13

Measurements a Corporate Patent Department Can
Use to Report Its Activities
Michael D. Kaminski(*)

The purpose of this research is to attempt to identify what measurements or benchmarks could be employedby corporate IP departments to measure the success of their patent activities. Certainly, senior corporate
management is keenly interested in understanding what the patent activities have been. Now, however, othergroups like shareholders, market analysts, and investors are just as interested. IP departments need to show thebenefit of their activities to these audiences. As a work product of this research, it is anticipated that a catalog ofsuch possible measurements will be developed. Accordingly, the IP department could choose some of thesemeasurements to use in their reports. Some of the measurements can be very simple, such as a total of thepatents received or the applications filed over a year's time. However, the possibility of using other measurements
exists and these other measurements may be relevant to a particular company's situation. There is perhaps not
one set of measurements that will work for all companies, given several factors. Some of these measurements
may be too economic to be practically used. However, other measurements will involve quantifying the value ofrisk avoided through the use of patents. Also, the overlap between a company's patents and its products will behighlighted as a possible measurement.

Ⅰ Introduction
Many companies are increasingly recognizingthat a general IP strategy plan, and a specificpatent strategy plan, should be included within
their overall business objectives. IP and patents
are becoming much more than a legal issue.
Rather, IP and patents are becoming anembodiment of a company’s competitive position.
As such, companies are starting to devote asmuch emphasis on developing the value andimpact of their IP as on creating and maintaining
it. Certainly many good studies and books discuss
this growing importance.
With the increased importance generally
comes increased scrutiny of IP activities by acompany’s business management. Accordingly,
with this greater scrutiny is coming a wider
audience for reports on patenting activities.
This audience is not only internal to the company
but is also external, such as stockholders,potential investors, and analysts. Reporting of acompany’s patenting activities never had a wider
audience.
The purpose of this study is to consider
what objective benchmarks, metrics, and/or
measurements an IP department could use todescribe and demonstrate its “patent successes”
to its senior management, its Board of Directors,
any other relevant audience internal to thecompany, as well as to external investors andmarket analysts. Companies can then choose
among those metrics and measurements thatseem to fit best for its owner’s particular needs
and corporate culture. The correct choice of such
performance indications can be used to identify
areas where improvement is required, and to
guide activities that should be undertaken to
improve performance.
The need for such values and measurements
are clear. Corporate patent departments are stilllargely viewed by management as “cost centers”
or as a “staff expense” rather than as a creator ofstrategic assets. Companies have historicallybuilt portfolios of patents because it was “theright thing to do” or as a way of keeping theirengineers and scientists happy.
Indeed, there is currently in the UnitedStates an active discussion among corporate legal
departments (not yet focusing on “corporate IP
departments”) about how to measure success.
An article from “Corporate Legal Times,” entitled“Legal Departments Learn How to Measure
Success” (Vol. 14, No. 150, May 2004) discusses
the proceedings from a “Counsel to Counsel
Forum” entitled: “How Do You Measure Up?
Metrics and Measurements for the Law
Department.” A number of General Counsel or“Chief Legal Officers” from some of the UnitedStates’s largest companies participated. The
discussion at the Forum was somewhat surprising.
The observations were made that a number ofcorporate legal departments themselves have no
meaningful metrics by which to measure anything.
The conclusion was made that, in today’s
corporate culture, implementing the proper(*) Partner, Co-Manager, Tokyo Office; IP Operations Chair Foley & Lardner LLP Washington, D.C.; Tokyo, Japan

IIP Bulletin 2005

● 94 ●

metrics and measurements is crucial to a legal
department’s success, especially as corporate
budgets remain flat. Such metrics andmeasurements provide information that helps adepartment gain the trust and respect of company
business executives. Additionally, the observation
was made at this Forum that the first thing thatneeds to be done is to succinctly define the role ofthe corporate legal department within thecompany. It is respectfully submitted that
corporate patent departments face the samepressures.
This study is limited to metrics andmeasurements for patent activities only.

Ⅱ DescriptionofInformation
Reviewed and Collected.
The following information was collected andreviewed:
1. Personal interviews with corporate IP
departments;
2. Documentary sources identified throughresearch; and,3. The author’s personal experiences in being
significantly responsible for the patenting
activities within a corporation and separatelyof a division within a corporation, albeit as“outside counsel.”A “Questionnaire” was provided to most of
the interviewees in advance. No specific company
or its practices are identified in this study.

Ⅲ General Observations.
Several general observations can be made:First, it is useful to remember the five
fundamental roles of patents in facilitating
business success. Whatever measurements acompany chooses should be consistent with its
business goals and these five fundamental goals.
Second, there is not one set of metric andmeasurements for all companies to use. Instead,the patent department of each company has todecide which of the available ones may be
preferred for its unique corporate situation andresources. This variability can be attributed toseveral factors.
Third, too many members of companies’
senior management tend to focus only on how
much money revenue has been generated. (This
could be from licensing revenues, etc.)
Unfortunately, such a one-dimensional way oftending to view patents does not appreciate thenon-revenue benefits of having a patent portfolio.
Fourth, there is also wide variability in the actual
modes of reporting to the relevant business
managers.
Fifth, some of the metrics and measurements
may seem somewhat speculative and hard toquantify with real numbers. However, such
metrics should not be dismissed as being without
practical use.

Ⅳ Catalog
of
Metrics
Measurements.

and

As described above, the purpose of this study
is to create a catalog of possible metrics andmeasurements that a company can pick andchoose from to report its patent activities. It is
expected that many may not be applicable to eachcompany, but at least choices are possible.
1

The Patent Department’s
Within the Company.

“Charter”

Each patent department needs to fully andspecifically know how it fits into the corporate
structure, both on the organization chart andfunctionally. Such a “charter” sets forth a way
to judge whether the patent department isconducting its businesses the way it should be.
A “charter” would identify any inconsistencies
that different business managers may have about
the roles of the patent department.
Clearly, decisions on the maintenance,
protection, disposal, licensing, and abandonmentof IP should be taken by the business units.
However, equally clearly is that the patentfunction, whether based internally or outsourced
to private practitioners or split between the two,
will be responsible for managing the legal
processes implied by such decisions. The“charter” would consider whether accountabilities
between the businesses and the patent
department are clear, and, if delegated, whether
approval and reporting structures are clearly
defined.
Simply, the “charter” will help tooutline the principles that the company will follow
in managing its IP.
There was observed a considerable variationin different companies’ patent charters. Some hadnone. Some had a rudimentary charter related to“human resources” issues. Some companies had
charters limited to a series of statements ofprinciples. However, it is submitted that chartersof this type are often little more than “philosophy
statements” that do not contribute much in theoperation of the patent function. Some companies’
policies contained detailed procedures describing
not only what should be done but how. Charters of
this type may be ignored because of the sheer
volume of information users must navigate.
It is submitted that the most effective
charters would be structured to provide a clear
description of: the company’s policy, theminimum actions needed to ensure compliance,
and identifies those responsible for policy
interpretation and ensuring compliance.

● 95 ●IIP Bulletin 2005

2

products that are covered by the patents.

The “Standard” Set.

The next four (4) measurements are mostfrequently used by companies at the present time.
(1) Number of Patents Issued.
This is probably the most rudimentary
metric. It simply counts the number of patents
issued to a company typically for a given year.
A company may compare how many patents
issued this year to those issued in prior years, asa way to keep track of any trends. Bar charts orgraphs of such yearly totals are sometimes used.
Also, several variations of the totals that can bepresented. One variation is to present the total
numbers issued by each business unit. Anothervariation is to present the totals by geographic
region, like patents in China. Another way would
be to present the totals by technology category,such as design patents, business method patents,
or manufacturing patents. Another variation
would be by “special purpose” categories, such as
patents that relate to “preventing counterfeiting.”
Another variation would be the total number ofpatents held, not just the new ones for the lastyear. Graphics or illustrations could be used toillustrate the total or variations thereof.
(2) Number of Patent Applications Filed.
This metric is very similar, but instead looks
at the number of patent applications filed to acompany or related family of companies, typicallyfor a given year. The same variations as with“numbers of patents issued” could apply here aswell.
(3) Numberof
Invention
Disclosures
Received.
A perhaps related (and a more upstream)
metric is the “number of invention disclosures”
received from the scientists. The same variations
as with “numbers of patents issued” could apply.
(4) Comparing the Number of Patents
Obtained to the Number of Patents
Issued to Your Competitors.
This metric compares the number of patents
issued to a company or to a related family ofcompanies to the number of patents issued tocompetitors. Certainly not all companies are thesame size or commercialize all its products within
the same sector, so some adjustments need bemade for meaningful comparisons. To somecompanies, comparing how many patents it hascompared to competitors is very important.
3

The “Product-Centric” Set.

The next nine (9) measurements focus noton the patents that are obtained but focus on the

IIP Bulletin 2005

(1) Illustrating
How
the
PatentsorApplications
Cover
Products
orTechnology.
This metric attempts to correlate the patents
issuedorpatentapplications
filedtocommercialized or proposed products. Productprotection has certainly been one of the main
purposes for seeking patent protection.
Patents can provide a “fence” of exclusivity
around products or technologies. The key tomaintaining healthy profit margins is to avoid“commoditization” of a company’s products.
This invariably involves a commitment toinnovation and to building fences around thoseinnovations to prevent others from copying them.
This metric may help to assist the company inrecognizing a consideration and value between
the company’s products and the patents
protecting them. Accordingly, this metric takes
into account the importance of the patents inprotecting the company’s core business.
Surprising, many companies cannot readilytell which of its patents — both domestic andforeign patents — cover which product. Such a
correlation is arguably the cornerstone of any
patent strategy. Some companies are actuallyusing this metric in their advertising or branding
campaigns.
This metric can even go to the next level ofunderstanding with a description of how thepatents cover the products. For example, thepatents cover particular features of the product,
the product’s manufacture, the product’s
packaging, etc.
It can also be envisioned that some very
persuasive graphics or illustrations could be used
to explain this metric.
(2) Protection of Market Exclusivity.
Being able to exclude competitors frommarketing a “me-too” or copied product certainly
has value. A patent or patents that are able toprotect market share for the patent owner isgenerally extremely valuable.
Yet, this type of metric is not used very muchin showing patent value or success. This is eventrue in the situation when the patent owner andone of its competitors are first involved in apatent dispute. Further, during a litigation, theamount of such loss of market exclusivity, andsometimes even “price erosion” of the patent
owners’ prices and the value to the accused
infringer of “accelerated market entry” iscalculated by economic and accounting experts.
(In the U.S., this is done during the phase of theFederalCourt
litigation
called“expertdiscovery.”) The litigation experience shows thata fair estimate can be made of the value of market● 96 ●

share protection. Certainly it is not possible toknow when a competitor has reviewed a patent,
became convinced that the patent is strong
enough to be avoided, and then has taken steps to
avoid a sector of the market. Such an estimation
may seem too speculative. Nonetheless, it may bepossible in some circumstances to estimate thesevalues.
Talking with sales or marketing people about
the potential products and/or features thereof
may help to provide information for the valuations.
It also may be possible to compare the covered
products to other products similarly beingcommercialized.
(3) Patent Use Indicators.
This type of indicator considers what
corporate patents and pending applications are
currently in use (by the company or corporate
license), of potential business use for the future,
or of no interest to the company. One
measurement could be a percentage of patents
used in a company’s products, such as 30% of acompany’s patents being used in products. One
way to gauge the value of patents is to survey theperceptions of the patents’ value and use. If apatent is used, then it has to have some sort ofvalue. This technique can also be used tocompare how value changes from year-to-year.
(4) Patents to Commercial Products Ratios.
This ratio compares the patents issued to acompany to commercial products produced frompatents. In fact, one major U.S. company used avariation of this ratio as an indication, bothinternally and externally, to show how“innovative” its products were. It also focuses on
the “output of the patent”: new products. The
potential weakness is that not all new products
are equal and this measure would not differentiate
between extremely innovative products in one
year and mediocre products in other years.
(5) Ratio of Sales to Patents.
This metric calculates the ratio of the dollar
value of sales to the number of patents held by
the company. This measure was discussed inseveral academic articles on the subject ofintellectual property valuation. However, no
actual instances of use was identified in theinterviews that were conducted. This measurepresumes that the innovativeness, usefulness,and value of a company’s patents is reflected in acompany’s sales and profits.
(6) Market Impact of Patented Innovations.
This measure relates to the percentagechange in market share (or company sales) that
occurs when a potential product is introduced into
the marketplace for the first time. Such apercentage change could be attributed to thepatent or patents covering the product.
Companies and market research firms routinely
measure the impact of new product introductionsin the structure and dynamics of a market. This isprobably a more “quantitative” measure than thepreviously-discussed “market exclusivity” factor.
Sometimes it is difficult to measure unless actual
sales figures and increased market share can belinked to a new innovation.
(7) Added Product Value From a Patented
Feature.
This measure looks at the average percent
increase in the value of a product when a patented
feature has been added as calculated by looking at
price and sales changes to a product before andafter a specific patented innovation. Certain
patents may lend themselves to this type ofanalysis.
(8) Volume of Sales That Is PatentProtected.
Several of the measurements discussed
above related to determining which of thecompany’s patents cover which of the company’s
products. Once that exercise is completed, then
the total monetary value of sales each year
derived from products that are patent protected
can be easily derived.
This is a relatively
straightforward measure, which would show the
impact of patents by focusing on the revenue
generated by protected innovations.
(9) Effects of Expiring Patents of Company
Performance.
Patents expire all the time, even ones thatare important to a company’s business. Before apatent expires, it is necessary to assess how thepatent’s expiration will affect a company’s
continued profits. Such an analysis could best
be prepared together with the business team.
While this metric may not be one whichhighlights a patent department’s success, it is one
that demonstrates that forethought is being given
to how to handle to adverse patent events before
they happen.
4

The “Money Saved” Set.

The next two (2) measurements highlightthe money saved by not maintaining certain typesof patents. Certainly, foregoing additional expense
is a definite benefit to a company.
(1) Money Saved By Abandoning PatentProtection for Products Removed Froma Product Line or No Longer Being
Developed for Introduction.
It will rarely make sense for a company to● 97 ●IIP Bulletin 2005

maintain patent protection for a feature it has
removed from its product line. Without such aconsideration, it is very difficult to makeintelligent decisions as to where to file ormaintain the company’s patents. The future costsavings of patents that are no longer being sought
or maintained can be tabulated. Of course, there
are situations in which it might make a great dealof sense for a company to have patent protection
even in countries where its sales are low.
(2) Money Savings From Abandoning Low
Quality Patents.
Another reason to abandon a patent is after arecognition that the patent is actually of “lowquality” from a legal perspective. “Low quality”
can be assessed a number of ways. Then the
future cost savings of that decision can bequantified.
5

The “Licensing” Set.

The next three (3) measurements consider
the different benefits achieved by licensing
activities of a company. Success can be more thanjust comparing “revenue in” to “revenue out.”(1) Tabulating the Amount of Revenue
Generated Through Licensing.
Certainly licensing patents is a way togenerate revenues and above average profit
margins. On a simple level, this metric involves
totaling up how much revenue is generated
through patent licensing. This can be simply
calculated by adding up the amount of royalties
collected. One common variation is to compare“licensing revenue in” to “licensing revenue out.”
Another variation is to compare the revenue
received through licensing to a predeterminedtarget. Graphics could be used to allocate theamount of revenue.
(2) Quantifying — Or At Least Describing —Non-Monetary Value From Licenses.
However, the true value of a license isfrequently more than just royalties. It is always
possible for a value to be placed on suchnon-monetary benefits. Non-monetary components
can include cross-licenses, business that is to bereceived as part of the deal, stock, other assets,
and so on. Therefore, any conceivable otherconcrete benefit should be also included as ameasure of success.
(3) Information About Patent Alliances With
Other Companies.
Companies interact with other companies
frequently relating to IP/patents. Besides
licensing “in” or “out,” interaction could be forpurposesofjointdevelopment,
generalIIP Bulletin 2005

cross-licensing, joint ventures, and so on.
These interactions could be described and also
how IP/patents contributed.
6

Quantifying Risk Avoidance.

One metric that is not used very much — but
perhaps which has a lot of potential — is thevalue of the patents in avoiding risk, such as in
avoiding or terminating patent disputes. Disputes
are typically allegations of infringement that are
made by one company against another. In thesedisputes, patents can be used as a defensive
shield in an effort to terminate the dispute, suchas through a counter-attack allegation of
infringement (“if you sue us then we will sueyou”) or as a basis for cross-licensing.
It is typical for different analyses to be doneat the time a dispute arises. One analysis is toassess the monetary amount of the risk.
Another analysis is the amount of attorneys feesand expenses that must be paid if a court action is
filed and maintained. These can be very large
numbers indeed.
If the dispute is resolved and the accusedcompany’s patents form a part of that settlement
or termination, then the argument can be madethat the patents’ value was used as “barter.”
Therefore, a value should be accounted for theamount of the risk avoided.
7

The “Patent Citation” Set.

The next three (3) measurements rely on“citation” analysis, a growing tool for analysis ofpatent data.
(1) “Technology Cycle Time” of Cited
Patents.
This measurement considers the median ageof patents cited within the company’s patentportfolio. This measurement has already beenused by researchers as an indication of the speedwith which a company is developing newtechnology. It reflects the length of time for agiven
technology
toproduce
additionalinnovation.
(2) “Technology Strength” Measurement.
This is a rather esoteric measurement.
This was developed by CHI Research Inc. but
publicly available. However, availability to theappropriate database is needed.
Two calculations must be done. First, the“Current-Impact Index” must be calculated, asupposed measure of the broader significance of acompany’s patents. This Index is calculated by
how many times a company’s patents that issued
during the last 5 years were cited as references inlast year’s patent of others. A value of 1.0 is● 98 ●

average.
The second calculation is of the “Technology
Strength.” This is calculated by multiplying thenumber of a company’s U.S. patents by its“Current Impact Index.”(3) Calculating
Value
Using
PatentCitations.
A growing body of studies explore theusefulness of patent citations as a measure of the“importance” of a company’s patents, as indicatedby the stock market valuation of the company’s
intangible stack of knowledge. Such analysis
utilize so-called “Tobin q equations” on the ratios
of R&D to assets, patents to R&D, and citations
to patents. These analyses generally conclude
that each citation per patent impacts market value.
However, such analyses have generally not beenused as patent management tools yet.
8

The “Accounting Information” Set.

The next four (4) measurements rely on
information that company accountants may havein their possession.

trademarked, making them difficult to separateout.
(3) Common Stock Value Divided by Valueof Intangible Assets.
Under another way to view the value of
intangible assets, the market value of thisintangible property is calculated by dividing theprices of common stock by the balance sheet(book value) of the underlying equity. Thismeasure is commonly used to assess themarket-to-book-ratio. However, as with othermeasures of intangible assets, IP alone may not
be responsible for this value. In addition, stock
prices can be highly fluctuating and influenced byfactors other than the value of the IP.
(4) Rate of Return on Intangible Assets.
The rate of return attributable to theintangible assets can be calculated by dividing thevalue of intangible assets by total profits of thecompany.

(1) Value of a Patent or Groups of Patents
Calculated Through a Discounted Cash
Flow Analysis.
This measure calculates the presentmonetary values of the economic benefits fromcommercialization of a patent or a group ofpatents as calculated from a discounted cash flow
analysis. Venture capital companies, banks, andother lenders often use this method to forecast
the value of a patent before agreeing to fund thecommercialization phase of a patented process.
Data to be used in this analysis can bederived from company information. Most
corporate plans or budgets have the expectedcash flow from a particular product that is
expected to be developed and commercialized.
(2) Value of Intangible Assets.
Under this measure, the average market
value of intangible assets of a company ismeasured by subtracting the book value of all
assets (fixed assets, working capital, etc.) fromthe market value of the company’s underlying
equity. This is a measure that is commonly usedby accounting personnel and stock analysts tocalculate the company’s excess value. Company
financial information is available on suchparameters as the value of fixed assets, current
assets, and current liabilities, long-term liabilities,
market value of equity, etc.
The problem is that this measure does not
relate to the value of just the company’s IP, but of
the intangible assets as a whole. Certain
intangible assets may not be patented or● 99 ●IIP Bulletin 2005