When I was in-house counsel for large companies, it was generally accepted that we would never use 70% to 80% of our patents. The 20% to 30% of the patents that we did use more than made up for the cost spent on the un-used patents. We accepted this “Inherent Waste” as a cost of doing “patent business,” as did the companies.
It’s been over twenty-five years since I was in-house counsel, but Inherent Waste is as prevalent today as it was back then. The data bears it out.
Let’s call the un-used patents “Low Value Patents,” i.e., not worth the money spent on them. Low Value Patents include 1. Patent applications that never issue and 2. Issued patents that are never used.
For patent applications that are never issued, USPTO data shows that only about 60% of US patent applications issue. This issuance rate has been relatively constant for almost twenty years. In other words, on a national average, about 40% of patent applications that are filed never issue and that is not changing.
In my experience, large companies tend to do better and have an issuance rate in the range of 70% to 80%. Which means, many smaller companies have an issuance rate below the national average of 60%.
For issued patents that are never used, let’s look at the payment rate of the third maintenance fee. As a quick reminder, the USPTO charges maintenance fees after it issues a patent to keep it “alive,” i.e., to keep it from expiring. The first fee is due 3.5 years after issuance; the second fee is due 7.5 years after issuance, and the third fee is due 11.5 years after issuance. For a large entity, the third maintenance fee is currently $8,300.
If, by the due date of the third maintenance fee, a patent is not worth the payment to keep it alive, then it is fair to assume that it is of low-value. The national average for payment of the third maintenance fee payment is about 40%. This rate has not changed much in the last twenty years and, in recent years, it has been decreasing.
Using the national averages for issuance rate of 60% and third maintenance fee payment rate of 40%, only 24 patents out of every 100 patent applications filed end up being valuable. In other words, 76 patents out of every 100 patent applications filed end up being Low Value Patents.
This directly aligns with the generally accepted Inherent Waste of 70% to 80% of patents are never used.
While large companies can afford to conduct “patent business” in this manner, smaller companies cannot. We have proven that Inherent Waste is not an inevitable consequence of doing “patent business.” It can be substantially eliminated.
If you work for a small company and are filing patents, ask your patent counsel what they are doing to combat the Inherent Waste. If they don’t have an answer, consider finding new patent counsel.
*Please note that this article is not legal advice; it is not a legal opinion; nor should you rely on it as legal advice or as a legal opinion. This article merely expresses the author’s general thoughts on a topic regarding the business of patents. Nothing in this article establishes any form of an attorney client relationship between you, the reader, and the author of this article.
