How Companies Create Risk by Leaving Intellectual Property (IP) Strategy Out of Innovation
I recently had to give bad news to a new client, the CEO of a successful global electronic hardware company. This CEO hired me earlier this year to help ensure that his company’s upcoming innovations, which were the product of a several year turnaround program, were protected from competitive knock-offs. I have completed a couple of projects for the company to date, and he now wanted to discuss IP protection for a new product for the European market that would serve as a platform for later product spin-offs both there and in the US. This new product incorporated a number of highly innovative features and almost certainly could generate broad patent protection. Unfortunately, however, I had to inform my client that his company’s important innovation could not be patented in Europe because the product launch date occurred several months ago.
While many reading this will immediately know that there is no “grace period” for filing for patent protection in Europe, no one on the CEO’s innovation or R&D team knew of this hard and fast rule. Moreover, the company’s relationship with their outside patent counsel was one where the lawyer only interacted with his client when someone at the company thought to call him. Of course,if someone had thought to call him, the first or second question the outside counsel would likely ask when called is “when are you putting a product on sale?,” but there was no possibility of that occurring with the counsel’s “hands-off” relationship. The absence of expertise and accountability for IP inside or outside of the company meant that IP issues were destined to be given short shrift, with the inevitable result that a major mistake would be made one day. And, this was the time for the mistake to happen.
The fact that is, like many companies, his team had always viewed IP protection as an event, as opposed to being part of the innovation process itself. While the company has obtained several patents over the years, IP protection had been addressed, if at all, only as an output of the product development processes. Certainly, merely being reactive to IP issues did not cause problems when the company was not bringing any real innovations to market because its competitors had little motivation to knock them off when customers were not really wowed by their product offerings. However, with the company’s new focus on innovation, competitors now possess increased incentive to copy those features of my client’s products that drive customer demand. These innovations were intended to generate premium profits for the company, and the increased revenues expected were part of the cash flow projections the CEO presented to his investors. However, since my client is now precluded from obtaining IP protection for these innovative product features in its major market of Europe, competitors can freely copy my client’s products.
Many leaders might look to ascribing blame for this error, but my CEO client took a different tack. Since other innovation leaders might benefit from his approach, he gave me permission to relate this story here, albeit anonymously.
First, without missing a beat, he let me know that he would now reassess the risk profile of future revenue and cash flow predictions recently made to investors for this new product innovation. That is, my client immediately recognized that missing the opportunity to patent an important new product for the European market elevated his investors’ risk, and it was his obligation as CEO to inform them of this fact. Second, he knew that the company must prevent this situation from occurring in the future, especially given that the company had several more product innovations in the pipeline. He asked me to provide him with an action plan regarding his company’s IP strategy.
I let my client know that the only viable option to prevent this error from happening again required that IP strategy be integrated existing innovation processes. Such a proactive stance would enable decisions about IP protection to be addressed as part of the company’s innovation management processes, instead of being merely a box to be checked at the end of the product development process, as had been done in the past.
A solution that many companies select when seeking to be more proactive is to put someone in the company in charge of IP protection. For large companies or those where patents form a large part of overall company value, it often makes sense to hire business-focused IP counsel. This inside resource will have visibility to the company’s ongoing innovation activities and will be accountable for generating strong IP protection. However, this is not a viable option here for both budget and work load reasons. Another potential in-house alternative for my client is for one of the company’s managers to receive training in IP and to make that person accountable for generating IP protection aligned with innovation strategy and revenue goals. This is certainly a viable plan over the long term, but my client’s need for IP strategy is immediate given the innovative new products now making their way down the company’s pipeline.
Of course, some of my outside IP counsel friends–in “fox guarding the hen house fashion”–will suggest that they be given the role of meeting with company management on a regular basis to do “invention mining” so that they can develop patent applications on a more regular basis. This is not the answer, however: periodic meetings to discuss what the company has already done will do nothing more than create more opportunities to be reactive, with the primary benefit likely be more business development for the attorney. In short, more meetings to discuss IP does not an IP strategy make.
The only real solution for a company with the characteristics of my client is to incorporate an IP Strategist like myself as a bona-fide member of the innovation team on a part-time basis. While the uninitiated may find it difficult to visualize how this would be done, in practice, this is a fairly straightforward endeavor to execute. As a first step, I will be given access to the company’s innovation roadmap and related product development information. This advance visibility to products in the pipeline is an obvious, but often overlooked, aspect of a company’s creation of an IP strategy plan. A second step is to include me in the company’s regular innovation team management updates and, in no case, should more than a quarter be allowed to pass without a substantive team meeting where IP issues are discussed.
A notable difference in this action plan is that, instead of the primary point of engagement for patent matters being the company’s R&D team (which is the usual course of action), IP issues now become part of the overall roles and responsibilities of the innovation team. IP strategy decisions then necessarily are put front and center for the management team. In other words, IP strategy becomes an action item for the innovation team, which transforms IP protection from an event that happens at the end of the product development process into an integral aspect of the company’s innovation management program. A bonus that comes from integrating someone like me onto corporate innovation teams is that my expertise will be shared with key management team members. This enhanced knowledge of IP can make others my “eyes on the street” to proactively bring IP issues that they see in their full-time positions to my attention so missed opportunities like the lost European patent filing do not occur.
I am pleased to say that my CEO client has signed onto this plan. To this end, his upcoming fiscal year will include an item in his innovation budget for IP strategy consulting. By giving me visibility to the innovation endeavors of his company and making both me and his team accountable for identifying opportunities to protect the company’s valuable innovation endeavors from competitive threats, this CEO recognizes that he is reducing risk to his stakeholders that revenue targets will not be met.
In closing, I should note that some readers may be thinking something along the lines of “well, duh–what she recommended is common sense.” I agree: the solution to my client’s IP issues seems almost too simple. However, in order to recognize that a solution to a problem is needed, one has to first know that the problem exists in the first place. My client now understands how the way his company addressed IP issues in the past gives rise to business risk, especially now that the company has reconfigured itself into an innovation leader. This knowledge empowers him to take proactive steps to eliminate this potential risk moving forward by integrating IP strategy expertise onto his innovation team. And, I get to work with a very innovative company and an interesting team on a regular basis. It’s what we call a “win-win.”
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Jackie Hutter is Chief IP Strategist and Founder of The Hutter Group: IP Business Strategy, a consultancy that assists innovation-driven organizations, entrepreneurs and investment professionals in identifying opportunities to identify, capture and maximize value from intellectual property and other intangible assets.