The Cost of Patenting

Patent protection can add commercial value to inventions made at Johns Hopkins Medicine (JHM) by providing the University and its licensees the ability to exclude corporate entities from practicing such inventions. This ability to exclude others provides a mechanism by which a licensing company may offset the staggering costs of product development that characterize certain market sectors.

However, patenting does not come cheap. Combined patent costs for both licensed and unlicensed JHM inventions incurred during the first three-quarters of fiscal year 2003 have already exceeded 2.5 million dollars. Unfortunately, if the identical effort were made in the near future it would likely cost the University significantly more due to the Patent & Trademark Office’s controversial proposed fee restructuring (for example, see “Patent Shake Up” in Chemical & Engineering News, 80(40), November 4, 2002).

Over the last several years, Licensing & Technology Development (LTD) has emphasized cost management of its patenting activities in regard to its unlicensed inventory, for which the University cannot expect future reimbursement. Unlicensed JHM patent inventory currently includes issued patents, utility and provisional applications related to over 300 distinct inventions. More than half of these inventions have multiple associated patent filings. Though sheer size of such a portfolio can hinder effective management, the percentage of unreimbursed costs relative to total accrued patenting costs for fiscal years 2000-2003 (calculated using March year-to-date numbers) has been reduced steadily and significantly: from 59.6% to 30.3%.

LTD’s growing success in cost management has resulted from its focus on several strategic points during the patenting process. As discussed in the May issue of Research Webnotes, patent prosecution takes place over a period of months-to-years and includes multiple interactions with the Patent & Trademark Office (PTO). Such interactions incur significant attorney expense and thus can be used as cost control points.

As an example of expense accrual over time, an unlicensed U.S. patent application filed in the mid-1990s claiming a neurologically-related diagnostic appeared to be a good business risk at the time of its preparation. Preparation and filing of the case cost approximately $15,680. However, downstream patenting efforts spanning five years effectively doubled JHU’s cash outlay for the invention: in round numbers

(i) $3,400 to respond to the PTO’s first action on the merits,
(ii) $4,770 for JHU’s initial after final response, and,
(iii) nearly $8000 for continued “after final” prosecution.

The PTO has not yet allowed claims related to this unlicensed case, though recent correspondence indicates progress towards this goal. However, further prosecution will increase JHU’s unreimbursed expense. Therefore, this point in time, prior to authorization of further attorney effort and expense, is a cost control point. The means of control is to accept sunk costs and abandon patent prosecution.

The decision to continue or abandon is determined on a case-by-case basis. Typical considerations include, but are not limited to:

(i) breadth of likely allowed claims versus their ability to prevent “design around”,
(ii) changes in market landscape, and,
(iii) indications or absence of any bona fide company interest.

Age of the technology is also relevant, as examination of JHU’s licensing history shows that odds of licensing decrease with increasing age of the invention (see Figure below).

Though a decision not to proceed with further patenting efforts is difficult and can be disappointing, abandonment prior to incurring full downstream costs of prosecution saves JHU capital and opportunity cost. Multiplied over the entire JHM portfolio, this saving is in the multiple millions of dollars. Therefore, in addition to tight controls on the conversion of provisional to full utility applications, LTD’s cost management strategy requires taking patent prosecution off “auto-pilot” and periodic reevaluation of patent and commercial potential.

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