The flipside of the headline is that even without healthcare reform, proactive IP portfolios are important for medical-device companies facing pricing pressures. Manufacturers need to prioritize developments, focus resources on high-value patents and applications, and evaluate the total-cycle costs associated with developing and maintaining patent portfolios.

While pricing pressures continue to be a part of the medical device business, critics of healthcare reform argue that many of the proposed polices to lower healthcare costs will have a negative impact on innovation and investment. They argue that downward pricing pressure lowers a manufacturer's expected return and thus lowers the incentive to invest in the development of new products. No one really knows if this argument is true, but we do know that medical device companies have been facing pricing pressure for the last several years. If healthcare reform is implemented, medical device companies will likely face increased pricing pressure and increased competition. The real question is to what degree healthcare reform will accelerate these trends.

As this article is being written, details about the Obama administration's healthcare (or health insurance) reform are in flux. The overall policy outlined, however, proposes to lower healthcare costs by promoting, at least in part, preventative treatments and reducing total-cycle treatment costs. Despite predictions to the contrary, these objectives may encourage device innovations. Promoting preventative treatments may somewhat shift the industry's focus away from reactive treatments. Such a shift would not only attempt to lower overall patient costs, but it could also increase incentives for investment in new preventative methods and products. Additionally, lowering total-cycle treatment costs may increase the opportunity for innovative methods and products that may be comparatively more expensive than alternatives. That is, using a more successful product earlier in a patient's treatment cycle could result in lower overall treatment costs when compared to the cumulative costs of successively trying several less expensive treatments that have lower success rates.

As pricing pressure continues (again, with or without healthcare reform), successful companies will continue to be those that develop innovative products, distinguish them from their competitors' offerings, and maintain a competitive advantage through a strategic IP portfolio.

What does this mean for medical device companies and their patent portfolios? We believe that several themes related to medical device patent portfolios will emerge in the era of healthcare reform.

First, the importance of a company's intellectual property, and its patent portfolio in particular, will likely increase. An increase in innovation will generally lead to an increase in patent filings, and an increase in competition will generally increase the need for stronger patent protection of commercial embodiments. Second, overall pricing pressure on products will lead to pricing pressure on corporate budgets including patent portfolio budgets. Reducing the costs of developing and maintaining patent portfolios, while also improving overall quality, will likely be the key drivers in patent portfolio management for medical device companies regardless of which healthcare reforms are implemented.

The following suggestions are for companies that want to evaluate their patent strategy in order to react to anticipated increases in pricing pressure and competition due to healthcare reform.

Reducing costs, maximizing value

Being smart about patent portfolio management can help address anticipated pricing pressure. Companies can take a cue from healthcare reform by focusing on total-cycle costs of their portfolios. Although the following recommendations may initially increase costs or potentially front-load costs, they may ultimately reduce the overall cost of procuring and maintaining a quality patent portfolio.

Budgeting additional resources for up-front review and analysis of developments and patent strategies can help a company manage its costs of patent application preparation. Not all patents or applications in a company's portfolio relate to or cover its commercial products. Often, medical device designs change significantly during the testing and commercialization process. Applications filed later usually result in the most commercially significant and valuable patents. Decreasing or eliminating unneeded or low-value patents and applications reduces maintenance and prosecution costs. This in turn allows a company to realize direct savings and to devote its resources to more commercially significant patent families.

Costs also can be managed by reviewing and evaluating company patent strategies. The same patent strategy does not necessarily make sense for all companies and typically varies by company size, market type, (e.g., commoditized or developing), and predicted market valuation. This also holds true for different product lines within a company. For example, a particular regional filing strategy for a company in one market is likely not the same for the same or another company in a different market. Tailoring a company's patent strategy to a company's objectives may identify inefficiencies and save costs without sacrificing patent protection.

Although the effects of increased pricing pressure may be felt more significantly by smaller companies, healthcare reforms are likely to affect all companies. Medical device companies should be proactive with respect to their patent portfolio-prioritize developments, focus resources on high-value patents and applications, and evaluate the total-cycle costs associated with developing and maintaining a patent portfolio. Wasting capital resources on ineffective patent strategies also drains internal company resources like management and in-house counsel time.

Intertwined: portfolio value and patent protection

Reducing the cost burden of sub-optimal patent portfolio development strategies can help a company offset some of the expected effects of increased pricing pressure. By focusing on the quality and strength of its patent portfolio, a company may also counter increased market competition. Addressing cost issues by maximizing portfolio value and strengthening patent protection go hand in hand. Prioritizing resources as suggested above can also strengthen a company's portfolio by allocating resources to those patents and applications that are more strategically important to a company. Increasing the budget for more commercially significant patents enables a more strategic approach for prosecution and procurement of them.

Total-cycle costs for a portfolio also can be reduced by analyzing and addressing issues early in the patenting process and in the overall development of the portfolio. For example, a proactive policy for invention capture and communicating ideas from research personnel to patent counsel can help identify innovative ideas early in their development, drive prioritization and allocation of resources to them, and stimulate further developments.

Additionally, ensuring that employee agreements, joint development projects, research cooperation with universities, and other similar agreements address patent and application ownership, and that they are in place before development begins can significantly reduce costs associated with resolving ownership issues later. They also can reduce third-party claims. One thing is for certain, as the value of a patent rises, so will challenges by competitors.

These issues may be more applicable to start-up companies where investor confidence in patent ownership is important and, at least initially, where early informal agreements are rarely formalized and are subject to change.

Looking ahead, if healthcare reform focuses on reducing total-cycle treatment costs, opportunities will always exist for innovative products. Additionally, if healthcare reform encourages preventative treatments, companies may shift product focus from reactive treatments to preventative treatments, encouraging research and development in such products. It is unlikely that healthcare reform will commoditize all medical device markets. And the successful companies will continue to be those that implement a proactive, strategic, and value-based approach to the development and management of their patent portfolios.