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Ó 1998, Andover Technology Partners
Intellectual Property Strategies
Does your
company have an Intellectual Property strategy?
When technology is a driver in a firm's
competitive advantage, means to protect technical Intellectual Property (IP)
need to be considered. However, many companies don't maximize the competitive
advantage that is achievable with a carefully considered IP strategy.
Establishing a strategy on intellectual
property makes sense for any product company that uses technology to secure a
significant competitive advantage. A company's strategy with regard to patents
and other ways to protect technology IP is determined by
the pace of technology
development in the industry and
the pace of market
development in the industry
A few examples follow:
Industries with rapid
technical change and rapid market development - In the information technology industries - computers,
telecommunication, internetworking, etc. - technology and markets develop so
rapidly that some companies place time-to-market at a higher priority than
protecting their intellectual property with patents. In these industries some
product life cycles are measured in months. In such fast-paced industries, a
delay in product introduction of a few months can be devastating. Software,
where patents rarely can provide meaningful protection and product development
cycles are measured in weeks, is an area where very little effort is placed on
using patents to protect IP. Many companies do protect their intellectual
property with patents. This, however, is most often in the area of hardware or,
in the case of software, when a fundamentally new algorithm or approach is
invented. In these cases, the benefit of a patent is much greater because the
product life cycle is somewhat longer and the effort needed to engineer around
the invention disclosed in the patent becomes more challenging. Nevertheless,
the effort to protect intellectual property needs to be carefully managed to
minimize delays to market.
Industries with rapid
technical change but slower market development - These
include the biotech, pharmaceutical, and the process instrumentation and
control industries. Patents are crucial in these industries. Although technical
developments are fast in the the biotech and pharmaceutical industries, time to
market is slow due to the approval process needed for new products. It takes
years of FDA mandated testing and development to take most drugs to market.
Imagine having developed a promising drug without patent protection. Efforts
associated with testing the drug would open the market for your company and
every other company that would want to enter the market. As a result, patents
are an essential part of any product strategy in the biotech or pharmaceutical
industries. In fact, major pharmaceutical companies have experienced drops in
their stock prices as patents on key drugs neared the end of their term because
of the anticipated reduction in earnings. Pharmaceutical companies have
also seen their stock value rise substantially on receiving FDA approval of a
new drug because of the anticipated increase in earnings. These
companies have learned that their product pipeline needs to be stocked with a
steady stream of new, patented products.
In the process instrumentation and control
business, the situation is similar. Technology advances rapidly; however, the
time to introduce a totally new technology can be several years. Rapid
advancement with improvements in electronics, signal processing, optics, and
data management technology have enabled many new and superior products to be
developed for a wide range of applications. For the most part, this industry is
largely composed of numerous niche markets, any one of which might be dominated
by one or two suppliers because of a compelling technology or because of
superior service. The market is driven in part by major capital purchasing
cycles, which are often planned a year or more in advance. Customers also tend
to steer clear of new technology unless it is very similar to what they are
familiar with or it is compelling in price or performance. Therefore, the time
needed to introduce a new product may be a few years. On the other hand,
product life cycles can last a decade (normally with incremental improvements
during that time). In this marketplace patents on a compelling technology can
enable one supplier to dominate the particular niche they serve for the period
of that life cycle.
Industries with slow technical
change but rapid market development -
Industries such as energy, and regulated markets such as environmental
equipment and services are interesting examples because the maturity of
technology might suggest that significant competitive advantage may not be
achievable with technology. However, several companies have learned how to
manage technology and IP to create strong proprietary positions in these
markets.
Energy and environmental markets
experience waves of change that motivate the use of new technology, often due
to a sudden change in energy prices or due to some government intervention. In
fact, during periods of stable energy prices and little government intervention
there is little motivation to develop new energy or environmental technologies,
and these markets have been known to stagnate under these circumstances.
However, when a market opportunity is created, companies in control of the
right technologies can dominate the market. Implementing this strategy
successfully requires anticipating which technologies will be the right ones,
developing and protecting a proprietary position, and timing the market
properly. The following discussion will consider how to develop and protect the
proprietary position.
As stated earlier, the pace of
technology development is not as great in these industries. It is very unlikely
that major breakthroughs will be made. Instead, companies need to make
incremental improvements to the basic technologies. In these industries, the
basic technologies are usually chemical or mechanical processes or devices of
some sort. If a company doesn't take the appropriate measures to protect the
incremental improvements it makes, without a patent on the basic process or
device to protect the company's position, the company's advantage will quickly
be eroded as the competition copies the incremental improvements. In many
cases, the basic processes or devices are in the public domain. On the other
hand, if the company aggressively develops a steady stream of incremental
improvements that they protect, they can secure a strong position even without
the protection of a patent on the fundamental process or device. The numerous
patented improvements create a "minefield" that a potential competitor
must carefully navigate in order to practice the technology. A carefully
planned minefield can be a serious deterrent against competitors who may want
to practice the technology. Even if the technology is otherwise in the public
domain, the competitor will be forced to practice the technology in a manner
that does not utilize the many benefits of the patented improvements. Depending
upon how compelling the improvements are, a company can effectively drive the
competition out of a market.
In
extremely mature industries where what is sold is effectively a commodity- technology
can serve to reduce the production costs of the product or to improve service
to the customer. For example, technologies for increasing the yield of an oil
field are invisible to the customer except in reduced prices. Nevertheless,
such technology can provide significant and sustainable competitive advantage
to the company that utilizes it. The ability to provide unique, significant and
sustainable competitive advantage is what makes this know-how valuable and it
should drive a company to take appropriate measures to prevent the competition
from using it or copying it.
Putting together a plan - Developing a sound Intellectual Property strategy is
a major business development effort that requires the input of top management,
patent counsel and outside advisors, as needed. An IP strategy is a fundamental
part of any strategic plan. Andover Technology Management is a firm that
specializes in business strategy for businesses that use technology to
establish their advantage. We often provide guidance on setting a general
strategy on IP with the client's legal counsel providing the necessary advise
regarding the details of filing for patents, trademarks and other IP.