The purpose of R&D is to create new products and services which are competitive in the marketplace. In order for advantages to be maintained, the result of such R&D must be securitized as intellectual property assets. These assets may take the form of patents, trademarks, copyrights, or trade secrets, all of which require investment to establish and maintain. In this article, we will examine the evolution of financials in developing and maintaining a patent portfolio and how this impacts a company’s ability to secure IP assets.
The key focus of many development stage companies is on creation and deployment of new products and services. As part of the research and development process, intellectual property is created and captured. The securitization of IP may be done through the applications for patents in the relevant jurisdictions. The grant of a patent results in an asset for the company.
As with any asset, patents require initial and ongoing investment. The investment is comprised of filing fees, drafting (preparation) fees, prosecution fees, issuance fees, and maintenance fees/annuities.
The investment allocated toward intellectual property varies from company to company, but generally ranges from 1% to 3% of the R&D budget. The actual boundaries of this investment are driven by the IP intensity of the sector as well as the composition of the portfolio, which we’re going to examine via the case studies.
The basic premise is that at a given level of R&D investment, there is a proportional investment that will need to be made to secure the results of such R&D into an asset which may be leveraged in the marketplace. IP investment as a percentage of R&D ranges from 1% to 3%. R&D investment as a percentage of revenues varies depending upon the type and stage of a company’s lifecycle. This number ranges from 5% to 50%.
Using a common revenue baseline and defining profiles for 3 differences cases, we construct the IP investment profile over the years as the portfolio grows. The assumptions and results are presented in the case studies.