Top IP Management Mistakes: Saving Money on Maintenance Fees

By: Fernando Torres, MSc

Challenges of IP Management

Managing an organization’s IP portfolio is full of challenges in the context of global competition, which turn particularly acute in the current economic dynamics of the turnaround from the financial crisis.

There are a few good information sources on the Best Practices for IP management. The International Trademark Association (INTA) and the World Intellectual Property Organization (WIPO) serve the global community of large companies and SMEs respectively. Something that is often missing, however, is learning from the mistakes of others. This may be because organizational culture has a way of suppressing mistakes from public view, or because emphasis is often placed on the case-specific nature of such problems, rather than abstracting the general lessons from the experience.

In any case, aside from maintaining a current inventory of intangible assets including intellectual property, designing and enforcing quality controls with internal and external publics, IP managers must continually ensure the organization’s IP policies support and advance the company’s mission and strategic directives.

When the latter process goes wrong, most IP managers can learn a valuable lesson. In this post, we address a critical mistake that we witnessed at a corporate restructuring client some years ago, dealing specifically with global IP.

Mistake #1: Saving Money on Maintenance Fees

In the last few years before a Chapter 11 filing was necessary to restructure the business, the subject company’s IP managers had finally inventoried the complete patent portfolio that had accrued in both the USA and Europe as a result of the company’s growth and M&A activity. The key and elusive piece of puzzle was a matrix, cross referencing the individual patents and the specific product lines and respective factories in which they were applied.

Simultaneously, a central piece of the strategy the company’s top management tried to implement was cost savings across non-essential activities.

Armed with their summary matrix, when the harried IP managers decided on their contribution to the cost saving measures, they identified European patent annuities (yearly maintenance fees) as a material target and proceeded to rationalize the portfolio by suggesting to stop paying those maintenance fees on patents in those European jurisdictions were they did not have significant levels of sales (Italy was a big offender).

The problem here was informational. The IP management summary did not clarify that the patents in those jurisdictions were covered manufacturing processes, not end-products. A couple of years later, in the aftermath of the bankruptcy filing, the company negotiated to settle debts of its European subsidiaries while holding on only to the IP, namely the European patents.

The prior mistake reared its head: the manufacturing plants and their advanced technologies were unprotected in several European countries and the assumed European Patent Portfolio was full of holes and phantom patent assets that had lapsed due to unpaid fees. Thus, regardless of any negotiation prowess, the competitive advantages of proprietary technical advances in the manufacturing plants were discounted by the bidders for the plants, and the company could only sell a few disjointed and not very valuable patents that covered final-product features that change very often in the fast paced markets in used to dominate.

Thus, a superficial understanding of the IP inventory gave way to a substantial loss of value for the restructured company. Needless to say, the US operations were liquidated and the European factories were sold for a fraction of the going concern value.

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