In recent decades, intellectual property (IP) has taken center stage in the economy. IP contributes to more than 80% of the cumulative value of publicly traded companies, approaching 90% in the S&P 500 companies, and accounts for more than a third of the gross domestic product (GDP) of a modern economy. Being the biggest wealth generator in history, IP has indisputably become a major currency of the modern economy and a foundational pillar for building and maintaining value. Consequently, IP emerges as a key strategic resource for any venture. Thus, a well-thought-out, forward-looking approach in managing a venture’s IP affairs is crucial for reaping the venture’s benefits and circumventing potential pitfalls. IP strategy, notably patent strategy, is vital in ensuring that businesses not only remain competitive but also capitalize on the full potential of their innovations. This article briefly explores some key aspects of an IP strategy, placing special focus on some facets of patent strategy, and briefly highlights its role in preserving competitive edge, mitigating risks, creating tradable assets, while adopting a strategic, outward-looking perspective.
IP strategy primarily aims to enhance and preserve value. It encompasses building and maintaining a businesswise significant monopoly and guarding against risks inherent in ventures, especially technology-based ventures. Crafting a comprehensive IP strategy involves considering factors such as the business plan and business model, R&D program, competitive landscape (existing and potential), and inevitably, budget constraints. While there’s a tendency to prioritize registering IP rights like patents, designs, plant breeders’ rights, and trademarks, an often overlooked avenue of value creation is trade secrets. When paired with stringent access and disclosure control policies, trade secrets can be powerful assets in a venture’s IP toolkit.
Patent strategy is often a key part of an IP strategy of a technology-based venture. Navigating the complexities of patent strategy necessitates a deep understanding of the inherent nature of patents and an insight into the potential actions of competitors. Foremost, it’s essential to understand that a patent is fundamentally a right of exclusion of others, often referred to as a “negative right”. Accordingly, contrary to popular misconception, the primary role of a patent is not to protect the innovator, but rather to block third parties. Additionally, when drafting a patent application (or a suite of patent applications) relating to a new technology, focusing on the current implementation of the technology is insufficient, but it is rather paramount to consider potential competitors and their possible activities. This approach means that a patent covers not just the currently implemented embodiment of the technology but also conceivable alternative versions that a competitor might implement. By doing so, competitors may be prevented from capitalizing on minor modifications or variations of the patented invention, to thereby reduce potential circumvention.
The significance of an IP strategy, especially for technology-driven ventures, cannot be overstated. It is to be noted that many emerging ventures leverage their IP assets for transactions long before they start selling products or provide services. Investment decisions in tech-oriented ventures largely depend on the venture’s IP assets and the potential value they offer in the erection of barriers to competitors. Furthermore, the coveted “exit” – be it licensing, M&A, or public offering – predominantly revolves around transferring rights over IP, either in entirety or in parts, to another entity. The “exit” value is often predicated on future potential, that is safeguarded by the IP, rather than on current revenues. This underscores the IP’s pivotal role: it is often a distinguishing factor between a tremendous success and a big failure. Some facets and considerations of an IP strategy will now be briefly discussed:
Preserving a competitive edge
Central to any IP strategy is the goal of preserving a venture’s competitive edge. This is typically achieved by erecting barriers to deter or restrict competitors from penetrating the specific market niche the venture targets or already occupies. Registration of patents, trademarks, and designs, among other IP rights, provides a legal right that can safeguard against undesired use of technology by competitors. By monopolizing these rights, ventures can block or delay the market entry of competitors, securing market dominance and the accompanying financial benefits.
In preserving the competitive edge, focusing on single IP rights should give way to a portfolio strategy that can, in many cases, be considerably more beneficial. For instance, having multiple patents, with each protecting a distinct aspect of the technology, may offer a stronger IP position than that of a single patent. This approach can be complemented with other IP rights, like utility models and designs. Also, geographical considerations, on where to seek or maintain protection (and pay the periodical renewal fees) play an important role in IP strategy, guiding such decision by factors that include target markets, competitors’ locations, and the seat of potential partners.
Another important consideration, particularly for patents, is the timing of first filings. Timing of the initial filing should factor in the advantages of an early filing to have an earlier filing date than the competition, versus the need, at times, to wait until the technology matures and have then a sounder basis for patent protection.
A further factor in preserving the competitive edge is the lifecycle consideration of the product or technology, especially for products with long development times, like medical products. It is essential, in such cases, to ensure that patent protection remains effective and relevant throughout the product’s life cycle.
Hedging against risks
A balanced IP strategy should consider the risks and incorporate measures for hedging against them. Research and development (R&D), for instance, is inherently unpredictable and laden with uncertainties: outcomes might not align with expectations; allocated funds might fall short of reaching set milestones; as well as disruptive technologies may emerge, or market may shift from other reasons that could make the current endeavors obsolete. Thus, there’s no assurance that R&D will culminate in commercial triumph. By securing IP rights early in the development process, particularly through registering of forward-looking, broad, and enforceable patents, return on investment may be realized even following an R&D failure. This may be achieved through monetizing the patents and other IP rights through licensing, selling or enforcing them against third parties.
Generation of tradeable IP assets
Beyond protecting the outcomes of R&D, IP assets also present opportunities for monetization. Patents, trademarks, and copyrights can be traded, sold, or out-licensed, offering businesses supplementary revenue channels. Consequently, creating tradable IP assets can emerge as a pivotal aspect of an IP strategy. Often, a developed technology finds relevance beyond its initial intended use, even in completely disparate technology domains. Moreover, R&D initiatives sometimes lead to innovations outside a company’s development foci, but which may be of potential value to others. Strategically crafted patents encompassing such innovations can unlock licensing and other monetization prospects, presenting alternate revenue sources divergent from the company’s core business plan. A robust IP portfolio can also be a coveted asset during negotiations for joint ventures, out-licenses, or M&A. Investors and potential collaborators frequently perceive strong IP assets as indicative of a company’s inventive prowess and prospective growth trajectory. Therefore, an IP strategy should not only be protective but should also emphasize the potential for independent commercialization and judicious exploitation of these assets.
Vigilance vis-à-vis third parties’ IP rights
While safeguarding their proprietary technology is paramount for businesses, an effective IP strategy also mandates an external focus that includes monitoring and safeguarding against third-party IP rights. This entails actively monitoring the IP landscape to pinpoint potential threats, including freedom-to-operate (FTO) restrictions imposed by third-party patents. Detecting patents with FTO implications only late in the developmental process or post-product launch may have grave repercussions. Conversely, early detection of such patents enables the institution of proactive countermeasures, from entering into licensing negotiations, instituting measures to revoke the patents or block them from being issued in the first place, to developing alternative technology solutions. Patent landscaping studies and other surveillance measures can also gauge competitors’ developmental directions, enabling the strategic crafting of patents that may later serve either as countermeasures or as negotiation leverage in future patent conflicts.
Seeking and capitalizing from opportunities
Building an IP portfolio should not be limited to only own generated IP, and often a venture may capitalize from opportunities for in-licensing or acquiring IP rights. Patent landscaping studies and other measures can be used as a tool to seek and identify such opportunities. Generally, these in-licensing or purchases can unveil new horizons for a company, otherwise unattainable or prohibitively costly to achieve. Often, acquiring IP rights through purchase or in-licensing proves more economical than in-house IP development.
Implementing a comprehensive IP strategy can be a capital-intensive endeavor, especially for startups and small-to-medium enterprises (SMEs). Budget constraints often pose significant challenges, as the costs associated with filings worldwide, payment of maintenance fees, IP enforcement and potential enforcement litigation, can quickly escalate. Balancing the need for robust IP protection against available financial resources requires strategic prioritization. The responsible for devising and implementing the IP strategy must make informed decisions about which inventions to patent, which trademarks to register, where to seek protection, and when to consider alternatives like trade secrets or defensive publishing. There is a need for constant reassessment and adjustment of the IP strategy in view of budgetary constraints, to maximize protection while ensuring fiscal responsibility.
In wrapping up, the critical importance of that an astute and forward-thinking IP strategy in today’s business environment and the role it plays in the success of businesses cannot be overstated. As IP continues to wield an ever growing transformative influence on the global economy, it is evident that an adaptive and comprehensive approach to intellectual property management can be the factor that drives business success. From guarding innovation and bolstering competitiveness through unlocking unforeseen revenue streams, to hedging against risks, IP strategy has to be an essential and integral part of any business strategy. As the world continues to innovate at breakneck speed, businesses that implement a robust IP strategy will undoubtedly lead the way and solidify their foothold in a fiercely competitive marketplace.
The content provided by: Dr. Ilan Cohn, Partner Cohn, de Vries, Stadler The CDS-LUTHI Intellectual Property Group