Patent Life Spans Shorter than Law Allows

Dennis Crouch, an associate professor at the University of Missouri School of Law and one of the most popular bloggers on patent law, has done another of his interesting analyses. This time the subject is the practical life span of patents – and the bottom line is that it is shorter than what the law allows.

The grant of a patent is theoretically for 20 years but, practically speaking, it is shorter. The clock starts running on submission and it takes time for an application to go through the prosecution process. According to the fiscal year 2008 U.S. Patent and Trademark Office annual report, the average total pendency, or time from filing to final action, was 32.2 months, or 2.7 years. That means, on the average, one might expect a patent to last roughly 17.3 years.

But there’s a catch: a patent holder must pay regular maintenance fees by 4, 8, and 12 years after issuance. Miss a fee and the patent expires. Prof. Crouch went through notices of patent expiration and came up numbers of patents that survived maintenance fee deadlines. (Note that the graph doesn’t show reactivation of patents that were unintentionally abandoned.)

The data are intriguing. Notice that for utility patents issued at the end of 1996, holders paid the fee for only 84 percent of them. Given the length of time that it takes to get the patent in the first place, it looks as though for that 16 percent of patents, one of three things happened:

• The patent was invalidated by a court. Given the time involved in patent litigation, it seems unlikely that it could have happened so quickly.
• The owners unintentionally abandoned them, which translates into someone forgetting that a deadline needed some action. Such patents can often be revived by petition to the USPTO.
• The owners saw so little commercial value that they didn’t think the patents worth the $980 maintenance fee.

In any of these cases, the patents expired almost as soon as the owners had them. Only 49 percent of the patents filed at the end of 1996 had all three fees paid by the owners. Add them up, and the total renewal fees come to $7570. As Prof. Crouch notes, the median patent term is closer to 12 years than 17 due to the number of owners that don’t pay the final fee.

There was no data on how these trends look for particular patent areas, so no way at the moment to tell how this is reflected in any given industry, like high tech. But it raises the important question of just how much the patent activity of companies actually pays off. Now, there are various reasons to patent something. The patent might do any or all of the following:

• protect an important development for a company;
• essentially extend the life of a patent by gaining coverage for emerging uses or variations;
• create a barrier to entry for another company trying to enter a market; or
• give the owner a bargaining chip in any future patent litigation or negotiation.

However, no matter what the reason, it only works so long as the patent is in effect, and it only makes economic sense if the total spent on the patent, including legal costs and filing fees (easily running into the tens of thousands or more), is smaller than the equivalent monetary value of the patent. Some of the benefits, like creating a barrier to entry, may essentially be short-term in nature. But this is another fact from the patent world that raises the question of whether the reams of patents that some companies pursue are really worth all the money spent on them.

The rule of thumb I’ve heard from experts in patent strategy is that well under ten percent of any one company’s patents are actually incorporated into a product. That is fairly ironic, given the wailing that large companies often utter over “patent trolls” for obtaining patents and not using them in products. From that view, trolling would seem to be the ordinary order of business of even the largest companies. What percentage of them serve a legitimate — and used — strategic purpose? I’m guessing not many more.

That leaves an important question for corporate management: How much time and money is the company spending on patent activity that does nothing? In bad economic times, perhaps focusing more on innovation and customer relations — that is, looking forward — might make a lot more sense than spending large amount of money to look back over the shoulder to protect the large amount of intellectual property that isn’t actually of any use. And, of course, setting a metaphorical fire to large piles of cash is probably not the way to endear investors or analysts.

Patent expiration graph courtesy Prof. Dennis Crouch.