Protecting value – The Intellectual Property Report 2020/21

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Since 2012, KPMG Law has been gathering and evaluating data from the top international Intellectual Property Departments. For the fifth time, “The Intellectual Property Report 2020/21” analyses IP Departments in their activities, structure, costs, performance KPIs, as well as their trends and developments. This analysis has led to in-depth insights regarding the changing priorities of IP Departments, as well as the observation of many trends over the past years. For this article, two main trends will be described: on the one hand, we can see an increasing tendency for the Heads of IP to strengthen their central governance via decentralized units. On the other hand, there is a notable increase in involvement in research and development activities. But first, let us look at the priorities of IP Departments for 2021:

Priorities of IP Departments
Over the past years, the priorities of the IP Department have consistently remained unchanged. In 2021, as in previous years, the top priority remains the improvement of the advising and management of the internal clients, indicating the importance and central role of the IP Department within the wider business.
Handling an increased workload with the same staff is marked as the second-highest priority, followed by cost optimization and cost reduction. These provide a clear indicator of the importance of the work-optimization and increased-efficiency strategies that will continue to dominate the work and organization of the IP Department in the years to come.
Interestingly, for IP Departments of firms headquartered in Germany, strategic law firm management (i.e. selection, performance management, performance assessment, etc.) cannot be found anymore within the top 20 priorities for the upcoming years. Conversely, for participants outside Germany, this still falls within the top 10 priorities.

Increased central governance
The share of firms with a centralize d IP Department has clearly been rising over the last few years. This is to be expected considering the nature of large multinational firms with large patent and trademark portfolios and a high volume of IP-related challenges that require their activities to be bundled. Taking into account the international character of their activities, numerous participants also have several decentralized IP Departments, which increasingly are governed by one main department with either disciplinary or functional control.
As the graphic below visualizes, since 2014 there has been a major change in the manner of structuring leadership, resulting in international IP Departments leading global, decentralized departments under disciplinary control. Implementing this change in leadership, which impacts all areas including HR-related decisions, showed large financial benefits. Besides better transparency and thus better coordination of activities, this setup is expected to save on the total costs compared to those of the same industry that practised a weaker central governance. However, it should be emphasized that this organizational change should only reflect the relevant elements of an international cooperation within a global IP Department, leaving the local advice unchanged in the responsibility of local units.

Stronger involvement in R&D activities
Whereas in the past IP Departments typically had a vast amount of prosecution within their daily task portfolio, in recent years they have become increasingly involved in the strategic consulting of the business. In this sense, IP Departments operate more and more proactively and a clear trend towards increased and earlier involvement in R&D activities can be distinguished.
A closer look at this trend leads us to the following interpretation that this increased involvement results in a decreased rejection rate of invention disclosures and proves itself to be more cost efficient, which is shown in the graphic below. Out of the entire database, we selected companies operating within the automotive industry and divided them into two groups. Based on their full time equivalent (FTE) number in the patent and R&D Departments, one group encompasses those with few R&D FTE per patent professional, at an average of 298, and the other with many R&D FTE per professional, at an average of 622. When considering the rejection rate (their share of unfiled invention disclosures) for each of those groups, however, we observed an average of 27% for the first group. Conversely, for the group with many R&D FTE per professional, an average of 39% can be established. The observation that those IP Departments that belong to the group with the lower amount of R&D FTE have a lower rejection rate, could be explained by the increased possibility of stronger and earlier involvement within strategic decisions. Having more time for each R&D responsible could result in being able to integrate better into the strategic and risk processes and control the R&D activities at an earlier stage and in a comprehensive manner, avoiding superfluous resource investment.
In addition, not only does an earlier and more proactive involvement of the IP Department within the R&D process lead to lower costs per first filing, as the rejection rate can be reduced by an average of 12%-points –the R&D costs per invention disclosure are also significantly lower, as it is expected that there can be a quicker intervention to align the R&D activities in accordance with the company’s IP strategy.
These insights indicate highly promising optimization and cost reduction potential, as the proactive involvement of the IP Department in the development process can lead to the early management of the development focus and strategy of R&D to ensure that the research is targeted.
Shifting away from the traditional thought that a value contribution of the IP Department is e.g. the ability to ensure Freedom to Operate or to gain profit out of licensing, this means that in the long-term, the real untapped added value of IP could lie in its potential to reduce R&D costs.

Conclusion and outlook
Increasingly, IP Departments find themselves in a situation where, with the same staff and a dominant budget and cost pressure, they become more and more involved in strategic decisions. Although this results in an increased workload, they are progressively expected to adopt a proactive approach. It will therefore come down to reorganizing and optimizing the IP Department to ensure long-term efficiency gains and cost-savings. The earlier involvement within the R&D process has great potential in terms of achieving this goal and can put the IP Department at the forefront, ensuring that it enables the operating business and creates added value. In order to ensure that the value contribution becomes tangible and is seen throughout the business, a performance assessment of the IP Department with the use of clear KPIs will become crucial. This is the only way to achieve sustainable and long-term growth and involvement of the IP Department.

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