studies of large portfolios have consistently revealed that only some 10 to 20 percent of patents generate the bulk of the revenue.

“Patent pruning aligns a portfolio with its commercial value, ensuring that individual patents still have enough value to justify their cost,” says Bhupinder Randhawa, Principal in the Toronto office of Smart & Biggar, a member of the IPH Network. “And we’re talking about costs for the entirety of the remaining term, not just that year’s annual fee.”

The upshot is that pruning frees up funds for new filings and makes portfolios more attractive to buyers, who tend to discount bloated assets.

What’s militating against common sense?

The easy answer is that inertia drives most patent pruning complacency. The truth is that there are several forces at work, including:

Fear of the unknown: Because abandoning a patent is irreversible, there is no remedy if it later gains value through market shifts or competitor infringement;
Perverse incentives: Some organizations treat portfolio size as a measure of innovation, a morale booster for R&D teams, and leverage in cross-licensing negotiations. Because few rewards exist for shrinking portfolios, in-house IP counsel, external counsel, and annuity service providers have little incentive to recommend pruning, while inventors often resist abandoning their work;
Valuation cost: Properly valuing a patent requires mapping its claims against current products, competitors’ products, and relevant standards, and many companies lack the necessary claim charts due to cost and the technical complexity of producing them; and
Organizational inertia: Pruning requires input from multiple departments, including input from legal, R&D, and business units, so responsibility is diffuse. Because maintenance fees are paid automatically through service providers, continuing with the status quo is far easier — it doesn’t demand the judgment and effort that pruning entails.

When to prune?

“There’s no rule of thumb about when to start the pruning exercise for a patent or family of patents,” Randhawa says. “You have to think in terms of the overall process, determine when the commercial value might crystallize, and start there.”

For large portfolios, maintenance costs compound. quickly. The best consensus, then, calls for an annual full-portfolio review supplemented by event-driven reviews such as maintenance fee increase windows, national phase entries, product discontinuations, business unit divestitures, financings, mergers, or litigation where due diligence will occur.

Even so, Randhawa is not a believer in reviewing everything all the time.

“In many cases, a patent might not be ready for review. If a patent is supporting product revenue and margins and keeping competitors at bay, you may not need to look at it for the life cycle of the product.”

But waiting until the maintenance fee comes due is equally unwise.

“Deadline pressure can lead to poor decisions and the path of least resistance — just doing what was done the last time,” Randhawa says. “That can set off a cycle of bad decisions because people are reluctant to revisit previous choices and perhaps discover that they should have pruned years ago.”

Who decides?

For Randhawa, patent pruning is ultimately a governance issue which an organisation’s IP committee, patent review committee or equivalent body should own.

“The guiding principle should be to avoid filings for things that have insufficient value. The people making the judgments might ask themselves whether the company would spend money to acquire or protect the asset now.”
Bhupinder Randhawa

But the decision must be cross-functional, drawing on several departments, including:

IP Counsel: Advises on claim scope analysis, prosecution history, enforceability, litigation, and obstacles to abandonment such as licensing commitments, liens, and standards pledges;
Research & Development (includes engineers and inventors): Knows where the patent stands against current technology and competitors’ use of similar products;
Business Units: Understand the products, the markets, and which product features matter commercially;
Corporate Strategy: Assesses the impact of divestitures, acquisitions, spin-offs, and competitive positioning;
Finance: Quantifies budgets, costs, and tax consequences;
Licensing: Screens for patents with sale, licensing or donation value before abandonment; and
Standards: Identifies FRAND commitments and applicable regulations.

What matters?

“The goal of patent pruning is long-term alignment with business plans and opportunities,” Randhawa says. “As a business and its technology evolves, IP strategy should evolve with it, including evaluating alternative opportunities for monetizing IP. If a product or service has lost market share or is discontinued, it might be possible to license out or sell the associated IP. If there is no prospect for monetizing IP internally or through licensing or sale, then the prudent course will usually be to shut down the related expenses.”

But deciding whether to abandon a patent requires the substantive work of claim-to-product analysis—determining whether the claims in a patent cover anything anyone makes or sells. General indicators like remaining term, forward citation counts, or composite scores provide a rudimentary statistical glimpse into patent value. However, they don’t give detailed information about a patent’s value. Overreliance on those tools can amount to using a blunt instrument for a decision requiring precision.

Indeed, claim-to-product analysis raises a host of complex, cross-disciplinary questions:

The Patent’s Strength: Has competing technology emerged? Are the claims too narrow? Are there easy workarounds?;
Legal Quality: Is the patent strong enough to survive a challenge?;
Infringement Detectability: Is the patent hard to enforce?;
Distinguishing Features: Does the patent support differentiation from competitors?;
Sale and License Potential: Would someone buy or license the patent?
Restrictions: Are there external or contractual obligations that limit abandoning or transferring a patent?; and
Jurisdiction: How high are the maintenance fees? In Canada, for example, maintenance fees are low by global standards, so pruning may yield only modest savings. Europe, Japan, and the United States sit at the other end, where a closer look may be warranted. “I recommend that clients do a country-by-country pruning analysis based on the places where the patent supports products that are selling,” Randhawa says.

Ultimately, the question for many organisations is not whether their patent portfolios contain dead weight—very few do not— but whether they’re prepared to make the effort required to find it.