Professional Documents
Culture Documents
EXECUTIVE SUMMARY
Innovation teams are often removed organizationally from a companys patent matters. This can mean that corporate innovation processes move forward with little or no consideration of whether competitors can legally knock off the resulting consumer offering. Companies may then not attain expected ROI because competitors can legally copy the innovationbe it a product, technology or otherwisewithout incurring legal liability. It may not always be necessary to protect innovation efforts with patents, such as where a product has a short shelf-life or where the company may desire to maintain trade secret protection for the technology. However, for innovation endeavors where go-forward nancial models assume exclusivity, companies often require patent protection. Also, the absence of patent insights at an early stage frequently means that innovations are not properly scoped for potential infringement risk until signicant efforts are expended, a fact which can further limit innovation ROI. It follows that companies can realize nancial benets by including patent information at an early stage. A key to successful inclusion of patent information in early stage innovation processes is the realization that not all patent experts can operate in this environment and that corporate leadership must competently manage the situation. Nonetheless, companies that effectively include business-focused patent counsel on innovation teams can improve the ability to obtain innovations protected by patents as well as reducing legal risks to improve ROI.
KNOWLEDGE IN PRACTICE
The innovation team of a consumer packaged goods (CPG) company undertook a preliminary assessment of an opportunity that would require signicant (> $75 Million U.S.) investment and substantial change in business focus. The team understood that patent issues could be highly inuential to any long-term ROI. They therefore asked their corporate patent counsel, an unusually business-savvy lawyer, to perform an early-stage assessment of patents existing in the general technology areas of the proposed product. The counsel reviewed relevant patent data to assess whether the company could gain patent rights to the new product of sufficient breadth to justify the innovation investment and whether it appeared likely that patent infringement liability could occur when the product entered the market. At the time of the review, no product had been developed; rather, the patent counsels review dealt only with a general description of the proposed product innovation, which allowed the patent counsel to provide only directional information regarding potential patent ownership and risk. The review showed that, given the number of patents owned by others in the vicinity of the innovation opportunity, it was highly doubtful that the company could obtain patent rights of broad enough scope to prevent others from directly competing and that patent infringement liability would likely occur if development was pursued as planned. Largely as a result of the patent assessment, the innovation team decided not to pursue the new product opportunity due to the likelihood that the desired ROI from the investment could be readily obtained.
NEW MODEL
Today, forward-thinking managers increasingly realize that patent issues permeate innovation decision-making and therefore must be considered at an early stage. These organizations introduce corporate patent experts into the front end of their innovation processes. These experts can then provide real-time counseling as the innovation team identies and validates new product and technology ideas for inclusion into the companys consumer offerings.
OLD MODEL
Corporations traditionally viewed patents as primarily R&D and legal functions. While business teams certainly provided input into patent decisions, such involvement was typically minimal, at best.
VALUE PROPOSITION
By including patents as a component of information gathering at the earliest stages, a company can better ensure that a new product or technology will provide the durable competitive advantage needed to validate innovation investment. That is, for one or more innovation pathways, patent data can provide insights into whether the company is likely to obtain patent rights of a broad enough scope to prevent competitors from legally playing in the same market space. Incorporation of patent information at the early stages also provides a signal of whether one or more innovation pathways are likely to lead to costs and business uncertainties resulting from patent litigation, both of which will
make it difcult or impossible to fully capitalize on innovation investment. Put simply, incorporation of patent insights into go-forward nancial models can improve the probability that a company will achieve the expected ROI on its innovation.
Thousands
500
450
400
350
300
250
200
150
100
50
1990
Patents Applica7ons
s
1995
2000
2005
FIGURE 1: U.S. patent lings from 1965-2008. Source: U.S. Patent Ofce.
data is hiding in plain sight. The specics of the selection and use of patent data are beyond the scope of this article, however, it will be useful to discuss why such information can provide signicant insights at the early stage of innovation processes. Patent information, which includes both issued patents and published patent applications, comprise two substantive sources of information: 1. technical details as required by applicable law; and 2. the specic property right(s) owned (or sought to be owned) by the patent ler as set forth in the claims. (See Figure 2.)
Patent
Document
Claims
Ownership
interest
FIGURE 2: The relevant parts of a patent document.
The technical data in patents can generally be viewed as the neighborhood in which others have previously developed innovations considered signicant enough (at least in the eyes of the patent lers decision-makers) to merit the effort and expense of seeking patent protection. Similarly, the claims of a patent conform to the specic property boundaries that the patent ler sought to own. Both the disclosure and claims can provide relevant and actionable insights for innovators, most notably whether sufcient space exists for someone else to obtain patent rights and whether someone else already owns rights to a certain product or technology. For many innovation projects, the number of patents identied as potentially relevant may be quite large, especially when the early stage idea deals with broad concepts, as opposed focusing on a specic product or technology idea. Analyzing a large number of patents can add signicantly to the cost of early stage innovation assessment, and the typically-uid nature of the project can make it difcult to develop an accurate opinion about the actual risks each patent will pose in the nal consumer offering. Fortunately, a number of patent data collection and analysis products have entered the market in recent years that can help streamline the process.
However, innovation teams should not embrace any commercial patent information product without validating the methodology used by the vender, as many of these products are based upon awed data collection and analysis techniques. Use of faulty insights extracted from such products will invariably lead to the innovation team making incorrect assessments that could cause them to focus their efforts in the wrong direction. One way to avoid selecting a awed product is for the team to work with a patent expert in validating the methodology, such as by conducting an analysis for a product or technology in which the general result of the patent landscape is already known. Notwithstanding the costs and risks associated with incorporating patent information into early stage innovation processes, as shown below, the rewards of doing so can be signicant.
product. The total corporate investment estimated for effective technology development, infrastructure improvements and product launch was at least $75 Million U.S., and it was expected that the product would serve as a platform for future innovation and growth. Recognizing the need for awless execution of this expensive, but potentially game-changing, project the innovation team integrated their corporate patent counsel into decision-making. This corporate patent counsel, who was an unusually businesssavvy attorney, conducted a detailed analysis of the relevant patents at the same time the innovation team was collecting more traditional innovation metrics for us in the preliminary go-forward decision. By including patent information in the front end, the innovation team was able to conclude that the green product did not constitute a good business risk. Specically, the presence of third party patents
in the vicinity of the likely innovation pathways made it doubtful that any resulting product would allow patent rights to be obtained of suitable scope to effectively prevent competitors from introducing a product that the consumer found equally desirable. This fact alone substantially reduced the probable long-term competitive advantage resulting from the innovation investment. It was also highly likely that the resulting product would incorporate technology owned by third parties, which made it likely that the CPG company would need to obtain one or more patent licenses and/or the company might be sued for patent infringement. While patent information did not serve as the sole basis for pulling the plug on the new green product, the infringement risk and low ownership potential identied by the patent counsel was instrumental in the teams decision to invest its innovation resources elsewhere.
Managerial implications
PICKING THE RIGHT TEAM
Critical to the CPG companys ability to bring patent information into the front end of the process was the fact that its patent counsel was able to communicate effectively with the innovation team and vice versa. In other words, the patent counsel got innovation and understood how to work in the often ambiguous area of early stage product development. This is not always the case, however. Why can it be so hard for patent counsel to adjust to the world of innovation? The short answer is that patent counsel, and lawyers in general, are rewarded by proper management of risk. But, innovation, especially at the earliest stages, is inherently risky. This means that when faced with a risk-laden situation, many attorneys will naturally react to stop the activity perceived to create risk and be opposite to their incentives. They may thus perceive their roll as a trafc cop to stop activity that might conceivably cause risk. This positioning is counterproductive to any innovation process and having such a risk-adverse person in a decision-making capacity is no doubt undesirable. To obtain the benets of including patent data in innovation processes, the patent expert included on the team must possess a personality that can set out guard rails within which the company should maintain their innovation activities. As long as the business team stays within this specied range, risks can be managed and potential opportunities maximized.
With regard to successfully integrating corporate patent experts into the innovation realm, Figure 3 provides further guidance to the reader. Specically, it is critical to recognize that even though the patent expert functions as a member of the corporate innovation team, the business team should nonetheless retain decision rights as to whether to proceed in a particular innovation pathway. If decisions do not reside with the business team, it is likely that the inherently conservative nature of many patent counsel could reduce the overall effectiveness of the innovation processes. The corporate patent expert should also be rewarded for providing advice that may amount to no more than an educated guess, as opposed to the dotting the Is and crossing the ts type of advice that most legally trained people are more comfortable in providing. Further, those who make the organizational management calls should recognize that not all
patent experts will function comfortably and effectively in the ambiguity of innovation processes, and that the company may need to go outside to nd the appropriate patent expert to play well with their innovation team. Some companies have seen success when they introduce their corporate patent counsel into the formal reporting structure of the business, as opposed to having lawyers reporting intoand being incentivized bycorporate legal management. Lastly, the ambiguity of early stage innovation processes typically gives rise to less discrete questions and, as such, more complex analysis which, in turn, will likely result in higher costs than the company is used to paying for patent-related advice. Corporate decision-makers must therefore be willing to absorb this cost increase in exchange for the opportunity to generate markedly improved ROI on their innovation investment.
Lessons learned
Corporate patent counsel do not traditionally participate in the early stages of the innovation processes. Rather, they typically become involved to provide legal guidance only when a consumer offering has been generated and is headed for internal development to be followed by market introduction; . This can lead to several issues regarding expectations relating to the team members roles and responsibilities: 1. Management must realize that front-end patent counseling cannot fully prevent patent infringement risk because the actual consumer offering has not yet been identied. Patent clearance efforts must therefore be conducted on an ongoing basis to ensure that the nal consumer offering is free of patent infringement liability. 2. Innovation professionals must accept responsibility for including corporate patent counsel on their teams. This is a paradigm shift at many companies, and may require personnel that do not normally play well together to become part of a cohesive team. Additionally, to enable them to competently address patent issues, innovation professionals must be prepared to obtain at least a working knowledge of relevant patent principles. 3. Corporate patent counsel must be able to reorient their counseling to provide directional-as opposed to absolute--advice regarding infringement and patentability. In other words, they must view their role not as trafc cops, but as placing guardrails along the innovation pathway within which the innovation teams can safely operate. 4. Legal costs will necessarily increase when patent issues are addressed on an ongoing basis in innovation processes, as opposed to the typical situation where they comprise discrete tasks having predictable budgeting events.
Concluding remarks
Organizations that substantively include patent matters in the front end can markedly improve the return on their innovation investment. Specically, by determining at an early stage whether products likely to result from innovation efforts can be effectively protected from competition and that they will not likely infringe existing patent rights, innovation teams can develop a more rened decision-making process when selecting potential innovation pathways. Care must be taken, however, to ensure that the appropriate processes are put in place to allow innovation processes to operate appropriately after the addition of a patent expert to the team.
Further reading
Suggestions of further reading to help the interested reader explore the presented knowledge further. For more information on how patent expertise can enhance the ROI of innovation processes, business professionals should consult: The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property, Mark Blaxill and Ralph Eckardt (Portfolio, 2009).
retweet
www.InnoavationManagement.se