Fail to Maintain IP (no. 3 in our list of IP mistakes)

Inadvertent abandonment of IP rights often results from either human error, the lack of a robust deadline docketing system and/or failure in communication between company and IP counsel. More usually however, abandonment is a positive action taken by companies who no longer see the relevant IP as core to their business generally or in particular markets, or have noted data to suggest that a patented product or process will not reach the market or have any success in the market.

Although it’s now commonplace for companies to try to monetize non-core IP through transactions, and executives are exerting more pressure for this to be done in organizations, it takes a significant investment in time to package the rights and to identify the best avenues to seek to optimize the return on the IP investment. Generally, Business Development departments are loathe to undertake such work unless the IP can be packaged with a product that has potential, or there is a clear need for such IP within a particular field populated by companies with the finances to make the transaction worthwhile. Very occasionally, the IP can be included to sweeten a new or ongoing relationship. Of course, this work can be outsourced to groups that specialize in valuing the IP and identifying potential licensees or conducting IP auctions. However, with such a backdrop, the decision is often taken to simply abandon the IP rights, especially with pressures to trim annual budgets and seek immediate cost-cutting results.

Decisions to abandon IP rights are taken with great circumspection; once such rights are abandoned they gone forever, with few term-limited exceptions. However, mistakes can, and are made. Here are a few I have witnessed with suggestions to mitigate risks:

  1. IP rights are abandoned without considering obligations to 3rd parties in license agreements. It’s important to determine if IP rights are encumbered by license obligations.
  2. The project covered by IP is dormant or delayed, not dead. It’s important to determine the true project status, for example relative to the remaining patent term. Consider hedging by maintaining IP in a few key countries (e.g. maintaining patents in the US is relatively inexpensive and fees are only due at three distinct points in the life of the patent post-grant).
  3. The non-core IP has an ancillary application to a core area. It’s important to communicate with all parts of the organization and make them aware of the scope of IP protection that is earmarked for culling.
  4. The IP covers a platform or product set that is relevant to a non-core area, but could have application in a core area (e.g. compounds that inhibit a particular receptor known to be useful to treat a disease which is not core, but could also be active in a core disease area). It’s important to communicate with all parts of the organization and make them aware of the scope of IP protection that is earmarked for culling. Instituting a standardized communication and culling approval process will help.
  5. Competitors have been monitoring the IP, and after culling start to actively work in an area that ultimately affects the core business. It’s important to fully assess the impact to the business by culling, including how competitors might react. Scenario role-playing may help with the assessment.

Culling around a core area is particularly fraught with danger, especially when pruning to limit the territorial scope. It’s important to be particularly mindful of where key competitors are located and have manufacturing sites and, if possible, maintain protection there. Also, be cognizant of the risks of parallel importation if the EU is an important market. Abandoning in some EU countries may lead to local direct competition, a need to lower your sales price in such territories, and the risk of a flood of your lower priced product into important EU markets.

Even with good internal communication and understanding of the marketplace and competitor activities, some decisions to cull (or maintain) certain IP rights can be erroneous with the benefit of hindsight. This is a particular risk where the research has a long gestation period. Also, one cannot of course be certain of the reason why a competitor is avoiding an area you have patented. It could be because of lack of interest (i.e. non-core) or knowledge that the research will be fruitless rather than due to your patent exclusivity. The only general rule of thumb I would recommend here, subject naturally to individual company financial considerations, is to maintain IP in at least major countries until it is clear either (1) no viable product covered could result  or (2) no product covered could be developed and sold during the remainder of the patent term.

(This is number 3 in our list of IP mistakes and how to avoid them.)

(Image credit: Karsun Designs)

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