CIPHER Briefing

Patent Strength
July 2014

The quantity of patents and other IP is only

relevant if the quality is high

Frans van Houten, CEO Philips, IPBC Keynote 23 June 2014

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London, WC2E 9RA
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CIPHER Briefings
CIPHER briefings provide more detailed information about the data contained in CIPHER and its
relevance to an understanding of the drivers of IP value and risk. This briefing focuses on Patent
Strength and relates to the strength score used in CIPHER and licensed by Relecura.

Whilst there are many critics of algorithmic assessment of strength, AISTEMOS believes that it is a
relevant factor to take into account, and a significant improvement on simply assessing quantity.
CIPHER is built on the concept that counting doesnt count (or at the very least is not sufficient).

Our thanks to George Koomullil and the team at Relecura for producing the following briefing on patent
strength.

Nigel Swycher, CEO

AISTEMOS Limited
July 2014

Executive Summary
The strength of a patent is a measure of its quality. The strength or quality of a patent is dynamic, and
depends on the given context. It varies with the evolution of the technology and market for the products
or services that the patent addresses. Nonetheless, certain factors that affect the strength of a patent
may be identified, and the manner in which they impact patent quality outlined.

These factors may broadly be distributed along three axes:

! Factors relating to the technology addressed.

! Products/services that the patent reads on and their markets.
! Litigation or Patent Office reviews and actions connected with the patent and their outcomes.

It is worth noting here, that the phrases "patent strength" or "patent quality" are often used
interchangeably with the phrase "patent value". These terms are related. However typically "patent
value" encompasses both the scope of protection offered by a patent as well as its market value in
terms of the royalty rate or acquisition price it can command.

We have included at the end of this briefing a glossary of technical terms used and links to academic
papers relevant to patent strength. This content is also available in the Glossary and Library sections of
aistemos.com, freely available to members of the CIPHER Pilot Group.

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1. Technology related factors

These factors are embedded in the various parameters and fields of the patent document. Each of
these factors may be more or less important in determining the patent strength in a given context. The
relative importance of the various factors can be fixed by giving weights to each of them.

Number of forward citations

A large number of forward citations indicates a high level of commercial interest or activity in the
patented technology. It is also reasonable to assume that a patent with a greater number of forward
citations is more fundamental in nature, and that subsequent work is built upon it - and hence correlates
positively with patent strength.

Number of backward citations

This factor is somewhat contentious. Some studies find that a greater number of backward citations
may indicate that the patent invention is more derivative in nature, negatively impacting its strength.
Other studies state the reverse, finding that a greater number of backward citations often point to a new
way of combining existing ideas and hence have a positive impact on strength.

Number of years to expiry

This factor relates to the period of enforceability remaining for the patent. The longer this duration, the
greater the positive impact on strength.

Prosecution time
A longer prosecution time for a granted patent usually indicates that the patent has successfully
overcome a greater number of office actions related to possible prior art suggested by the examiner,
thus enhancing its validity and hence its strength.

Number of claims
The scope of protection a patent offers is likely to be broader with a greater number of claims. Hence
this positively impacts the strength.

Length of the specification

Patents with longer specifications typically attract a higher maintenance fee. A longer specification
reasonably points to a compelling justification for its inclusion in the mind of the applicant, and thus
positively impacts the patent strength.

Number of independent claims

Similar to the above factor, the greater the number of independent claims, the higher the maintenance
fees for the patent. Hence this points to a justification for their inclusion by the applicant. This again
positively impacts patent strength.

Number of family members

The greater the number of family members, the broader the protection for both the core invention and
its variations, and hence a positive impact on patent strength.

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2. Business related factors

Number of geographies covered by the patent family1
This factor is slightly different from that mentioned in the previous section, in that it refers to the
geographical spread of the various patent family members. A greater number of geographies covered
by the various family members offers protection for the invention in multiple markets. This positively
impacts patent strength and has multiple benefits for the patent asset holder including:

! The ability to exclude competition in a multiple markets, thus increasing revenues.

! The ability to gain royalty revenues through licensing.
! The ability to command a premium for the products or services covered by the patent.

Patent jurisdiction1
Protection in larger markets is more valuable. Hence there is a positive impact on patent strength if the
given patent is filed in a jurisdiction that affords a larger market for the product or service addressed by
the patent.

Longer periods of maintenance

77%
Many companies periodically cull portfolios of patents
that are no longer relevant to their current lines of
business. These patents are sold, licensed, or allowed
to lapse due to non-payment of maintenance fees. The
continued maintenance of a patent points to its
relevance and importance with regard to the product or
service it addresses, and hence enhances its strength.

Market size of product/service addressed

by patent
This is a significant driver of patent strength and value. of patent value is attributable
The challenge however is to accurately determine the to the top 3.5% of patents.
extent to which the patent claims read on the product
or service addressed, as well the value delivered by
More than half of all patens
including the patent in the product or service. It is have little or no value.
reasonable to assume that the existence of a large - 2012 EU Report
market for the product or service addressed by the
patent impacts its strength positively. Quantifying the
impact however, requires a detailed analysis of the
patent claims.

1
In the final analysis, how much these factors contribute to the patent strength will depend on the coverage of the
claims of the individual family members. It is not necessary that the scope of coverage for the invention be identical
for each of the family members.

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3. Litigation or Patent Office actions and reviews

Assertion
Enforcing a patent via litigation implies that the patent holder is sufficiently confident that the patent is
valid and is strategically important to justify the cost and effort. A positive outcome for the plaintiff in an
infringement litigation or a settlement in its favour, greatly enhances the strength and value of the
patents asserted.

Patent Office actions and reviews

Patents are sometimes subjected to pre and post-grant reviews brought on by third parties. These are
usually related to the validity of specific claims in the patent. If the patent is able to overcome these
validity attacks, it emerges with its strength and value enhanced.

6,000 250%

Patents granted per year (Growth vs. 2004)

5,000
200%
US Lawsuits, Per Year

4,000
150%

3,000

100%
2,000

50%
1,000

- 0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US Lawsuits (Per year) Total Granted Patents, Worldwide, PCT (Growth vs. 2004)

Sources: USPTO, Patent Freedom

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Summary

While calculating patent strength, a judicious choice of the relevant factors and related weights has to
be made. This choice is informed by the context in which the calculation is being made.

The Relecura patent strength calculation is based on various academic studies that identify the factors
affecting patent strength and determine their impact, based on patent data:

! The technology related factors listed above are covered in the calculation.
! Of the business and market related factors, the effect of family spread and jurisdiction
are incorporated in the strength calculation.
! The effect of litigation and its outcome on patent strength is factored in indirectly. A
large sample of litigated patents and their outcomes have been studied and correlated
to various parameters of the connected patents. These correlations have then been
incorporated into the patent strength calculation.
! The effect of Patent Office actions and reviews is however not considered currently.
! Relecura continues to work on refining our methodology of strength calculation and
validating it, to make it more comprehensive and robust.

About Relecura

Relecura, developed by INDUS TechInnovations, offers an analytics platform for technology

developers, inventors, IP professionals and corporate leaders to make better decisions. The platform is
used to extract insights and provide analytics from large datasets of patent documents and repositories
of science and technology information.

The Relecura strength score is licensed to AISTEMOS, and used as a value driver. Refer to CIPHER
2
FAQ for more information about how the strength score is visualised within CIPHER .

http://www.relecura.com

2
CIPHER FAQs is only available for CIPHER Pilot Group members. To find out more about CIPHER
please contact Marcus Malek, marcus.malek@aistemos.com

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Glossary Sources
Application: Formal application for a patent, Market value and patent citations
filed at the patent office chosen by the Hall Bronwyn H, Jaffe Adam, Trajtenberg Manuel
applicant. A patent is considered an application (2005)
until it is granted, which in the US takes on The RAND Journal of Economics Vol. 36, No.
average 29 months. 1, Spring, 2005

Specification: Part of the patent application

where the inventor specifies and describes the Options for an EU instrument for patent
claimed invention and the manner and process valorization
of making and using it, typically also describing EU Expert Group on Patent Valorisation
a number of example implementations. European Union, 2012 report

Citation: Citation is a reference (most often

another patent but can also be a textbook, The Value of U.S. Patents by Owner
technical journal etc.) that is believed to be and Patent Characteristics
relevant prior art and can be presented either Bessen, James E (2006)
by the applicant (as a reference in the Boston University School of Law Working
application) or by the patent examiner during Paper No. 06-46
the examination. People distinguish between
forward citations (patents that "cite" a particular
patent) and backward citations (patents that a Valuable Patents
particular patent is citing). Allison John R, Lemley Mark A, Moore Kimberley
A, Trunkey R Derek (2004)
Claim: Part of the patent with the specific Georgetown Law Journal, Vol. 92, p. 435, 2004
definition of what the applicant is trying to
protect and also determines the extent of the
patent coverage. A patent can have multiple Worthless Patents
claims when determining and specifying certain Moore, KImberley A. (2005)
aspects of the invention, for example a method, Berkeley Technology Law Journal [Vol.
an apparatus and a system aspect of the same 20:1521 2005]
invention.

Maintenance fees: Annual fees, also known as

renewal fees, to be paid by patent owner to the
relevant Patent Office to keep a patent in force.
Payment schedules vary country to country; for
example fees in the United States are due 3.5,
7.5 and 11.5 years after grant of the patent.

Patent family: A group of patents granted in

different countries/ regions for the same
invention. For example, if an inventor applies
for and is granted a patent for the single
invention in 10 countries, the inventor would
have one patent family with 10 patent rights
(also known as family members).

Patent prosecution: The process of filing and

obtaining a patent, including exchanges with
the patent examiner for administrative manners
and manners relating to the examination of the
patent application.

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