Protecting your company’s innovation

January 2017  |  SPECIAL REPORT: INTELLECTUAL PROPERTY

Financier Worldwide Magazine

January 2017 Issue

January 2017 Issue


Whether you are operating a large multinational corporation, a computer consulting firm or a medium-to-small manufacturer, innovation is the driving force for successful business. All companies innovate. Some do not realise how much. The most successful companies do a good job recognising what innovations provide a competitive advantage and properly protecting those innovations.

For the large multinational corporation, protecting innovation can sometimes be easy because it has unlimited resources to invest heavily in intellectual property. But for medium and small sized manufacturers, it is not always so easy. These companies may have to pick and choose which innovations should be protected. Regardless of size, implementing a comprehensive plan to identify and protect a company’s innovation will give it a leg up on the competition.

What innovations should be protected and how?

Innovations come in all shapes and sizes. Key products are easy to see and easy to decide how to protect. But other innovations not directly related to a company’s products and services may also merit protection. Consider a small consulting firm that provides point-of-sale data services to retail clients. This firm’s computer engineers may develop internally new ways to organise data for their clients that are faster and use less memory than conventional ways. These new methodologies could give the firm an advantage over its competitors, but executive management may not even know about them.

Moreover, such innovation may be desirable to a wide range of applications in other industries. The first step in protecting innovation is recognising it – and its value – at the time it is developed. A comprehensive intellectual property plan should include education, policies and incentives designed to facilitate timely identification and evaluation of a company’s innovation. Of these, educating employees is the most important.

A second challenge is what to do with corporate innovation once it is identified. Management should timely evaluate innovation to determine its value and apply the appropriate level of protection to it. Innovation is intellectual property and can be protected with patents, designs, trade secrets and copyrights. However, an untimely evaluation could result in unintentional termination of rights through, for example, public use or disclosure.

Patent protection is the traditional tool for protecting functional innovation. A robust patent portfolio can effectively exclude competitors from offering similar products or services in markets where patents have been granted. Patents also provide other significant economic opportunities, such as potential licensing revenue. And patent protection is available worldwide – nearly all industrial nations provide the same protections by treaty. However, obtaining patent protection comes at a significant cost and patents only provide a temporary monopoly. In a modern computer-driven global economy, innovation may often be more valuable when kept secret.

Trade secret protection can provide remedies against competitors that misappropriate innovations from those keeping them secret. For technology that is hard to develop, copy or reverse engineer, maintaining innovation as a trade secret can last much longer and ultimately be more valuable than a patent. Companies should invest appropriately in mission-critical innovation, but savvy executives also will know when to forego patent protection in lieu of trade secret protection – or entirely, when protecting innovation will not be worth the investment.

Investing in a patent portfolio

Most technology-centric companies invest about 8 to 12 percent of gross revenues in research and development. For a company earning $1bn in sales, this equates to about a $100m investment in R&D, a fortune that can quickly slip down the drain if steps are not taken to obtain protection for any developed products or processes.

Most industrial countries are first-to-file jurisdiction, meaning that when multiple people file patent applications directed to the same invention, the first one to file will be awarded the patent. Thus, there is a benefit to evaluating innovation and filing patent applications as quickly and efficiently as possible in order to beat out competitors, who may independently develop similar technologies.      

If a company does not plan to manufacture or sell its innovative products or processes, patents can provide the opportunity to generate revenue through licensing. Under a patent licence, a third party may be granted exclusive or nonexclusive rights to use, make or sell the claimed technology in exchange for a royalty. Depending on the strength of the patents and the technology industry, the royalty payments can bring in significant revenue.

Indeed, many famous global companies like Qualcomm, IBM and Ericsson earn billions of dollars from patent licensing each year. In addition, patents may be used as bargaining chips in cross-licensing opportunities that may arise, in which a company can trade access to its patent portfolio for access to another company’s patents.

Lastly, a strong patent portfolio can considerably increase a company’s value. Technological exclusivity provided by patent protection allows valuable control over access to the market. In addition, patents themselves are hard assets. Investors, venture capitalists and potential suitors routinely factor in a target company’s patent portfolio when deciding where to invest. A patent portfolio covering one’s products and services can also provide a valuable deterrent from lawsuits that may otherwise be brought by competitors for fear of a counter-suit.

Companies investigating whether to bring a patent suit routinely check first to make sure that they themselves do not infringe any of the target’s patents, which may be used against them. There is no telling how many lawsuits have been avoided as a result of owning a robust patent portfolio.

How to develop a patent portfolio

The first step in developing a patent portfolio is to educate the staff at the source of innovation – usually engineers or researchers at the drawing board – at least about the basics of what can be patented. But others in an organisation, such as computer professionals and product managers, also innovate. Educate these personnel as well. A rich understanding of the technology of the invention and its operation is essential for a detailed disclosure to obtain an enforceable patent.

Company executives should encourage their employees through policies and incentives to timely disclose developments and discoveries they think might be important. Informing the staff of the bounds of patent eligibility and providing incentives for taking extra time to prepare invention disclosures will improve the quality, timing and amount of disclosures.

Every quarter or six months, it is advisable to have a patent attorney meet with developers to harvest inventions that may be ripe for patent protection. Periodic review of a company’s innovations makes it less likely that it will lose an opportunity to seek patent protection, before it is too late in the product development stage and before other businesses obtain a patent drawn to similar subject matter.

Appropriate personnel should be assigned to evaluate invention disclosures. The technology sector and the specific market for a product or process will factor into the decision of whether or not to pursue a patent application. Map your products and services to your innovations. Determine which inventions may be more valuable if they were never disclosed, assuming there is a capability to reasonably keep the important features of the invention secret. Document which inventions will be filed as a patent and which will be kept as a trade secret.

If patent protection is sought, a decision as to the scope must be made. How many patent applications and in what countries they will be filed will be mainly cost driven. The cost of the preparation of a patent application is just a portion of the overall expense of obtaining and maintaining a patent. One should also consider the costs of prosecuting a patent (the administrative back-and-forth with the various patent offices), translation costs, annuity and other governmental fees.

For a majority of industries, the United States is still the most important market, and patent protection in the US may provide enough protection for companies primarily targeting the US. When seeking worldwide protection, one must consider the challenges that come with prosecuting and monitoring patents in other countries, and be aware that patent costs multiply with the increase in number of countries covered by it.

Making prudent choice of countries is a key step in minimising costs. Before starting down the path to prosecution in any patent office, a business must assess its finances and capabilities to ensure that it has the appropriate amount of investment to cover application and maintenance fees, the costs associated with enforcing the patents, and long-term funding for filing continuation patent applications to maintain a stake in the market.

After a decision is made to pursue patent protection of a technology, a prudent company will conduct a patent search to confirm that someone else has not already obtained a patent on the innovative product or method. This will ultimately help focus on the truly novel features of the innovation, creating stronger protection for what the company actually discovered. Identifying patents on similar products or processes through a patent search is valuable information that a company can use to make competitive business decisions, like ‘designing around’ the patented inventions or moving in a different direction.        

In developing a valuable patent portfolio, a company should follow best practices. Diligent record keeping, for instance, should ensure that all laboratory and design notebooks document detailed findings, the names of the inventors, and the dates of conception and reduction to practice. Employee agreements and policies should address confidentiality, noncompetition and ownership as to intellectual property developed for the company. Similarly, nondisclosure agreements with potential and existing customers or collaborators should be established.

Conclusion

When properly developed, a patent portfolio can serve as an invaluable asset to companies of all sizes. By simply following best practices, such as implementing routine audits of recent innovations, keeping comprehensive records and filing detailed patent applications as early as possible, a company can achieve significant growth in both market share and valuation. And by educating employees early on about what to look for, it will be able to effectively beat out competitors, by capturing and protecting the company’s innovations from the moment they are created.

 

Brian A. Tollefson is a partner and Caitlin M. Wilmot is a law clerk at Rothwell, Figg, Ernst & Manbeck. Mr Tollefson can be contacted on +1 (202) 783 6040 or by email: btollefson@rfem.com. Ms Wilmot can be contacted on +1 (202) 783 6040 or by email: cwilmot@rfem.com.

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