SVIX and RNIX: Novel Data Values to Analyze Patent Annuities and Patent

Portfolios

Daniel H. Kaltman

LAW816: International Patent Law and Policy, Fall 2020

Asa Griggs Candler Professor of Law, Professor Margo Bagley

Emory University School of Law

 Table of Contents

Abstract………………………………………………………………………………….3

Introduction……………………………………………………………………………..4

I. The Patent Annuity Systems Around The World………………………………...8

A. Perspectives From The Patent Offices……………………………………...

B. Perspective From The Patentee And Their Behavior Towards Patent

Annuity Fees…………………………………………………………………..

II. PVIX: A Current Value to Assess Patent Quality………………………………..

A. Methods for Computing PVIX………………………………………………

III. SVIX: A New Value To Measure Patent Annuities……………………………….

A. Methods for Computing SVIX……………………………………………….

B. SVIX Results and Figures.……………………………………………………

IV. RNIX: A New Value Correlating PVIX and SVIX……………………………………

A. Methods for Computing RNIX…………………………………………………

B. RNIX Results and Figures……………………………………………………..

V. The Benefits of Quantifying Patent Annuities……………………………………..

VI. The Drawbacks And Limitations to Quantifying Patent Annuities……………..

Conclusion.……………………………………………………………………………….

2
Abstract

The top ten patent offices across the globe are set to rake in about $8 billion in

patent annuity fees for 2020 alone. The large fixed costs of patent annuity fees has led

leading multinational companies to develop and utilize AI tools that quantify and analyze

whether a particular patent’s annuity fee should be paid. However, these tools are not

publicly available. This paper seeks to quantify patent annuities fees for a given patent

family, and compare that value to the quality of that patent family. By analyzing over 40

million different patents and their corresponding families, this paper seeks to provide

entities a much needed data point in their managerial decisions regarding patent

annuities. Utilizing objective data has become a modern staple in business, and the

data values associated with patent annuities will further assist entities for patent

acquisitions, budgetary planning, and managerial accounting purposes.

3
Introduction

Honda Motor Company, a multinational car and engine manufacturer, owns an

extensive worldwide patent portfolio of approximately 50,000 patents. Prosecuting and

obtaining these patents worldwide certainly cost several millions of dollars, with the

average cost to prosecute a patent in the United States alone being well over $10,000 1.

Although a large portion of the prosecution costs for Honda are attorney’s fees, there

are fixed costs associated with prosecution of a patent. Honda pays fixed costs such

as: application fees, filing fees for amendments and office action responses, and

issuance fees.2 However, the costs associated with obtaining a patent do not stop after

issuance occurs.3 A successfully granted patent leads to even further fixed costs by

way of patent annuity fees. Patent annuity fees are statutorily set payments that must

be made to the issuing office in particular time increments following the grant of a

patent.4

Honda pursued patents on certain innovations because of the benefits a

company expects to get from a legal monopoly. These benefits include the ability to

block competitors from entering certain markets or the ability to license their invention to

other companies.5 However, these benefits come at a steep cost; the patents must be

maintained by payment of annuity fees to remain enforceable in each territorial

1
See Gene Quinn, The Cost of Obtaining a Patent in the US, IPWATCHDOG BLOG (April 4, 2015),
https://www.ip watchdog.com/2015/04/04/the-cost-of-obtaining-a-patent-in-the-us/id=56485/
2
See 35 U.S.C. § 41 (2016).
3
See Rebecca S. Eisenberg, Patent Costs and Unlicensed Use of Patented Inventions, 78 U. CHI. L.
REV. 53 (2011).
4
See Gaten De Rassenfosse, & Bruno van Pottelsberghe de la Potterie, The Role of Fees in Patent
Systems: Theory and Evidence, 27(4) J. ECON. SURV. 696 (2013).
5
See Stuart J.H. Graham & Ted Sichelman, Why Do Start-Ups Patent, 23 BERKELY TECH. L.J. 1063
(2008).

4
jurisdiction.6 Honda’s failure to pay the annuity fee for a particular patent would result in

abandonment of that patent in that jurisdiction. 7 Not all of Honda’s patents achieve or

maintain the expected value proposition that led to Honda pursuing them in the first

place. Certain patents may become too costly to renew, or may lose value over time for

a variety of reasons. The high costs of patent litigation and transactional costs with

licensing deals may prove to be too costly for entities. 8 Further, patentee’s may rush to

patent inventions before ascertaining any meaningful estimates of the expected return

on that technology.9 Upon later review, a company may not decide that its efforts to

commercialize this particular invention will be profitable. 10 Similarly, a patent may lose

value later in its life cycle as alternative non-infringing inventions enter the

marketplace.11 Thus, each time a patent annuity fee is due on Honda’s 50,000 patents,

Honda executives must weigh the patent value against the patent cost to make a

managerial decision on whether to pay the annuity fee to keep the patent enforceable or

to let the patent expire.

Honda’s executives must make careful decisions because the amount of money

at play with regard to patent annuity fees is quite significant. A staggering $184 billion

will be due in patent annuity fees on all currently issued patents across the lifetime of

those patents, with $8 billion due in 2020 alone at the top ten largest international patent

offices.12 The massive costs at stake has led Honda to develop an AI tool to assist in
6
See 35 U.S.C § 41(b)(2) (2016) (stating that “unless payment of the applicable maintenance fee under
paragraph (1) is received in the Office on or before the date the fee is due or within a grace period of 6
months thereafter, the patent shall expire as of the end of such grace period”).
7
See Id.
8
See Stuart J.H. Graham & Ted Sichelman, Why Do Start-Ups Patent, 23 BERKELY TECH. L.J. 1063
(2008).
9
Kimberly A. Moore, Worthless Patents, 20(4) BERKELY TECH. L.J. 1521 (2005).
10
See Id.
11
See Nancy T. Gallini, Patent Policy and Costly Imitation, 23(1) RAND J. ECON. 52 (1992).
12
See William Mansfield, Examining the Data: Billions to Be Spent on Patent Renewal Fees in 2021 and
Beyond, IP WATCHDOG BLOG (June 6, 2020), https://www.ipwatchdog.com/2020/06/06/examining-data

5
these patent annuity decisions.13 Honda’s AI tool flagged about 30% of the company's

patent portfolio as one that could potentially be abandoned, with the Honda employees

agreeing with the AI system with about half (7,000 patents) of the roughly 14,500

patents that were flagged.14 Although Honda has not released the exact algorithm of

the AI tool, the algorithm includes “a patent’s technical innovation level, its relationship

to competitors’ technologies and general market conditions.” 15 Not only does this AI tool

assist in deciding potential cost savings, but this AI tool can drastically cut down on the

time employees spend reviewing Honda’s roughly 50,000 patents. Honda’s Intellectual

Property Department manager, Hirokazu Bessho, has gone so far to state that “the tool

could reduce time spent on [annuity] work by 70%.” However, Honda AI algorithm and

software is proprietary, and the exact mechanisms of how it works has not been

released to the public.

Honda is not alone in facing this predicament. Samsung, one of the largest

patent holders in the world, has obtained hundreds of thousands of patents spanning all

different territorial jurisdictions. Samsung is expected to pay about $137 million in

patent annuity fees due in 2021 alone, and that number goes up to approximately $2

billion across the lifetime of those patents. 16 Other large multinational companies such

as Panasonic, Canon, Qualcomm, Huawei, and Bosch are also expected to pay

approximately $1 billion across the lifetime of their current patent portfolios. 17 These

-billions-spent-patent-renewal-fees-2021-beyond/id=122213/ (discussing the the top ten international

patent offices include the following countries in order from most fees to least fees still to be collected on
all active patents: China, United States, Japan, Germany, European Patent Office, South Korea, France,
United Kingdom, Switzerland, and Taiwan).
13
See Id.
14
See Id.
15
See Id.
16
See Id.
17
See Id.

6
numbers do not even take into account the thousands of additional patents that these

companies file and obtain every year. For example, Samsung acquired more than

6,400 patents in the United States in 2019, which further increases its capital expenses

on payment of annuity fees. 18 Due to the large amount of costs involved, many

companies across the world would benefit from a tool that analyzed an entities patent

annuity costs relative to the value of those patents.

As illustrated, a tool to analyze and compare patent costs versus patent quality

would drastically assist companies in making annuity payment decisions. Because

Honda’s AI tool is not publicly available, this paper describes a tool for companies to

access and compare the quality and cost of their patent portfolios to obtain a

quantifiable and objective data source to use in deciding whether to renew a given

family of patents. Patentee payments of annuity fees vary from year to year, but annuity

fees typically rely predominantly on two factors: 1) the number of patents issued in the

past (i.e. the number available to be renewed); and 2) the rate at which patentees

decide to renew their patents.19 This paper will focus on analysis of the second factor.

Part I of this paper analyzes the various patent annuity systems around the

world, highlighting certain similarities and differences among them and perspectives

from the offices and applicants. Part II of this paper explores the quantification of an

already existing value of a patent family (called “PVIX”) based on certain qualities of that

family such as market size, reputation, and family identification. Part III explores the

quantification of the annuity costs by creating a novel value (called “SVIX”) associated

with that specific family using world-wide patent office fee schedules. Part IV discusses
18
See https://techcrunch.com/2020/01/14/us-patents-hit-record-333530-granted-in-2019-ibm-samsung-
not-the-faangs-lead-the-pack/
19
See U.S. PATENT AND TRADEMARK OFFICE, FISCAL YEAR 2021 CONG. JUSTIFICATION 131
(2020).

7
the interplay between PVIX and SVIX, and quantifies a novel value called the renewal

index value (“RNIX”). The RNIX calculation may assist an entity to decide, on a per

patent family basis, to renew their patents in that specific family. This paper continues

with a discussion in Part V of the importance of such values, the ways companies can

use these new data points in their internal patent portfolio accounting and managerial

decisions. Finally, this paper concludes in Part VI with the drawbacks and limitations in

calculating such values.

I. Patent Annuity Systems Around the World

There are many similarities amongst the world’s patent offices on procedural

aspects of annuity fees. The timing of payments is similar among most patent offices

around the globe, however the start date of those payments vary. 20 Most patent offices

schedule their annuity fees to be paid in one year increments. In year by year

schedules, annuity fees are due every year on the anniversary from the patent filing

date21. This is the case in the Chinese Patent Office, Japan Patent Office, European

Patent Office, and many others.22 However, the starting year of these annual payment

varies by country. For example, the Chinese Patent Office, the Japan Patent Office,

and the South Korean Patent Office require annuity fees to be collected every year

starting at the first year anniversary from the patent grant date. 23 On the other hand, the

European Patent Office, German Patent Office, and Indian Patent Office require annuity

20
See Joshua S. Gans, Stephen P. King, & Ryan Lampe, Patent Renewal Fees And Self-Funding Patent
Offices, 4 BE J. THEORETICAL ECON. 1 (2004).
21
See Gaten De Rassenfosse, & Bruno van Pottelsberghe de la Potterie, The Role of Fees in Patent
Systems: Theory and Evidence, 27(4) J. ECON. SURV. 696 (2013).
22
See WORLD INTELLECTUAL PROPERTY OFFICE, THE PCT APPLICANT’S GUIDE (2020).
23
See Id.

8
fees to be collected every year starting, but these fees start at the third year anniversary

from the grant date.24

Another similarity among patent offices is the processing of annuity fees via

online payments. The payment of fees electronically is more efficient for the patentee

and for the patent office and cuts down on misplacing paper payment forms. Certain

countries, such as Australia, simultaneously allow for manual payments to be submitted,

but these manual payments are subject to a surcharge fee in comparison to their online

counterpart.25

Further, all countries’ fee schedules illustrate increasing yearly payments as the

number of years from issuance increases. Therefore, it becomes more expensive to

maintain patents in the final few years before they expire. The rationale behind

increasing fees is the expectation that as the years progress after issuance, the

patentee is capitalizing economically from their invention and the exclusivity the patent

provides.26 Also, patentee’s fees go up since they may obtain increased licensing

revenue as time progresses, and may therefore be able to pay higher annuity fees. 27

In all countries, failure to pay annuity fees for a given year will result in expiration

of a patent.28 Thus, patent owners must pay the annuity fees in each issuing country to

continue enforcement of their patent rights. All Paris Convention countries, as required

by Section 5 of the Paris Convention, allow for a “grace period” by accepting patent

24
See Id.
25
See IP AUSTL., https://www.ipaustralia.gov.au/patents/understanding-patents/time-and-costs (last
visited October 27, 2020) (illustrating that Australia has approximately a $36 mark-up for all annuity fee
payments that are not paid online, but are instead paid using a check or money order).
26
See Chaitali Ahya (2005). Intellectual Property Valuation: A Primer for Identifying and Determining
Value. American Bar Association. p. 35. ISBN 978-1-59031-430-2.
27
See Id.
28
See 35 U.S.C § 41(b)(2) (2016) (stating that “unless payment of the applicable maintenance fee under
paragraph (1) is received in the Office on or before the date the fee is due or within a grace period of 6
months thereafter, the patent shall expire as of the end of such grace period”).

9
annuity fees up to a certain month after the initial fee was due. 29 This allows companies

and inventors to remedy any missed payments without forfeiting the ability to enforce

their patent. If a patent does go abandoned for failure to pay an annuity fee, the public

receives a benefit because they are freely able to practice the invention without fear of

infringement lawsuits.30 These abandoned patents also act as prior art to future

applications, thus limiting broad claim language (and thus broader patent rights) to later

applicants.31

Countries slightly vary across the globe in their approach to annuity fees.

Nevertheless, the United States is an outlier in two key areas: timing of annuity fees and

discounted annuity fees. First, instead of operating on a year-by-year annuity payment,

the USPTO requires payment of annuity fees at intervals of 3.5, 7.5, and 11.5 years

following the date of issue. 32 Secondly, another difference between the United States

and other global patent offices is that the majority of patent offices do not offer

discounted fees for certain entities. Rather, most patent offices have a uniform fee for

all entities, no matter their size, income, or number of patents they have prosecuted. In

contrast, the USPTO allows “small” and “micro” entities to receive a 50% and 75%

29
See Paris Convention for the Protection of Industrial Property, September 28, 1979 (Article 5bis All
Industrial Property Rights: Period of Grace for the Payment of Fees for the Maintenance of Rights;
Patents: Restoration). See also 37 C.F.R. § 1.362(e) (2016) (stating that “maintenance fees may be paid
with the surcharge set forth in §1.20(h) during the respective grace periods.”). See also 37 C.F.R. §
1.20(h) (2016) (stating that “surcharge for paying a maintenance fee during the six-month grace period
following the expiration of three years and six months, seven years and six months, and eleven years and
six months after the date of the original grant of a patent” is $160.00 for a large entity.) See also
RENEWALS DESK, https://www.renewalsdesk.com/ (last visited October 27, 2020) (showing that other
patent offices, such as Australia, China, Japan, the European Patent Office similarly allow for a six-month
grace period as long as a late payment surcharge is accompanied with the annuity fee.
30
See Christopher A. Cotropia & David L. Shwartz, The Hidden Value of Abandoned Applications to the
Patent System, 61 BOSTON COLLEGE L. REV. 8 (2019) (discussing the value of abandoned
applications, but equally relevant to abandoned patents).
31
See Id.
32
See 37 C.F.R. § 1.362(e) (2016).

10
discount, respectively, on their annuity fees versus that for a large entity. 33 “Small”

entities are defined as “the owner is a nonprofit or any small business concern as

defined under section 3 of the Small Business Act.” 34 “Micro” entities also qualify as a

“small” entity, but additionally are further defined as the applicant “has not been named

as an inventor on more than 4 previously filed patent applications” in the United States,

and did not “have a gross income exceeding 3 times the median household income in

the preceding year.”35 An owners “small” or “micro” entity status may change

throughout the time period for necessary payments of annuity fees. 36 The USPTO takes

a different approach from the rest of the world to facilitate patent access to small

businesses, universities, and single inventors. 37 This approach has been widely lauded

by scholars to increase efforts for a more inclusive patent system for all entities of all

sizes and types.38

A. Perspectives from the Patent Offices

Patent offices mandate and set specific prices for annuity fees for three main

reasons: 1) budgetary considerations; 2) patent harmonization concerns; and 3)

strategically allowing for lower application fees. First, annuity fees are the largest

revenue source for patent offices around the globe. 39 In the United States, more than

33
See 37 C.F.R. § 1.20(e) (2016). See also 37 C.F.R. § 1.20(f) (2016). See also 37 C.F.R. § 1.20(g)
(2016).
34
35 U.S.C. § 41(h)(1) (2016) and 37 C.F.R. § 1.27(a) (2016). See also 13 C.F.R. § 121.802 (2016)
(defining a small business concern as “(a) whose number of employees, including affiliates, does not
exceed 500 persons; and (b) Which has not assigned, granted, conveyed, or licensed (and is under no
obligation to do so) any rights in the invention to any person who made it and could not be classified as
an independent inventor, or to any concern which would not qualify as a non-profit organization or a small
business concern under this section”).
35
See Id.
36
See Id.
37
See Alexa L. Ashworth, Race You to the Patent Office: How the New Patent Reform Act Will Affect
Technology Transfer at Universities, 23 ALBANY L.J. SCI. & TECH. 383 (2012).
38
See Colleen V. Chien, Rigorous Policy Pilots the USPTO Could Try, 104 IOWA L.R. 1 (2019).
39
See Id. (further noting the number of patent-holding entities globally runs into the seven-digit range;
however, of these, 325 are responsible for 50% of all annuity fee payments. These large multinational

11
half of all United States Patent and Trademark Office (USPTO) revenue comes from

issue and annuity fees.40 In 2019, the USPTO generated over $3 billion in revenue from

patent fees, with approximately forty four percent (44%) of this value generated from

annuity fees alone.41 As such, global patent offices principally depend on patent annuity

fees for a large majority of their funding and operation expenses. 42 Historically,

policymakers typically rely on budget concerns when setting annuity fees. 43 From a

budget concern standpoint, many patent offices around the globe are mandated by their

respective governments to be “self-sustaining” and “self-funded”. 44 For example, the

United Kingdom Patent Office must achieve a rate of return on capital that has been set

by the Treasury since 1991. 45 Similarly, in the United States, the Patent and Trademark

Office Corporation Act of 1995 established the USPTO as a wholly owned government

organization with the requirement of being self ‐sustaining. 46 Thus, a careful balance

must be created between fees that are too high, which may decrease application filings,

and fees that are too low, which may lead to budget deficits for the patent office.

Secondly, patent policymakers have historically focused on patent harmonization

concerns when setting patent annuity fees. As stated above, setting fees higher than

companies spend millions of dollars per year on global patent maintenance fees just to maintain their
portfolios. Samsung is expected to pay approximately $137 million in global patent annuity fees in 2021
alone).
40
See U.S. PATENT AND TRADEMARK OFFICE, FISCAL YEAR 2021 CONG. JUSTIFICATION 131
(2020).
41
See Id.
42
See PJ Federico, Renewal Fees and Other Patent Fees in Foreign Countries, 36(11) J. PAT. OFF.
SOC’Y. 827 (1954) (stating that “the main purpose of the annual [i.e., renewal] fee is to derive revenue to
defray the expenses of administering the patent office”).
43
See Gaten De Rassenfosse, & Bruno van Pottelsberghe de la Potterie, The Role of Fees in Patent
Systems: Theory and Evidence, 27(4) J. ECON. SURV. 696 (2013).
44
See Joshua S. Gans, Stephen P. King, & Ryan Lampe, Patent Renewal Fees and Self ‐Funding Patent
Offices 4(1) TOPICS IN THEORETICAL ECON. 6 (2004).
45
See Id.
46
See Gaten De Rassenfosse, & Bruno van Pottelsberghe de la Potterie, The Role of Fees in Patent
Systems: Theory and Evidence, 27(4) J. ECON. SURV. 696 (2013).

12
other countries may discourage application filing in that respective country. This, in

turn, may lead to forum shopping in similarly developed countries where similar

commercial exploitation of the invention can be pursued. The United States Patent Act

of 1793 dramatically increased the annuity fees for US patents, and one of the stated

goals of this act was aimed at making the US patent system more comparable to

European systems.47 Another prominent example of altering patent fees in fear of

international discontinuity is the United Kingdom Patent Office’s 1883 decision to slash

patent fees by a staggering 85%. 48 Britain reaped the benefits of lowering fees to other

international rates noting that patent filings “increased 2.5-fold after the reform, which

[were] evenly distributed across the geography of inventors, the organization of

invention and sectors.”49

Lastly, by mandating post-issuance fees, which includes annuity fees, this allows

patent offices to provide lower application fees on initial applications. The rationale

behind this tactic is that it encourages the filing of patents since the heavier burden of

the fees falls after a patent has been in force for some time. 50 Thus, the patentee may

be better able to pay these latter fees than at the beginning when the application is

filed.51 Another rationale behind this tactic is the expectation that as the years progress

after issuance, the patentee is capitalizing economically from their invention and the

exclusivity the patent provides.52

47
See Robert C. Watson, Patent Office Fees and Expenses, 35(10) J. PAT. OFF. SOC’Y. 710, 724
(1953).
48
See Tom Nicholas, Cheaper Patents, 40(2) RES. POL’Y. 325, 339 (2011).
49
Id.
50
See Id. at 828.
51
See Id.
52
See Chaitali Ahya (2005). Intellectual Property Valuation: A Primer for Identifying and Determining
Value. American Bar Association. p. 35. ISBN 978-1-59031-430-2.

13
 B. Perspective from the Patentee and Their Behavior Towards Patent

Annuity Fees

The question of how annuity fees help shape patent policy is not only pondered

by lawmakers and patent attorneys, but equally pondered by inventors, applicants, and

other stakeholders in the patent system. 53 The patent office’s focus on budgetary

concerns and patent harmonization concerns means that policymakers seldom take into

account applicants’ behavior and welfare considerations. 54 The failure to take these

latter points into consideration stems from the view that “fees do not influence patent

practices: since the actual fees paid to patent offices are a fraction of the overall cost” of

securing a patent (i.e., attorney fees). 55 This is erroneous. Two recent studies shed

light on how patent annuity fee structures are impacting the behavior of applicants on

patent filings and annuity rates.

Analysis on the correlation between patent annuity fees and patentee behavior

was conducted by Serrano (2010). Serrano analyzed patent annuity fees in relation to

the creation of mathematical models surrounding the transferability of patents. 56

Serrano concluded that the overall probability of a patent being transferred decreases

over time because as the expiration date of the patent approaches it implies less time to

amortize costs of technology adoption.57 Serrano calls this concept the “horizon effect.”

53
See Adam B. Jaffe & Josh Lerner, Innovation and Its Discontents: How Our Broken Patent System is
Endangering Innovation and Progress, and What to do About It, PRINCETON UNI. PRESS (2011).
54
See Id.
55
Id. (further stating that “this intuition is well captured by the US Senator McClellan, chairman of the
patent subcommittee, discussing the Patent Office Fee Bill of 1964 which more than doubled the fee
rates: ‘In view of the fact that all other expenses involved in securing a patent, most notably legal fees,
have increased since 1932 without any reduction in the number of applications filed, the committee does
not agree that the adjustment of fees provided in this bill will discourage invention’”).
56
See Carlos J. Serrano, The Dynamics of the Transfer and Renewal of Patents, 41(4) RAND J. ECON.
686, 708 (2010).
57
See Id.

14
However, Serrano found an anomaly in the “horizon effect” the year following payment

of annuity fees, where there was a slight uptick in patent transfers. 58 The reason for this

anomaly may be prospective buyers of that patent may be able to derive positive value

now that the remaining costs associated with that patent have just decreased because

of payment of an annuity fee.59

In 2011, Danguy and van Pottelsberghe de la Potterie calculated the impact of

annuity fee pricing on the patent annuity behavior of patentees is made by analyzing

annuity fees and annuity rates in fifteen European countries, the United States, and

Japan.60 The researchers concluded that, on average across the investigated countries,

“a 1,000 euro [approximately $1,178] increase in annuity fees increases the drop-out

rate by 12 percentage points.” 61 This suggests that because annuity fees rise over time

and the annuity rate logically decreases, the implied elasticity of patent annuity fees

mechanically increases over time.62

Now that this paper has laid a foundation of patent annuities and the impact they

have on both the patent offices and the patentee, this paper will now focus on

quantifying data values associated with patent annuities. These data values include

patent quality index (PVIX), patent savings index (SVIX), and patent renewal index

(RNIX). The method of calculation for each of these values, and how they relate to one

another, is discussed in the below sections.

58
See Id.
59
See Id.
60
See Jerome Danguy & Bruno van Pottelsberghe de la Potterie, Cost-Benefit Analysis of the Community
Patent, 2(2) J. BENEFIT-COST ANALYSIS 1, 43 (2011).
61
Id.
62
See Gaten De Rassenfosse, & Bruno van Pottelsberghe de la Potterie, The Role of Fees in Patent
Systems: Theory and Evidence, 27(4) J. ECON. SURV. 696 (2013).

15
III. PVIX: A Current Value to Assess Patent Quality

Certain patent metrics are becoming increasingly valuable for entities to evaluate

not only their patent portfolios, but also to evaluate competitors patent portfolios. 63

Analyzing single patent counts may be an insufficient proxy of patent strength,

innovation or competitive impact because it is known that the majority of patents have

little or no independent value.64 Assessing a given value of a patent is difficult because

patents themselves are complex and technical documents that even experts have

trouble interpreting.65 Unified Patents, a legal services company, recently formulated a

tool to measure patent portfolio value called the Portfolio Value IndeX (“PVIX”). 66 To

analyze patent portfolios on a global scale, patents coherently protecting the same

invention globally can be grouped into patent families. 67 Therefore, PVIX measures size

based on a per-family basis rather than a per-patent or application basis. 68 A patent

family comprises all patents and patent applications that describe the same invention
63
See Ernst Holger & Nils Omland, The Patent Asset Index–A New Approach to Benchmark Patent
Portfolios, 33 WORLD PAT. INFO 34, 41 (2011) (stating “Because proprietary technology is a
cornerstone of market success and a valuable asset in many industries, patent benchmarks provide
useful insights into the competitive position of a company. As patents usually precede the actual use of
technologies in commercial applications, these benchmarks can also offer an outlook into tomorrow’s
competitive landscape”).
64
See Polk R. Wagner, Understanding Patent-Quality Mechanisms, 157(6) U. PENN. L. R. 2135, 2173
(2009).
65
See Andrew W. Torrance & Jevin D. West, All Patents Great and Small: A Big Data Network Approach
to Valuation, 20 VA J. L. & TECH. 466 (2006) (stating that “Measuring patent value is an important goal of
scholars in both patent law and patent economics. However, doing so objectively, accurately, and
consistently has proved exceedingly difficult. At least part of the reason for this difficulty is that patents
themselves are complex documents that are difficult even for patent experts to interpret”).
66
Unified Patents is a legal services member based company that primarily focuses on reducing the
number of Non-Practicing Entity assertions in patent litigation and PTAB cases. Unified Patents defines
discrete technology zones for members to join, including cloud storage, content delivery, or electronic
payments to ensure their deterrence is focused. By filing several inter partes reviews (IPRs) against
patents owned by NPEs, Unified Patents seeks to increase the costs that NPEs face when asserting
invalid patents and to deter future NPEs from doing the same thing again. See also Portfolio Value Index
(PVIX) Methodology, UNIFIED PATENTS (October 27, 2020), https://support.unifiedpatents.com/hc/en-
us/articles/360031290014-Portfolio-Value-Index-PVIX-Methodology.
67
See Ernst Holger & Nils Omland, The Patent Asset Index–A New Approach to Benchmark Patent
Portfolios, 33 WORLD PAT. INFO 34, 41 (2011).
68
See Portfolio Value Index (PVIX) Methodology, UNIFIED PATENTS (October 27, 2020), https://support.
unifiedpatents.com/hc/en-us/articles/360031290014-Portfolio-Value-Index-PVIX-Methodology.

16
and are related to each other through priority claims. 69 Patent family groupings are

frequently made upon receipt of applications in global patent offices. 70 Thus, for patent

valuation purposes the whole valuation of a patent family may be greater than the value

of the sum of its individual patents. 71 Patent family groupings play a crucial role in

developing and calculating PVIX, which is described below and based on three

components: (1) Market, (2) Reputation, and (3) Family. 72

A. Methods for Computing PVIX

The first criteria for calculating PVIX is a market component. Academic research

has shown a strong correlation between patent value and national Gross Domestic

Product (GDP).73 To assess the impact of a specific patent family, the Market score

utilizes the most recent national GDP figures for each country in which that family has

one or more currently-active issued patents. 74 The GDP figures are normalized with

respect to the GDP of the United States to a value of 0-1 (with a normalization value of

1 being the United States GDP). 75 An example Market score can be calculated using

US patent number 8697359-B1 (the ‘359 patent), which is entitled "CRISPR-Cas

Systems and Methods for Altering Expression of Gene Products" and is assigned to the

69
See Ernst Holger & Nils Omland, The Patent Asset Index–A New Approach to Benchmark Patent
Portfolios, 33 WORLD PAT. INFO 34, 41 (2011)
70
See EPO- Patent Families, https://www.epo.org/searching-for-patents/helpful-resources/first-time-here/
patent-families.html (last visited October 27, 2020) (“The EPO uses an automated process to build patent
families based on applications' priority claims. Once the patent families are then indicated in the EPO's
databases, examiners and editorial teams review them for accuracy based on the applications' technical
content”).
71
See Gideon Parchomovsky & Polk R. Wagner, Patent Portfolios, 154(1) U. PENN. L. R. 1, 77 (2005).
72
See Portfolio Value Index (PVIX) Methodology, UNIFIED PATENTS (October 27, 2020), https://support.
unifiedpatents.com/hc/en-us/articles/360031290014-Portfolio-Value-Index-PVIX-Methodology.
73
See Ernst Holger & Nils Omland, The Patent Asset Index–A New Approach to Benchmark Patent
Portfolios, 33 WORLD PAT. INFO 34, 41 (2011) (stating “one could use the Gross Domestic Product
(GDP) of each country as a proxy for the size of its market.).
74
See Portfolio Value Index (PVIX) Methodology, UNIFIED PATENTS (October 27, 2020), https://support.
unifiedpatents.com/hc/en-us/articles/360031290014-Portfolio-Value-Index-PVIX-Methodology.
75
See Id.

17
Massachusetts Institute of Technology.76 The ‘359 patent belongs to the family ID of

50441380, which has 30 active family members in 30 different countries. 77 The market

score is simply a sum of the normalized GDP values of those 30 different countries,

which for the ‘359 patent is 3.740. Table 1 shows each corresponding family member of

the patent family 50441380 and its contribution to the Market score calculation of 3.740

The second criteria for evaluating PVIX is “Reputation.” Reputation of a specific

patent family is calculated by the recognition a family’s disclosed invention has received

from other patent publications over time. 78 The Reputation score is measured by

forward and backwards citations, which have shown to be a leading indicator to patent
79
value in numerous empirical studies. Patent applicants, examiners, and third parties

routinely cite relevant art and patents, with some of these citations listed on the

Information Disclosure Statement of the new patent application. 80 This creates a

complex network of citations based on deliberate choices to situate other documents in

relation to the present invention.

76
See U.S. Patent No. 8,697,359B (issued April 15, 2014).
77
See U.S. Patent No. 8,697,359B (issued April 15, 2014). See also Dietmar Harhoff, Karin Hoisl, Bettina
Reichl, & Bruno van Pottelsberghe de la Potterie, Patent Validation At The Country Level—The Role of
Fees and Translation Costs,  38(9) RESEARCH POL’Y 1423, 1437 (2009) (EPC requires that all member
states, extension, and validation states provide the same protections to granted EPO applications that
they provide to applications applied for and granted in their own state. All that is required for a patentee to
do is to pay the applicable fees in the states which it has designated in its EPO patent application and in
some cases provide translations. EPO renewal fees are for the EPO application. Once the application
grants through the EPO, there are no more renewal fees to be paid to the EPO. The patentee pays the
designation/confirmation fees for each country in which it elects to validate the granted EPO patent. No
country can refuse the validation if the fees have been paid and other formalities are completed. Going
forward, the patentee pays the maintenance fees for each state in which it seeks patent protection but no
more fees are paid to the EPO).
78
See Portfolio Value Index (PVIX) Methodology, UNIFIED PATENTS (October 27, 2020), https://support.
unifiedpatents.com/hc/en-us/articles/360031290014-Portfolio-Value-Index-PVIX-Methodology.
79
See Nathan Falk & Kenneth Train, Patent Valuation With Forecasts of Forward Citations, 12(1) J. BUS.
VALUATION ECON. LOSS ANALYSIS 101, 121 (2017) (stating that “numerous empirical studies have
verified this finding using different data and methodologies, e. g., Albert et al. (1991), Harhoff et al. (1999),
Hall, Jaffe, and Trajtenberg (2005), Gambardella and Harhoff (2008), Kogan et al. (2012), and Moser,
Ohmstedt, and Rhode (2013)”).
80
See Id.

18
 The Reputation score for PVIX is normalized by an “Adjustment Factor”

according to a hierarchy of tiers: 1) Year, 2) Country, and 3) Technology Field (which is

represented by the International Patent Classification code- “IPC”). 81 The IPC tier is

broken down further based on the IPC classification tiers. For each tier, “the number of

citations received by each category is discounted by the overall geometric mean (GM)

of that tier.”82 Based on these tiers, specific patents may be given higher or lower

Reputation scores based on the calculation of the Adjustment Factor. An Adjustment

Factor greater than 1 indicates that the “citations received by this group of patents are

given slightly more credit by PVIX,” whereas an Adjustment Factor less than 1 indicates

less credit by PVIX towards this group of hierarchy tiers. 83

Returning to the ‘359 patent example, the following citations tiers are created: 1)

Year of 2014, 2) Country of United States, 3) IPC of C12Q 1/68, which leads to a further

sub tier breakdown into C (Chemistry), C12 (Biochemistry), C12Q (Tests Involving

Enzymes), C12Q 1 (Testing With Sensing Means), and C12Q1/68 (Nucleic Acids). 84

As such, at each sub tier, the number of citations received by each sub tier is

discounted by the overall geometric mean (GM) of that tier.

To illustrate the genomic mean calculation of C and C12, the following data is

important. A total of 53,137 patents and applications were published in 2014 by the US
81
See Junghwan Yun & Youngjung Geum, Automated Classification of Patents: A Topic Modeling
Approach, COMPUTERS & INDUSTRIAL ENGINEERING 147 (2020) (the International Patent
Classification- IPC- system is complex and hierarchical, comprising 8 sections, 128 classes, 648
subclasses, about 7,200 main groups, and approximately 72,000 subgroups). See also Yen-Liang Chen
& Yuan-Che Chang, A Three-Phase Method For Patent Classification, INFORMATION PROCESSING
AND MANAGEMENT 48 (2012) ([The IPC is automatically] maintained by the World Intellectual Property
Organization (WIPO) for classifying patents and patent applications. The IPC covers all areas of
technology and is currently used by industrial property offices in more than 90 countries. It includes some
80,000 categories that cover the whole range of industrial technologies).
82
See Portfolio Value Index (PVIX) Methodology, UNIFIED PATENTS (October 27, 2020), https://support.
unifiedpatents.com/hc/en-us/articles/360031290014-Portfolio-Value-Index-PVIX-Methodology.
83
See Id.
84
See Id.

19
patent office with a main IPC section of C (Chemistry). As of November of 2020, these

patents were cited 215,058 times. Thus, on average, each patent in this tier has been

cited 4.047 times; 4.047 is called the arithmetic mean (AM). For PVIX, however, the

geometric mean (GM) is used instead 85, and the geometric mean for this tier is 2.58. Of

the 53,137 patents in this tier, 11,396 belong to the IPC class of C12 (Biochemistry).

These 11,396 in this sub tier were cited a total of 58,370 times as of November of 2020,

and - using the geometric mean - each patent was cited 2.54 times on average. Thus,

because patents within IPC section C are cited 2.58 times on (geometric) average and

because IPC class C12 has a (geometric) average of 2.54, this means C12 is cited

slightly less than its other peer sub tiers. For PVIX, this means that the number of

citations received by this sub tier (US patents and applications published in 2014 with a

main IPC class C12) need to be adjusted in order to normalize these patents with its

peers. This calculation would continue for all the next sub tiers (C12Q, C12Q1,

C12Q1/68) to calculate the final PVIX value. Table 2 shows the averages for all classes

in IPC section C. For each patent, the Reputation score is determined by multiplying

the adjusted number of citations made and the adjusted number of citations received.

Next, the Reputation score for an entire patent family is the maximum Reputation score

for each of its individual patents. For patent family 50441380, the Reputation score is

856.517.

85
See, e.g., United Nations Development Programme Human Development Reports http://hdr.undp
.org/en/content/why-geometric-mean-used-hdi-rather-arithmetic-mean (“In 2010, the geometric mean was
introduced to compute the HDI. Poor performance in any dimension is directly reflected in the geometric
mean. In other words, a low achievement in one dimension is not linearly compensated for by a higher
achievement in another dimension. The geometric mean reduces the level of substitutability between
dimensions and at the same time ensures that a 1 percent decline in the index of, say, life expectancy
has the same impact on the HDI as a 1 percent decline in the education or income index. Thus, as a
basis for comparisons of achievements, this method is also more respectful of the intrinsic differences
across the dimensions than a simple average.”)

20
 One thing to appreciate is that, rather than evaluating PVIX on a per patent

basis, the PVIX score is calculated on a per-family basis. Analysis of PVIX on a per-

family basis allows assessment of the worldwide market and technological influence for

each fundamental invention disclosed, without inflating the valuation due to multiple

patents or applications covering the same invention. The Market and Reputation scores

reflect a calculation based on the patent family. For example, a patent family with two

issued patents in the US and one issued patent in KR will have the same Market score

as a patent family with one issued patent in the US and one issued patent in KR. That

is because the Market score factors in the GDP for each country once, regardless of the

number of active and issued patents within a given country for a given patent family.

Likewise, a very large patent family may not necessarily have a greater Reputation

score than a family with only one issued patent. The reason is because a family’s

Reputation score, instead of adding the individual Reputation scores for each of its

patent, takes the maximum Reputation score over all of its individual patents.

A family’s PVIX score is the natural logarithm of the Market score multiplied by

the Reputation score. Once each patent family has been assigned a PVIX score, the

raw scores are renormalized so as to fall within 0 and 100. Thus, the calculation for

patent family 50441380 proceeds as follows: ln(3.740 market score * 856.517 reputation

score) = 8.072 unnormalized PVIX score. Of all the families that have an unnormalized

PVIX score, the smallest score is -7.177 and the largest is 10.105. The normalized

PVIX score is computed as follows: Normalized PVIX = 100 x (Raw PVIX – Min PVIX) /

(Max PVIX – Min PVIX). Therefore, for patent family 50441380, the normalized PVIX

score is 100 x (8.072 – (-7.177) / (10.105 – (-7.177)) = 88.238. For comparison to other

21
patent family’s around the world, Figure 1 shows the overall distribution of PVIX scores

for patents families world-wide. Since the patent family 50441380 has a normalized PVIX

score above the average PVIX score, this particular family seems to have a quality

valuation that is quite high. Based on this patent family’s involvement with the

innovative and breakthrough technology of CRISPR, one would subjectively predict a

high valuation for this family.86 This subjective prediction is confirmed by the objective

and quantifiable high PVIX valuation.

IV. SVIX: A New Value To Measure Patent Annuities

Although PVIX exists to determine patent quality, there are currently no

methodologies or values to measure the total annuity fees left to pay globally on specific

patent families. Creating a tool to calculate these values would provide a vital benefit

for entities when analyzing their patent portfolios.

Unified Patents has created a novel value to measure patent annuities, which is

called the Savings Index or “SVIX”. SVIX is a value associated with the percentage of

patent annuity fees left to pay globally on a specific patent family. An SVIX value is

normalized to be between 0 and 1, where a higher SVIX score corresponds to a higher

percentage of annuity fees left to pay. An unnormalized SVIX score of .98, for example,

means that 98% of that family's patent annuities have not yet been paid. In other
86
See Jon Cohen, A Cut Above: Pair That Developed CRISPR Earns Historic Award, 370 SCIENCE
MAGAZINE 6514, 271 (2020) (The award, to Emmanuelle Charpentier of the Max Planck Unit for the
Science of Pathogens and Jennifer Doudna of the University of California, Berkeley, marks the first time a
Nobel Prize in science has gone to an all-female team. It also comes amid a high-stakes patent fight over
the revolutionary genetic "scissors"—which promise to have an impact on medicine, crops, livestock, pest
control, and even climate change. Other pioneering researchers in the once-small CRISPR field
applauded the decision, noting that although many investigators helped push the research forward,
Charpentier and Doudna made the key discovery that has led CRISPR to become a ubiquitous lab tool
today).

22
words, there is still 98% of global patent fees due for the patents included in that patent

family. For example, the patent family 50441380 (the same patent family as used

above in the PVIX calculation) has an unnormalized SVIX score of 0.8117. An

unnormalized SVIX score of 0.8117 means that the patent owners of the patents

encompassed in this patent family still have 81.17% of the annuity fees left to pay

globally. The below section will discuss the data and procedure used to determine

SVIX values, utilizing the 50441380 patent family as an example throughout this

calculation.

A. Methods for Computing SVIX

This section will explore the methods and procedures used to formulate the SVIX

values for the nearly 40 million patents that were analyzed in the data pool.

Patent annuity schedules from fifty one patent offices around the globe were

collected and entered in a Microsoft Excel spreadsheet. 87 This data consisted of the

start year (how many years after grant do the annuity payments begin), annuity

payment frequency (how often payments are due), the year in which payments ended

(how many years after grant do annuity payments end), and the amount of payments

due per payment frequency. This data was primarily collected by visiting each specific

country’s intellectual property office online website and by analyzing the World

Intellectual Property Office’s Patent Cooperation Treaty country guides. 88

To account for the differing global currency valuations, since the annuity fee

amounts were listed in the local currency for each country, we created a currency

conversion table. This currency conversion table automatically updates the conversion
87
For a complete list of the patent offices used, visit the following link:
https://gist.github.com/codobaggins/
85e51a8cc9b31ab0dd3629b10157197c
88
See WORLD INTELLECTUAL PROPERTY OFFICE, THE PCT APPLICANT’S GUIDE (2020).

23
factors as of the current date, by utilizing a website that provides up to date live

currency conversion from each country’s local currency to US Dollars. 89 This

standardized all of the patent annuity fees into US Dollars.

Next, each country's standardized annuity fee schedule was combined into one

large Microsoft Excel spreadsheet; we called this the “Annuities Combined”

spreadsheet. The year increments for the Annuities Combined spreadsheet were in half

years, to allow for the United States Patent Office’s annuity fee schedule of 3.5, 7.5, and

11.5 years. For example, for German patent annuities, at the fourth year following grant

$82.00 is due, at year four and a half $0 is due (because German annuity fees are due

every year on the year starting at year three), and at year five $105.00 is due. 90

After creating the Annuities Combined spreadsheet in half year increments, an

“Annuities Cumulative” spreadsheet was created using the data in the Annuities

Combined. Similar to the Annuities Combined spreadsheet, the Annuities Cumulative

spreadsheet tracked each country in half year increments. However, instead of the

amount due on that half year increment, the Annuities Cumulative represented the total

amount still outstanding at that half year increment if the future annuity fees were to be

paid until expiration of the patent. Therefore, as the half year increments go up, the

amount in the Annuities Cumulative spreadsheet goes down because payments are

made each half year.

In summary, the Annuities Cumulative table gives the amount of annuity fees still

due at a given time period if an entity were to pay the annuity fees until expiration of the

patent. Utilizing the same example as above, for a German patent at the fourth year
89
The currency conversion are calculated by taking the currency conversion values from
https://openexchangerates.org/ and exchangerate-api.com, and then averaging them. This allows two
different sources to be computed in the currency conversion.
90
These values are based on the Euro to US Dollars conversion as of October 3, 2020.

24
following grant, the Annuities Cumulative value is approximately $15,267.00. 91 At year

five, the Annuities Cumulative value decreases to approximately $15,162.00 because

$105.00 in annuities fees was paid in year five, and for German patents there are no

fees due in year four and a half.92

After using the Annuities Combined spreadsheet to create the Annuities

Cumulative spreadsheet, Google’s BigQuery was utilized to analyze over 40 million

patents and calculate their Annuities Cumulative values. Without software like

BigQuery, storing and querying massive datasets can be time consuming, burdensome,

and expensive.93 BigQuery allowed us to tap into Google’s infrastructure of immense

processing power to provide efficient and rapid queries. 94 Thus, using BigQuery

allowed us to apply the formulas of the various schedules to the whole set of patents in

a particular family, rather than calculate the individual patents by Excel or one-by-one.

The data from the approximately 40 million patents came from Information for Industry

(IFI), specifically IFI’s CLAIMS Direct patent services. IFI collects patent data from 98

different countries and over 100 different data sources, including national offices and

machine translations.95 The CLAIMS Direct service runs all of these documents on

world-wide patents through IFI’s proprietary algorithm to create curated data such as

status, expiry, ultimate ownership, and claim summaries. 96 For purposes of calculating

SVIX scores for each patent, we used IFI’s services to obtain the UCID, the family ID,

91
This value is computed by adding the sum of German Patent Office annuity fees that would be due for
every year from year six until year twenty (expiration of a German patent). These values are based on
the Euro to US Dollars conversion as of October 3, 2020.
92
These values are based on the Euro to US Dollars conversion as of October 3, 2020.
93
See An Inside Look At Google BigQuery, GOOGLE INC. (October 27, 2020), https://cloud.google.com/
files/BigQueryTechnicalWP.pdf.
94
See Id.
95
See CLAIMS Direct Data Collection, IFI CLAIMS PATENT SERVICES (October 27, 2020), https://w
ww.ificlaims.com/product/product-data-collection.html.
96
See Id.

25
and the date in which to calculate the annuities from. This date was usually the issue

date of the patent.

BigQuery facilitated the application of various annuity formulas to this large data

set from IFI. Utilizing the Annuities Cumulative table already created, a formula was

applied to calculate the annuities still due for each specific patent. Using the UCID,

BigQuery was able to identify the country of the patent, and correlate that country to the

corresponding Annuities Cumulative table for that specific country. Using the date in

which to calculate annuities from, and combining with the Annuities Cumulative table for

that specific country, BigQuery was able to calculate the amount of annuities fees still

due on that specific patent for that specific country. Using BigQuery and coding

shortcuts, this process was repeated for every UCID in IFI’s database. 97

The next step involves utilizing the family ID’s of each patent. To provide a

global figure of Annuities Cumulative for a specific invention, patents with the same

family ID were then identified. Therefore, companies could understand the global

patent annuities a specific family, and therefore a specific invention, had remaining.

Also, since PVIX operates on a family ID level, and not directly on a specific patent

level, a family ID statistic could provide entities with correlation between SVIX and PVIX

to make an informed decision on the payment of annuity fees. BigQuery assisted in

adding the Annuities Cumulative value of each patent with the same Family ID together

to create a Family Annuities Cumulative value. Since not all patent families have the

same number of patents in them, to efficiently compare Family Annuities Cumulative

scores of one Family ID to another Family ID, the Family Annuities Cumulative values

97
For the code utilized for the BigQuery process, please see https://gist.github.com/codobaggins/
85e51a8cc9b31ab0dd3629b10157197c.

26
were normalized on a scale of 0 to 1. This step utilized the standard normalization

formula of x normalized= (x- x minimum)/(x maximum - x minimum), where x equals the

current Family Annuities Cumulative value, x minimum equals zero, and x maximum

equals the total Family Annuities Cumulative value (i.e., the total amount of annuity fees

that are required to be paid across all patents of that family if annuities were paid for the

entire duration of the patent term). This normalized value represented the final SVIX

value for that specific patent family, which represents the percentage of global patent

annuity fees that are still due for that patent family.

As an example, the SVIX for patent family 50441380 will be calculated using the

methodology previously described. As a preliminary step, the Annuities Combined and

the Annuities Cumulative tables were created for global patent offices and were utilized

for analysis of all patent families. Patent family 50441380 has 30 total issued patents

across fourteen different countries or offices. The 30 patents and their corresponding

countries are listed in Table 1. For each patent member in the 50441380 family, an

Annuities Cumulative value was computed using the country by country Annuities

Cumulative tables. The amount of annuity fees remaining on each patent member in

the 50441380 family was thus calculated, which is shown in Table 3. (CREATE TABLE

AND attach at the end of paper or in paper?). These individual member Annuities

Cumulative values were added together to obtain a Family Annuities Cumulative value,

which is also shown in Table 3 as _________. This number corresponds to the total

annuities still remaining on the entire patent family. Since the SVIX score corresponds

to the percentage of annuity fees left to pay on the particular family, an SVIX score of

______ for the 50441380 patent family means that ________ of the worldwide annuity

27
fees for the 50441380 patent family are outstanding. Although this figure is helpful for

the assignee of these patents, this value would be better suited for comparison to other

patent families if it were normalized. Thus, the final step is to normalize the Family

Annuities Cumulative value using the normalization formula previously discussed. Of all

the families that have an unnormalized SVIX score, the smallest score is ______ and

the largest is ________. The normalized SVIX score is computed as follows:

Normalized SVIX = 100 x (Raw SVIX – Min SVIX) / (Max SVIX – Min SVIX). Therefore,

for patent family 50441380, the normalized SVIX score is 100 x (_____ – (_____) /

(______– (______)) = ______.

V. RNIX: A New Value Correlating PVIX and SVIX

Obtaining a PVIX and SVIX value for a given patent family, as shown above, can

provide insight into an entity's valuation and costs associated with their patent portfolio.

However, correlating a relationship between PVIX and SVIX may help entities

determine which patent families justify continued annuity fee payments. Various entities

around the globe are beginning to utilize various factors and tools to help make patent

annuity decisions.98

In recognizing the increasing importance of quantifying patent annuity fees by

analyzing patent quality and patent fees remaining, this paper seeks to create a new

value to help determine whether an entity should consider renewing a given patent

family. This new value is called the Renewal Index, or “RNIX,” and can be an important

98
See Jacob Schindler, Honda Identifies 7,000 Patents for Potential Abandonment in Trial of AI Tool,
IAM-MEDIA BLOG (August 6, 2020), https://www.iam-media.com/patents/honda-identifies-7000-patents
-potential-abandonment-in-trial-of-ai-tool

28
indicator to help reduce patent annuities costs and help increase employee efficiency in

evaluating patent annuity fee decisions.

A. Methods for Computing RNIX

Since RNIX encompasses analyzing the patent value versus the costs of patent

fees remaining, the computation for RNIX is simply the difference between PVIX and

SVIX (i.e., PVIX- SVIX= RNIX). Because PVIX and SVIX are calculated on a patent

family basis, not on an individual patent basis, the RNIX value will thus represent the

Renewal Index for a specific patent family. A negative RNIX means the costs still to be

paid on annuity fees for that patent family (SVIX) is greater than the patent value of that

family (PVIX). A positive RNIX means that the patent value of that family (PVIX) is

greater than the costs still to be paid on annuity fees for that patent family (SVIX).

The previously utilized example of patent family ID 50441380, which was

calculated to have a PVIX of _____ and an SVIX of .8117, would thus have an RNIX

value of ______. This data point may aid the owner of patent family 50441380, the

Massachusetts Institute of Technology, in determining whether to renew the patents in

this family. A __(positive or negative)__ RNIX means that the patent value of the

50441380 is __(greater or less)___ than the costs still to be paid on annuity fees for the

50441380 family. This means___(explain effect on MIT annuity analysis)______.

B. RVIX In Action: Examples of Companies and Industries

Not only can RNIX be helpful in analyzing patent families, but it can also be a

valuable tool to analyze companies and industries. Patents may be more valuable in

certain industries than in others for a variety of reasons, including distinctive economic

characteristics, risk and time of research and development costs, regulatory hurdles,

29
and many more.99 Since part of the RVIX calculation involves quantifying the total

annuities a patent family has outstanding, one can add up these values across every

family that a company owns or is an assignee of. This sum would provide the total

annuity costs an entity must pay to keep the entirety of its patent portfolio active This

section will analyze companies within the aerospace industry. We will compare their

patent portfolio costs savings with a corresponding quartile of their RNIX scores to

calculate the percentage of costs saved if the entities decide not to pay their annuity

fees on negative RNIX patent families.

Table 4- RNIX in Action: Airbus

Table 5- RNIX in Action: Boeing

99
See Iain Cockburn & Genia Long, The Importance of Patents to Innovation: Updated Cross-Industry
Comparisons With Biopharmaceuticals, 25(7) EXPERT OPINION ON THERAPEUTIC PATENTS 739,
742 (2015) (Due to distinctive economic characteristics, patents and regulatory exclusivity have long been
considered essential to prescription drug development. These characteristics include the costly, lengthy,
and risky nature of innovative research and development (R&D) and the much lower investment required
for generic drugs. Because of this disparity, without patent protection and regulatory exclusivity,
particularly in the USA, innovators would be unlikely to make the substantial investments required to bring
new drugs to market).

30
 Table 4 and Table 5 show data on Airbus’ and Boeing’s patent portfolios,

respectively. This data was calculated using the same methodology of SVIX and RNIX

described above. Table 4 shows Airbus’ annuities owed on each quartile of their RNIX

scores, the corresponding cost of those quartiles’ annuities, and the percentage of

annuities saved if Airbus did not decide to renew that quartile. Table 5 shows Boeing’s

annuities owed on each quartile of their RNIX scores, the corresponding cost of those

quartiles annuities, and the percentage of annuities saved if Boeing did not decide to

renew that quartile. Analyzing this data shows that both companies may decide to not

pay annuity fees on the lower RNIX quartile patent families. Since both companies

have negative RNIX values on the lower quartile, the data indicates that patent family

costs outweigh patent family quality on those patents. Both Airbus and Boeing would

save approximately 11-12% of their total patent portfolio costs if they decided to not

renew their lower quartile patents, which represents a savings of $37.7 million for Airbus

and $30.9 million for Boeing. Using RNIX, Boeing and Airbus can now quickly

understand the cost the annuities owed on their patent portfolio, and make data-driven

decisions to understand what patents should be or should not be renewed. The

benefits of quantifying patent annuities are further discussed in the following section.

VI. The Benefits of Quantifying Patent Annuities

A value to quantify patent annuity costs has four intertwined benefits: 1) the

modern importance and usage of data; 2) the quantification of future fixed costs; 3) the

31
ability to compare SVIX and PVIX as an objective data point in management decisions;

and 4) the use of future fixed costs as a tool for patent acquisition negotiations.

First, effectively and strategically managing a firm’s patent portfolio has become

somewhat of a challenge as the importance and relevance of patent protection has

increased. As the collection and analysis of data comes to the forefront of the modern

economy, firms will start to utilize patent data to help make management decisions

regarding their patent portfolios.100 A number of data driven approaches already exist in

corporate decision making. Retail companies use socioeconomic, geographic, and

census data to decide where physical locations of their stores should be located. 101

Corporate boards have analyzed data to see whether the addition of female board

members increases firm performance.102 Streaming services, such as Netflix and Hulu,

utilize vast amounts of data to recommend new entertainment to its users to retain their

subscriptions.103 Similarly, analyzing patent data can create value for a firm’s R&D,

accounting, product development, and countless other departments. 104 Unified Patents

has created a number of unique data points that assist firms in managing their patent

portfolios (i.e., PVIX, SVIX, RNIX), and each plays a distinct and important indicator of

portfolio management. This discussion section will expand on the positives of utilizing

PVIX, SVIX, and RNIX values in making patent portfolio management decisions.

100
See Holger Ernst, Patent Portfolios For Strategic R&D Planning, 15(4) J ENGINEERING TECH.
MGMT. 279, 308 (1998).
101
See Joseph Aversa, Sean Doherty & Tony Hernandez, 4(4) Big Data Analytics: The New Boundaries
of Retail Location Decision Making, PAPERS APPLIED GEOGRAPHY 390, 408 (2018).
102
See Colin P. Green, Does Increasing Female Representation on Corporate Boards Affect Firm
Financials, 102(19) SAMFUNNSØKONOMEN 81 (2018).
103
See Benjamin Burroughs, House of Netflix: Streaming Media and Digital Lore, 17(1) POPULAR
COMM., 1, 17 (2019).
104
See Mary Ellen Mogee, Using Patent Data for Technology Analysis and Planning, 34:4 RES. TECH.
MGMT. 43, 49 (1991).

32
 Obtaining a PVIX and SVIX value for a given patent family can provide insight

into an entity's costs associated with their patent portfolio. Creating a mathematical

formula to evaluate the necessary annuity fees left to pay on specific patent families

would create an objective measurement of costs. Since a given SVIX value is

associated with the percentage of patent annuity fees left to pay globally on a specific

patent family, it can assist firms with managing their budget and costs. Although the

percentage of fees remaining on a patent family may not translate into a numerical cost,

the Annuities Cumulative value of a patent family (an important precursor in calculating

the SVIX value) may give more insight into cost analysis. Recall that the Annuities

Cumulative value calculates the amount of annuity fees still due at a given time period if

an entity were to pay the annuity fees until expiration of the patent. This cost analysis

can thus be effectively utilized for accounting purposes. Financial accounting practices

are used to create financial statements, like cash-flow or balance sheets. 105 However,

since patent annuities are a future fixed-cost to firms, they are not reported on current

financial accounting statements. Instead, patent annuity fees are analyzed via

managerial accounting practices, which includes internal processing of accounting

information.106 Quantifying future costs of patent annuity fees gives firms the ability to

budget and plan on a yearly basis the costs associated with their patent portfolios.

Even further, correlating a relationship between PVIX and SVIX (RNIX), may help

entities determine which patent families are cost-effective to keep paying annuity fees.

RNIX can be an important indicator to help reduce patent annuities costs and help

105
See Jan R. Williams, Susan Frances Haka, Mark S. Bettner, & Joseph V. Carcello, Financial and
Managerial Accounting. China Machine Press (2005).
106
See Id.

33
increase employee efficiency in evaluating patent annuity fee decisions. Although the

decision to renew a particular family normally rests upon the firm's typical management

decision makers, both subjective and objective analysis can help shape these annuity

decisions. RNIX’s objective, mathematical quantification of a particular patent family

complements the subjective analysis about valuations or importance of certain patent

families to certain firms.

Lastly, the buying, selling, and licensing of both individual patents and entire

patent portfolios is increasingly becoming more prevalent. According to CPA Global’s

2018 Patent Transfer Trends Report, more than 60,000 patents were transferred in the

United States in 2018 alone. 107 Negotiating parties often have difficulty compromising

on the monetary value of a given patent or portfolio, which is exacerbated by the

illiquidity of intellectual property intangible assets. Further, litigation and fixed costs

associated with acquiring new portfolios also have an effect on negotiating the price of a

given acquisition.108 By quantifying the Annuities Cumulative for a given patent portfolio,

a purchaser can better evaluate the future fixed costs of the acquisition. The Annuities

Cumulative value can therefore be leveraged by a potential buyer of that patent portfolio

to serve as an important data point in price negotiations.

VII. Drawbacks And Misconceptions to Quantifying Patent Annuities

While the creation of data points to analyze patent annuities comes with many

positives, there are certain drawbacks in the quantification of both patent quality and

patent annuity costs. In regard to patent quality, the PVIX metric does not take into

107
See Patent Market Tracker- 2018 Patent Transfer Trends Report, CPA GLOBAL (October 27, 2020),
https://learn.cpaglobal.com/hubfs/Resources%20Page/Documents/PatentMarketTracker-Report_2018.pdf
108
See Id.

34
account the specific purpose of obtaining or owning a patent. Certain entities acquire

patents for entirely different reasons. For example, a non-practicing entity may acquire

patents solely for use in lawsuits. PVIX does not utilize litigation data, which may be an

important consideration since patents that are litigated more might offer more value to

patentee’s because of the potential monetary remedies in infringement lawsuits.

Similarly, an established corporation might acquire and prosecute patents solely for

blocking competitors in its innovation space. Blocking patents may offer value beyond

the patent itself, since it limits the ability of other entities to enter that specific market.

PVIX does not take the purpose behind obtaining a patent into consideration, which is a

drawback to the patent quality analysis.

One common misconception of PVIX is that the value may disproportionally favor

older patents granted at an earlier date than younger patents granted at a later date.

Reputation, one of the main factors of PVIX, is analyzed by forward and backward

citations of a specific patent. Therefore, one may hypothesize that the older a patent

gets from its grant date, there is an increased chance that future (forward) patents will

be cited to it. This would result in an inflation of the reputation score aspect of PVIX,

and thus an inflation to the PVIX score of older patents. Older patents would thus have

more of an opportunity to gather higher reputations than younger patents. This is

erroneous. For each patent in a patent family, the number of citations received is

normalized according to the hierarchy of tiers. These tiers include the time of

publication (year), country of publication, and the IPC classification codes. Normalizing

these values thus nullifies the large impact that time (or any other classification) may

have on PVIX.

35
 In addition to a misconception of PVIX, there are also misconceptions in

calculating SVIX. A misconception is that for younger patents, where not many annuity

fees have been paid yet, the SVIX score will certainly be extremely high. To mitigate

this issue, SVIX is by based on a per family basis instead of a per patent basis.

Therefore, a young but small patent family may still have a relatively low SVIX score.

Further, a family membership may consist of both older and younger patent members,

which could offset the effects of the data skewing on young patents.

Conclusion

The quantification of patent annuities allows entities to evaluate their patent

portfolios in a novel dimension. Comparing this novel value with the already existing

quantification of patent value, entities now have an objective data tool to utilize in patent

annuity decisions. This publicly available tool will allow entities to evaluate their patent

portfolios similar to Honda’s AI tool, without the need to purchase or license Honda’s

proprietary software. With the upcoming billions of dollars due in annuity fees around

the globe, now is the perfect time to launch the novel data figures of SVIX and RNIX.

Unified Patents have created a system on their website, called Portal, where one can

filter patents based on a variety of factors. Portal has recently added SVIX and RNIX to

their filtration parameters for the millions of patents on their database. Although

significant benefits stem from these data figures, there are certain limitations and

drawbacks that must be addressed. In the future, incorporating litigation data into the

patent quality analysis may provide a more comprehensive outlook on the value of

specific patents that are acquired for reasons other than commercialization.

36
 Appendix

Figure 1- Overall PVIX Scores for All Analyzed Patents

37
 Table 1- PVIX Market Score Calculation for Patent Family 50441380

Country Code Patent Number RGDP Normalized GDP

CN CN-106480080-B | CN-106170549-B 18396068 1.01
US US-8697359-B1 | US-8945839-B2 | US-8771945-B1 18219510 1
JP JP-6545621-B2 5107477 0.28
DE EP-2764103-B1 4035178.5 0.221
RU RU-2687451-C1 3395066.5 0.186
GB EP-2764103-B1 2788747.5 0.153
FR EP-2764103-B1 2754603.25 0.151
IT EP-2764103-B1 2342988.25 0.129
TR EP-2764103-B1 2151847 0.118
ES EP-2764103-B1 | ES-2552535-T3 1725901.25 0.095
AU AU-2013359238-B2 | AU-2016244244-B2 1177097.5 0.065
PL EP-2764103-B1 1084827.375 0.06
NL EP-2764103-B1 852206.688 0.047
CH EP-2764103-B1 533365.938 0.029
BE EP-2764103-B1 531719.625 0.029
SE EP-2764103-B1 474642.531 0.026
AT EP-2764103-B1 450089.031 0.025
CZ EP-2764103-B1 382904.563 0.021
IE EP-2764103-B1 349015.063 0.019
NO EP-2764103-B1 308099.75 0.017
DK EP-2764103-B1 284423.25 0.016
PT EP-2764103-B1 278415.844 0.015
FI EP-2764103-B1 236957.125 0.013

38
 SK EP-2764103-B1 165791.109 0.009
LU EP-2764103-B1 58040.234 0.003
EE EP-2764103-B1 40616.242 0.002
IS EP-2764103-B1 17192.111 0.001
EP EP-2764103-B1 0 0
LI EP-2764103-B1 0 0
       
      Sum = 3.740

Table 2- PVIX Reputation Score Calculation for Patent Family 50441380

IPC Class Name (abbreviated) Number of Publications Total Citations Received Geometric Mean
C01 Inorganic Chemistry 1528 4842 2.48
C02 Treatment Of Water ... 1397 4620 2.87
C03 Glass ... 1160 5962 3.16
C04 Cements ... 829 2604 2.61
C05 Fertilisers 217 1071 3.38
C06 Explosives 100 285 2.11
C07 Organic Chemistry 16438 64952 2.46
Organic
C08 7253 21627 2.45
Macromolecular ...
C09 Dyes; Paints ... 4562 19508 3.11
C10 Petroleum, Gas ... 2105 6363 2.59
Animal Or Vegetable
C11 1006 3613 2.63
Oils ...
C12 Biochemistry; Beer ... 11396 58370 2.54
C13 Sugar Industry 79 410 3.43
C14 Skins; Hides; Pelts ... 35 58 2.02
C15 Metallurgy Of Iron 361 928 2.44
C16 Metallurgy; Ferrous ... 1118 2963 2.45
C17 Coating Metallic ... 2034 11683 2.91
C18 Electrolytic ... 907 2571 2.41
C19 Crystal Growth 436 1702 2.45
Combinatorial
C20 176 926 2.71
Technology

Table 3- SVIX Calculation for Patent Family 50441380 TO BE CREATED

39