The cost of securing IP can be heavily front loaded. Examples of such costs include patent drafting, pre-filing searches, filing fees, etc. These costs become “sunk” costs in that they cannot be recovered. Because IP protection can be a relatively long process, at any time during the process there are likely to be significant “prospective” costs: future costs that may be wholly or partially avoided depending on actions taken.
While not peculiar to the IP world, consideration of sunk costs when deciding actions affecting prospective costs are quite common. Put simply, the logic goes: “We should keep going and incur these costs because we have spent so much to get here. If we stop now, that expenditure will have been wasted.” This is an example of the sunk cost fallacy. While such behaviour has been characterised as throwing good money after bad, it is probably more accurate to say to is throwing bad money after good.
When faced with significant prospective costs in IP portfolios, the important question is whether incurring that cost is consistent with the current IP strategy and resources available. An IP strategy is not a static thing. It must adapt to changes in the business to which it relates in in the world market in which the business operates. A properly managed strategy needs to periodically review the prospective costs of a particular piece of work (e.g., a patent application) and decide if it still justifies future expenditure and to what level. What has happened in the past make no difference to this assessment.
Businesses can be understandably reluctant to abandon IP rights such as patent applications as there is usually now way to get them back if they change their minds. This problem can particularly manifest itself when there is no pressure on IP budgets so that hanging onto something does not inhibit other activity. Unfortunately, this just stacks up trouble for when times get tight and IP spend needs to be prioritised between maintaining what you have and beginning new work.
The sunk cost problem can be compounded by what is known as “plan continuation bias”: the tendency to continue with a planned course of action even though conditions have changed. This can be particularly evident where an upcoming cost is relatively low on a case-by-case basis, but the cumulative effect of these small costs is to significantly diminish the IP budget resources available for new work.
There are various ways in which IP can be managed to avoid these problems. One is to adopt a process that takes decisions on IP activities at times that are well-removed from the need to incur cost. Where time is short and a decision needed, sunk costs and plan continuation bias can encourage people to accept a cost that might not be justified. In short, do not leave it too late when making expensive decisions. Another is to conduct periodical reviews of the IP portfolio independently of any deadlines having cost implications. This allows decisions to be based on current strategy and the resources currently available.
By letting go IP rights, you free up resources that can allow other work to continue and, more significantly, new work to be undertaken. Judicious pruning of portfolios to abandon rights in countries of lesser interest, or to drop older rights that are not used can take a lot of pressure off an IP budget.
It is important to remember that you do not make progress by only cutting things out. You also have to add new things in. A properly managed IP strategy is key to such progress.
Martin Hyden, Trade Mark, Patent Attorney and Partner