IP Budgeting is a complicated process involving many people, moving parts, and a lot of money. It can be so complex that some groups don’t even try to budget; they take last year’s number, add a few percent, and move on. This can work in some situations, but with actively growing portfolios, a thoughtfully crafted budget is your best strategy for avoiding financial surprises.
The process is further complicated because there are few standards or accepted practices regarding IP budgeting. So, we’ve compiled this checklist to help guide you through the process. Regardless of the tools you use or the size of your portfolio, this should be a helpful resource as you navigate the current budget season. We’ll use our IP budgeting framework (below) for our checklist, but please feel free to substitute your approach and framework as appropriate.
Step 1: A solid budget requires A SOLID foundation
The unfortunate reality of IP budgeting is that it’s a reasonably complicated process that requires collaboration, data, and decisions from multiple parties.
Managing these three elements independently isn’t too challenging, but getting them coordinated on a tight timeline requires planning.
Given this, it’s no surprise that the first step in our checklist involves planning.
Proper planning, preparation, and communication are crucial for ensuring that you’ve set your budgeting process up for success.
Here's what you need to consider when planning
1. Before starting, finalize your IP budgeting approach (top-down, bottom-up, hybrid, or some combination). You must also identify the stakeholders participating in the budget creation process and tell them what to expect. For guidance on selecting an approach, check out this article on IP budgeting approaches. Budget timelines are usually tight, so everyone needs to be on the same page from day 1.
2. Start gathering data as soon as you can. This will typically come from e-billing and IP Management systems, which can require IT or operational support. Waiting until the last second can make it impossible to devote sufficient time to forecasting and analysis.
3. Communicate the plan and targets as early as feasible. Once you’ve developed initial targets and organized your plan, communicate them to your team as early and clearly as possible. Setting proper expectations on budget targets and timelines will make it much easier for the team to deliver a plan on time and on target.
Step 2: Prepare portfolio costs
A reliable budget is built on a solid understanding of upcoming costs.
On paper, this seems like a reasonably straightforward exercise, but it can be daunting, especially if you aren’t familiar with IP costs.
If you budget manually, you can leverage your outside counsel and maintenance providers to help fill in many of the pieces, but it can be tough to know when and if you have everything.
Below, you’ll find a useful approach for making sure that nothing slips through the cracks.
Compile your portfolio costs (in this order)
1. Current portfolio costs. You’ll want to start by gathering costs for what is known. This would include the estimated costs for applications in process and maintenance costs for pending and granted or registered IP rights. You must make some assumptions about prosecution costs, but you can leverage historical data as a guide.
2. Costs of new applications. Once you have your current portfolio costs, you must develop a forecast for planned new applications. This will likely require interaction with your R&D groups and other business teams. Don’t forget to look at the timing of new projects and product releases to ensure costs are projected to land at the right time.
3. Costs of upcoming decisions. In your upcoming budget period, you probably have several decisions that will need to be made. These typically include national stage entry decisions, EP validation or Unitary decisions, and 12-month foreign filing decisions. Each of these decisions has a cost, and to make things more complicated, if you are putting together a budget that is longer than a year, one set of decisions may result in additional decisions. Understanding all these costs is important to avoid understating projected costs.
Step 3: Go Beyond the Portfolio Forecast
Portfolio costs are important but only part of the budgeting process.
Several additional costs need to be considered and possibly added to (or subtracted from) the budget to cover everything needed while also delivering an efficient budget.
You may also want to adjust some of your economic assumptions depending on the time frame of your budget.
For a one-year budget, inflation and currency fluctuations aren’t (normally) worth considering, but for a five-year budget, these factors become more important.
Common budget additions and modifications
1. Gather your one-time costs. One-time costs vary from organization to organization but typically include litigation costs and portfolio-related operating expenses. Some IP teams include employee costs and benefits in their budgets – add them when appropriate.
2. Time to Prune! Once you have your portfolio costs, you can execute your pruning process (you have one, right?). As patents age, they become more expensive, so this is a good time to critically examine your assets’ business and strategic value. This is not just a patent thing – there is no need to renew trademarks on products that are no longer of any value.
3. Odds and ends. Sometimes, you need to assemble a multi-year budget. With these longer budget periods, economic conditions, like inflation, can have a sizeable impact. This can be particularly important if you have many assets in high-inflation countries. Sources like the International Money Fund “IMF” are useful for viewing inflation trends globally.
Step 4: Closure and vigilance
Sometimes, finalizing the budget can take as much effort as the initial creation.
You need to make sure that important assets are maintained, funding is in place for planned activities, and enough is set aside for the inevitable changes in strategy.
Getting groups to let go of funding as you try to align the budget with leadership’s guidance is as much an art as a science.
Finally, once the budget is approved, it’s essential to make sure everyone is clear on the targets and it is crucial to review your IP budgeting progress regularly.
Finalizing and Monitoring
1. Reconcile against targets. Once your budget is assembled, reconciling it against targets provided by leadership can be challenging. If there is a significant delta, you must go back to the team and take another hard look at everything. Sometimes, you can get the business to bend by helping them better understand the costs and value associated with IP – don’t give up!
2. Approve and communicate. Once the budget is approved, it goes without saying that it needs to be communicated to all the stakeholders. Getting ownership of the budget will be impossible without keeping everyone on the team in the loop. If a team or teams are given budget challenges that they weren’t expecting, the sooner they know about them, the better.
3. Monitor and update. Once the budget is completed and communicated, the work isn’t over. It’s important to monitor actual spending and revisit performance against budget regularly. For some organizations, this is quarterly; for others, it can be a monthly exercise. Regular monitoring has two benefits: You can more easily spot budgetary problems before they get out of control, and you will have a well-organized set of costs to make next year’s budget easier to plan for. A win-win!
wrapping things up
There’s no denying that creating and maintaining accurate IP budgets can be challenging, but don’t let that prevent you from trying. Don’t let perfection get in the way of progress – do your best with what you have. Start small, improve every year, and you will be a budget master sooner than you can imagine!
