By Eric Maschoff
Businesses — particularly startups — often struggle with the task of creating a corporate strategy for intellectual property. Ultimately, the outcome of the strategy should create value for the business. However, the path to that end might take different forms, each of which might dictate a different IP strategy (or a combination of different strategies). Spoiler alert: That objective may not always be best served by merely filing patents.
Following are some of the questions to ask when assessing an intellectual property strategy for your company:
1. Is the technology protectable as a secret?
When a technology is developed by a company, a first impulse is to seek patent protection. Patent protection is often ideal for establishing ownership and creating legal rights in a technological development. However, potential downsides are the disclosure requirements and duration of a patent. In the United States, a patent must disclose all relevant details regarding the claimed technology, all of which are made public upon publication of the patent and potentially giving an advantage to competitors. Moreover, any legal rights of exclusion associated with the patent expire approximately 20 years after the application filing date. Upon expiration, the disclosed technology is dedicated to the public domain and free to use. Depending on the nature of the technology, it is often worth considering whether it might be better protected by way of trade secret.
For example, if the technology is not discoverable via reverse engineering or observation of the product — think chemical compositions or manufacturing processes for example — then trade secret might be an alternative and possibly more effective form of protection. Indeed, had John Pemberton patented the formula for Coca-Cola as opposed to maintaining it as a trade secret, it would have been in the public domain for over a hundred years by now.
2. Does the technology or product have a short time horizon?
One potential downside of patent is a practical limitation: the length of time associated with securing patent protection. From the time of filing a patent application, it often takes two years or more (sometimes much more) for a patent to be granted. Only at that point does the patent holder have any legal rights that can be enforced. Depending on the lifecycle of the underlying technology, the market for the underlying innovation may have already passed by the time a patent is actually issued. If the value associated with a product or technology relates more to the ability to be first to market, and the development of a corresponding brand, then this should be considered when identifying an appropriate strategy. Resources (especially if limited) might be better spent on accelerating market presence and expending time and financial resources on advertising, trademarks, trade dress and other customer-oriented efforts.
3. Is the technology an improvement, or an innovation?
I often think of the importance of a technology (and how aggressively it should be protected) based on whether it can be categorized as an “improvement,” or an “innovation.” This is often best assessed by asking the question: what problem is solved? An improvement invention is a new and non-obvious improvement over already existing products and technology that have solved the same identified problem (i.e., alternative solutions are available to a customer). In contrast, I think of an innovation invention as a product or technology that solves a previously unmet customer problem (i.e., no other practical solutions are available to a customer). In other words, an improvement solves a previously met problem in a new way, and an innovation solves a previously unmet problem entirely. The distinction can be important when establishing a strategy for protecting the technology and might indicate/justify a more aggressive approach.
While improvement patents can be very valuable, a patent that broadly claims and captures the inventive concept associated with an innovation can be transformative in value. While there are many examples of true innovations, certainly, an effective vaccine for COVID-19 would be a timely example.
4. What value would exclusive rights in a technology provide?
Patents are an ideal way to create exclusive rights in a technology. A patent owner has the ability to exclude others from making, using or selling the patented technology for a period of time. Obviously, this can create huge value for a company. To that point, it is often worth assessing the value of this “right to exclude” when formulating an IP strategy. For example, a question I raise with my clients when determining what investment to make in patent protection is what value patent protection would bring to their business in terms of the loss of value associated with competitive products that might enter the market to serve the same customer set. If revenue without competition is $50 million over five years, and revenue with competition over that five years is $25 million, then the value of strong patent protection to the bottom line is roughly $25 million. Under this scenario, most would conclude that patent protection is worth the time and expense. On the other hand, if revenue isn’t affected by the ability to exclude competition, then patent protection may not be worthwhile. Resources might be better expended elsewhere.
While the above considerations are by no means exhaustive, and there is no “one size fits all” answer, hopefully they provide some insight to the value of developing an IP strategy, particularly as it relates to maximizing business value. Fortunately, it’s not that difficult. These — and other — best practices can provide guidance to those just learning about creating and maximizing business value using IP.
Eric Maschoff, a partner in the Park City office of Maschoff Brennan, is a nationally recognized expert on intellectual property law. He has extensive experience in patent preparation and prosecution, strategic counseling, licensing and IP portfolio management.