Providing clarity to IP owners.
How can you be sure that your patent renewal process is as effective and straightforward as it can be?
How can the element of trust between an IP owner and IP partner (IP law firm, consultant) effectively strengthen the renewal process?
Often, pricing for patent renewals is not transparent or easy to understand. IP partners should pay more attention because, sometimes, their renewal services can contain disruptive elements that result in financial burdens for the IP owner. Based on an in-depth comparison of the leading IP partners, we saw that this was often a problem across the board.
We decided to take a look at the value chain and analyse the potential pitfalls that can sometimes occur, helping all IP partners understand the process and what can be avoided, making for a smooth patent renewals mechanism.
This article aims:
- to shed light on the hidden costs
- to emphasise lack of transparency in patent renewals,
- why it matters to IP owners and partners
- what this means for the value chain
Hopefully, by the end of this article, you will have a clear understanding of these concepts in everyday terms.
Who cares about patent renewals?
Although it may not seem the most glamorous element of getting inventions protected, patent renewals are vital to the process of innovation and success when renewing them, ensuring that your ideas continue to be safeguarded and leaves room for bettering your products, strengthening your ideas and focusing on R&D.
Additionally, patent renewals are often seen as a practical task that don't require much attention. The less we hear about it the better. The SME or the IP partner and especially the inventor themselves don’t want to focus on this element too much - they just want their annuities taken care of and their patents safely handled.
However, as portfolios grow and the number of national patents needing to be renewed reaches the 50-100 renewals, optimising costs becomes increasingly important. As an SME or inventor with these levels of patents to renew, it should not be a complicated process to systematically renew each patent when required. The costs just tend to grow and grow with the number of innovative patents, which an owner would rather avoid.
Of course, quality of service is vital and the costs associated with it are also strategically important for patent holders. Bank fees, local agent charges etc. are passed along in the value chain and ultimately paid for by the patent holder. Patent holders typically only see the total renewal costs, since they are usually out of the loop concerning all of the cost items and players in the value chain. Looking at it in the way of convenience, this could be a potential upside for the IP owner - they are left out of the back and forth and admin of communication with IP partners.
How does it work?
Simply put, the value chain is the process of factors, costs and actors who deliver an end result of a service - in this situation, the service is IP renewals. For patent renewals, the traditional value chain consists of a number of steps, which could contain both pros and cons for the IP owner. The pros is that this approach, historically, has worked - patents are renewed through this format every day. As previously mentioned, the IP owner has peace of mind knowing that other people and actors and dealing with their patent renewals. These are qualified experts who take responsibility for the process and are liable.
However, there are cons to be considered too. The cons might include the higher costs for the IP owner and the potential to miss patent renewal deadlines through a longer chain of execution. Apart from the official fee an IP law firm or SME pays to the renewal providers, the chain will go through different actors, who in turn need to be paid; administrators, banking agents, local agents across different jurisdictions. Looking at this from the point of view of an entire portfolio, the list is extensive with several cost items that summed together make an important figure.
From a high level perspective, these are the steps:
- The IP owner entrusts the IP partner to organise payment and to meet deadlines for their IP renewals. The costs of the value chain are passed on from the IP partner to the IP owner. In most cases, they are lumped into the invoice of the owner, meaning that, until recently, the IP partner had little incentive to look at and optimise the value chain.
Therefore, when going through the traditional payment chain, the customer can be lumped with exorbitant costs. More actors + traditional payment processes = more costs.
The trust element
The relationship between the IP owner and the IP partner is based on trust. After all, the latter is responsible for the assets that will define a company’s competitive advantage for years to come. So, it is almost unthinkable for an IP owner to imagine that the IP consultant is charging for a cost that could otherwise be avoided.
The truth is that patent renewals are a highly complex matter that don’t fall in the area of expertise of a patent attorney. It just happens to be part of the administrative requirements that an IP law firm is required to do if they want to offer clients a service that covers their IP needs entirely.
Technically, it’s nearly impossible for an IP law firm to run a profitable renewal department. Keeping track of changing legislation across the globe is a massive task. Just think about all the different languages that it would require, and then the time it would take to look at each individual jurisdiction. For this reason, it is common for IP law firms to outsource this responsibility to an IP renewal service provider or to have a network of trusted agents that will take on the responsibility of making the single payments.
Why is using a network of local agents inefficient?
For as much as this seems as an efficient way of handling payments, there is a negative aspect to it. It is often the case that local agents will provide discounts or promise exchange work if the law firm will select them as their official channel to pay for the annuity fees in the specific country. This aspect is not exclusive to IP law firms only - several IP service providers are stuck in the same mud.
This can create a lock-down effect whereby an IP partner is receiving work that generates an important share of their annual revenue. If they were to cut the annuities, the flow of work might cease as well. This is a dilemma that many IP partners, especially law firms, experience and it is likely to be what is preventing them from optimizing the annuity costs to their clients.
Endangering a relationship in exchange for uncertainty is never good. However, this opens up a huge risk as well. What would happen to their client base if a provider with 10-50% lower costs and a more modern approach were to target their clients?
We know for a fact that SME clients are proactively looking to optimize costs. So, is it already too late for IP law firms to adapt? Absolutely not, however those that will refuse to shift approach to doing business by charging clients unnecessary fees will likely experience hardships already in the next 2-3 years, if not already.
Therefore, it is important for IP partners to find ways to communicate that the costs that are passed along are legitimate and the value chain is cost efficient. On top of that, if maintaining a patent gets too expensive, innovative firms will file fewer patents and even consider cancelling existing ones - which is an undesirable outcome for all IP partners.
So what is the real cost of renewing a patent?
It should be straightforward to answer how much the patent holder pays for the renewal service. The official fees are listed in each jurisdiction, and logically the rest of the patent holders bill is simply for the renewal service. However, there is a possibility that the owner cannot tell how much is added to the official fees in their own portfolio.
The primary cost item that all patent holders and IP partners care about is the ‘renewal service fee’ because it is visible and transparent. However, we came to realise that the ‘renewal service fee’ is negligible compared to other cost elements when using a renewal service.
We want to help patent holders and IP Law firms alike to understand what they pay for with their existing providers. Typically, we run into nine types of fees when analysing competing service providers. The fees are tough to discern because it is common practice to consolidate these expenses into one annual fee or several, but not all encompassing and with a lacking degree of transparency. The most typical fees are:
- Service fees: these are the fees that an IP law firm and a Service provider charge for handling an IP renewal payment
- Local (foreign) law firm fees: for some IP renewal providers, it is common practice to have reciprocity deals with local IP law firms. Through these deals, the IP renewal provider charges for local IP law firm fees also when it is not a requirement, in exchange for reciprocity from the local IP law firm. If the IP partner has many reciprocity deals in place, this can inflate the total cost for the renewal of an IP portfolio by a considerable amount. This obviously is not in the best interest of the SME or IP owner.
- Postal fees: fees for the transportation of registered documents.
- IP law firm Service fees: these are the fees that an IP law firm and a Service provider charge for handling an IP renewal payment.
- Transaction fees: these are costs that are charged whenever transiting funds from one bank account to another.
- Late payment fees: there are agreed payment workflows and invoice due dates in place with an IP law firm and IP renewal providers. Defying those payment terms will come at a cost that is different across the board.
- Foreign exchange deposit (a deposit for protection against currency fluctuation).
When studying the traditional methods of patent renewals, it’s natural to come to the conclusion that there could be a cost-effective, easier way for patent holders to renew their annuities. In the second part of this article, we will explore the existing potential that could very well make the process easier.