Some technology innovation businesses focus on intellectual property (IP) generation and are well aware of the threats from the outset. However, despite intangible assets now usually making up the major part of most company valuations, many businesses still deal with these issues reactively when they get thrust into focus by events, rather than proactively, and end up with an outcome which is both less positive and more expensive.
Why does this happen?
Well, to be honest, the issue is that it is not always easy to get IP strategy right, and particularly for the appropriate cost and level. Some attempts get bogged down in the detail and a lot of money is spent looking through the weeds without finding a clear path, while some businesses engage in consultancy which produces a nice sounding ‘strategy’ document that looks impressive in the annual report or at the Board but is painfully short on implementable details or specific value-adding output. Having experienced either in the past, or it simply not being clear what value is to be gained, often sensible (and perhaps cynical) business leaders under time and budget pressures understandably press ahead with the more tangible product development issues.
Let’s consider some typical scenarios involving a ‘moderately innovative’ company which doesn’t seek to be a cutting-edge disruptive player but nonetheless is routinely refining, updating and improving its products and adapting to expected customer requirements.
Perhaps the company considers it is simply adding automation, integration, connectivity and convenience features that users generally want, or it is improving manufacturing processes or product physical qualities. Occasionally, changes will be made which percolate up as being sufficiently distinctive that the company considers applying for a patent. At this point, it may transpire that for various reasons there are likely to be serious difficulties protecting what was thought to be interesting, which could be due to the technology area. For example, what can and cannot be protected in the field of software / AI / medical technology is often far from intuitive to someone who is not an IP expert in this area, or simply because it is a generally crowded field. However, it often turns out that the company did have some innovations along the way at the design stage that might not only have been protectable, but could even have been the basis for broader and more valuable protection but it is now too late as they have been disclosed or others have got there first. Moreover, some of the little tweaks that were dismissed or not registered (which were made to solve particular problems) could have been protected, and might have qualified the company for a tax break if patented.
Another worst-case scenario is that, whether by a benign means or by being the recipient of a threatening letter or court action, a company discovers that a competitor has patent protection for a feature after having spent time, money and effort developing and incorporating it into a product. At a late stage, the choices are unlikely to be attractive: either abandon / redesign the product; face the prospect of margin-destroying royalties, if even available; or worse – distracting and expensive litigation. It is often the case that early visibility of the situation might have enabled the design to be modified to reduce risk, and potentially protection could have been obtained which would have been valuable and possibly tradeable in a cross-licence with the competitor. The threat itself might have been relatively inexpensively cut down by opposing the competitor patent at the European Patent Office (EPO).
Benefits of considering an IP strategy early on
Now extensive searching for potential bad news is expensive and rarely worthwhile, but targeted intelligence on competitor IP may be simpler to obtain and can inform general business decisions. Identifying promising areas to develop and protect strategically (not simply reacting to what comes out at the end of the design process), and considering the IP angle early can identify less risky routes that are more protectable, might give rise to tax reductions and tradeable assets. Collectively this could make a company a more attractive acquisition target and a less attractive litigation target.
A number of companies opt to take IP more seriously after some successful early stage growth when new advisors and investors come on board. More often than not, it is discovered that many of the business’ good ideas were not protected appropriately at the time. A scrabble for second generation protection generally costs significantly more to obtain several narrow patents, each of which might be circumvented, than a broad patent covering key innovations in the first place might have cost.
How much does looking ahead strategically cost?
A fraction of what dealing with a surprise usually does. As little as half a day’s time of a handful of the right people (CTO, key technical/product people and an appropriately technically and commercially savvy IP advisor) appropriately prepared at the start of a new product development cycle can typically identify the more promising and less promising avenues before design commitment, and often generate potential IP in itself early on. This is particularly true for a small to medium size growing company: filing a number of strategically targeted patent applications can add value and can encourage otherwise likely litigious competitors to adopt a more constructive cross-licensing approach. To put in context, defending patent litigation costs may typically run into millions of pounds spent in short order at a time of a competitor’s choosing, whereas building a credible patent portfolio may cost a few tens of thousands spread over a few years, with timing adjustable to suit budgeting.
Sometimes the outcome of a strategic look ahead at IP is simply that there frankly is not much of a hard IP angle to the proposed new product activities. This knowledge, as well as usually being refreshingly inexpensive to acquire, is itself valuable in informing the likely speed of competition, appropriate branding and other marketing strategy to keep ahead.
As with most things in business, a little knowledge of the road ahead can be very valuable.
This article was published on Compare the Cloud in September 2019.