GCs Should Use ‘SPARK’ to Rethink IP Portfolio—And Lower Costs

The Bottom Line

• Legal departments faced with pressure to drive savings and enhance service can use the SPARK method to optimize their patent portfolio.
• Some intellectual property is more aligned with the business’s current and future strategy and companies must determine which patents to continue defending.
• Medtronic completed an IP overhaul by focusing on Strategic alignment, Prioritizing value, Advancing with AI, and then using Recognition and Knowledge management.

Every general counsel and legal department confronts the inexorable corporate drive to enhance service and quality, while simultaneously lowering costs. In the world of intellectual property, in particular, today’s law departments must not only grapple with skyrocketing patent office and outside counsel fees, but also meet the accelerating demand for high-quality IP assets from their business and R&D leaders.

Our company, Medtronic, for example, is a global health care technology company, with more than 95,000 employees worldwide and more than $30 billion in annual revenue. From the very beginning, when our founders developed the first battery-powered pacemaker in a Minneapolis garage, Medtronic has made innovation a core strategic priority. As an innovation-driven company, we rely on IP to protect our pioneering inventions. This sustained strategic investment has resulted in a portfolio of more than 40,000 patents worldwide to date.

Recently, our IP team embarked on a journey to increase the value delivered by our IP portfolio, while also reducing the overall costs of the portfolio. How did we achieve a 10% reduction in our annual IP spend, while also receiving recognition for “exceptional shifts in patent portfolio quality” over the same time frame? We employed a four-part strategy: Strategic Alignment, Prioritizing Value, Advance with AI, Recognition and Knowledge Management—or SPARK.

Strategic Alignment

No IP strategy exists in a vacuum. It is difficult, if not impossible, to measure IP’s value to a business without carefully analyzing all the ways in which IP supports the business strategy.

As a first step in our process, we identified the main value drivers of our IP portfolio in supporting the business strategy and distilled them to three key elements:

• Offensive value
• Defensive value
• Future development value

These became the pillars of our IP strategy and laid the foundation for all the tough prioritization decisions we needed to make.

Our IP team started by reviewing our patents and business strategy at different levels of the company, ranging from individual business units up to the entire enterprise. This was a time- and resource-intensive exercise—we haven’t discovered any easy workarounds.

The only path we’ve found that works is for the full IP team to participate in a painstaking review of our patent portfolio in collaboration with key stakeholders in R&D, marketing, strategy, finance, and other functions.

We have been pleasantly surprised to learn that the investment pays off in multiple ways. The information allows us to evaluate the strengths, weaknesses, opportunities, and vulnerabilities of our IP portfolio, leading to actionable insights for executing our IP strategy at each level of the company.

Prioritizing Value

In 1997, Clayton Christensen laid out the classic Innovator’s Dilemma: The traits that lead an innovator to success with legacy technology are the same traits that will lead them to failure with disruptive technology. The basic problem is as old as technology itself. From stone tablets to the printing press to disk drives to the internet, too much investment in one technology will lead to vulnerabilities when new technologies emerge.

From the perspective of managing an IP portfolio, teams must strike a careful balance between protecting legacy technologies and making room for investments in new, potentially disruptive technologies. We have found that the key to striking this balance is focusing on value. Specifically, maintaining a sharp focus on the priorities and tradeoffs being made by the business as it allocates resources between current and future needs.

After establishing clear alignment between the IP strategy and the business strategy (the first step above), the IP team can unlock substantial value by focusing its investments on the technologies that are expected to deliver the most impact for the business. The key is maintaining focus on current and future needs, and de-prioritizing technologies that may have been dominant in the past.

In our case, we started by reviewing the costs to maintain all the patents in our portfolio and comparing those costs with the current and future value provided to the business.

This exercise made one thing immediately clear: Although each patent has a different value to the business, the costs to file, prosecute, and maintain each patent don’t reflect this disparity. Filing fees, maintenance fees, and even outside counsel time all carry roughly equivalent unit costs. This is true whether the costs go toward a critical patent that protects an entire business, or an outlier concept that was never commercialized.

Also, maintenance fees for any given patent tend to increase over time, due to both graduated fee schedules, as well as annual inflation that has become the norm in patent offices around the world. In practical terms, this means that the closer a patent gets to expiration, the more relatively expensive it gets to maintain.

We decided to use this disparity to our advantage by focusing our resources on the patents that most closely aligned with the current and future priorities of the business. This approach led us to divest (or even abandon) some older, more expensive patent families that were no longer aligned with the business strategy.

These aren’t bad patents in the abstract; in fact, they were the result of high-quality legal work, and at one point they were all valuable to the business. Business priorities inevitably change over time, however, and these patents simply weren’t delivering value. By offloading these patents and their associated costs, we created room to file new patents or expand existing patent families that are more closely aligned with the business’s latest thinking.

For Medtronic, this process of focusing the portfolio resulted in a period where our total portfolio size went down. During that same period, we concentrated on spending our resources in the most impactful way possible and addressing higher priority strategic needs. And, with relatively smaller volumes to manage, we took the opportunity to improve the quality of our work across the board. During this same period, we were gratified when our patent portfolio received unsolicited external recognition for “exceptional shifts in patent portfolio quality.” This told us we were on a productive path.

Advance With AI

The third step in our SPARK strategy relates to the use of artificial intelligence. No discussion of legal department efficiency would be complete without considering the use of AI tools. Our law department is employing AI in key areas, and we foresee substantial opportunity for growth and disruption.

IP portfolio management is a natural use case for AI tools, as many of the key tasks involve searching for and managing massive datasets of words, numbers, and images. Quality and accuracy are critical, of course, with potentially dire consequences for errors.

To understand the landscape of available options, we assembled an internal panel of experts. We asked our panel to review as many third-party vendors as possible in the quickly developing market of AI tools aimed at IP management, with an eye toward quality of analysis and demonstrated results. These two factors alone filtered out most of the vendors we’d reviewed so far, but a few have demonstrated enough promise to explore further.

We have successfully completed pilots with two vendors, each of which has combined deep legal with technical expertise to develop proprietary models aimed at specific IP use cases. To date, we have found more value in these discrete, focused AI tools, compared to broader, more generic tools that purport to provide full-service IP management functionality. We will continue to leverage our internal experts to follow these rapidly developing technologies and pilot additional tools.

Recognition and Knowledge Management

As with most processes, our SPARK strategy is not a “one and done” effort. To sustain the benefits of having a high-quality IP portfolio at a lower annual expense run-rate, we must maintain the mindset and the momentum we have created.

There are two keys to maintaining that momentum, we found: a culture that recognizes the contributions made by each team member to this large effort, capturing all the knowledge generated by such a large effort, and sharing that knowledge across the team.

By shifting our focus from cost to business value, we have learned how to transform the way we manage our IP portfolio. The SPARK strategy starts with understanding the business strategy and how our investment in IP delivers value; all subsequent tradeoff decisions flow directly from this exercise. Prioritizing quality over quantity unlocks resources to deliver increased value. Leveraging AI tools has the potential to drive even greater efficiency. And maintaining the momentum through recognition and knowledge management helps us truly “do more with less.”

So the next time your team faces this challenge, try starting with a SPARK.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Matthew A. Anderson is vice president and chief IP counsel at Medtronic. Prior to joining Medtronic, Matt was partner at McAndrews, Held & Malloy in Chicago.

Ivan Fong recently retired as executive vice president, general counsel and secretary of Medtronic. Prior to Medtronic, he served as GC or chief legal officer at 3M, the US Department of Homeland Security, Cardinal Health, and GE Vendor Financial Services.

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