To Patent or Not? Do Companies Need an IP Strategy?
Considering that a significant percentage of patents granted is not utilized commercially and that only a small minority provides protection for IP holders or generates revenue streams via licensing, it is worth answering a few important questions.
When should a company consider filing a patent? How important is it for a company to have a patent strategy? How could this strategy generate value for the organization? On the practical side, how early in the innovation process should ideas be evaluated for patentability? When should companies keep a trade secret versus filing a patent? Also, to connect this with the previous question, how should companies align their patent portfolios and IP strategies to Open Innovation Programs?
Three renowned experts share their valuable thoughts: Peter Hoeller, Dermot Roche, and Joe Doyle.
Excerpt from 60 Leaders on Innovation (2021)
Peter Hoeller
Partner — Barta, Jones & Foley, P.C.
Securing IP rights is important for any organization wanting to maintain the competitive advantage of their inventions, designs, and creative work. When implemented correctly, a robust intellectual property (IP) strategy will promote innovation activities throughout the company while also generating valuable assets that are usable for licensing and keeping competitors at bay. The largest technology companies generate billions of dollars in licensing fees from their patents. More importantly, they have patent portfolios that make their competitors think twice about entering into a particular technological field, which gives them a huge business advantage.
Think of IP assets, not in the dollars they make, but instead in the human capital they keep for you. - Peter Hoeller
I challenge the reader to first think of IP assets, not in the dollars they make, but instead in the human capital they keep for you. Before starting an innovation program, every organization should initially settle on who is going to own the ideas and inventions that come out of such endeavors: the company, the individuals, a third party, or some combination thereof. These ownership stakes need to be clearly defined through employee or joint-development agreements. This is mission-critical to making sure an organization’s innovation does not walk out the door. It will also help generate more innovation. You get what you track. Having a system set up to secure rights to inventions invariably leads to more inventions. If inventors know they cannot leave with their inventions, they are more prone to stay. Also, many engineers like the recognition of seeing their name on a patent or company awards that honor their patents, so you will often find that a natural bi-product of any IP strategy is the retention of key innovators. Once ownership is figured out, an organization must decide what kind of IP to secure.
The most popular IP rights to protect innovation are patents and trade secrets. Patents disclose inventions to the public in exchange for granting their owners the exclusive right to stop others from making, using, or selling the disclosed inventions. If someone is using or selling a patented invention, the patent owner can sue them for patent infringement and stop the infringing use, retrieve profits the company has lost, or possibly seek punitive damages to teach the competitor a lesson. Though, one does not always need to sue to generate income from patents. The patents themselves may be licensed to third parties and used to generate substantial licensing fees. This is particularly attractive to companies that are lacking the ability to widely release products and are willing to license their technology to others. Licensing revenue can be a huge revenue source for sophisticated companies.
Inventions should only be kept as trade secrets if there is virtually no way they could be discovered independently. - Peter Hoeller
Trade secrets are commercially valuable secrets that a company has taken a painstaking effort not to disclose publicly. When someone steals or divulges the trade secret, the owner can halt the disclosure and seek hefty damages. Unlike patents, however, if someone legitimately discovers a trade secret, it no longer is a secret, and the IP rights disappear. Whether to pursue a patent or a trade secret largely boils down to three questions.
First, what is the likelihood that a competitor will figure out the invention on its own? Patents should be used to protect inventions that may be discovered by other innovative companies. Inventions should only be kept as trade secrets if there is virtually no way they could be discovered independently. Once again, independent discovery is a defense against claims of trade secret misappropriation, but not patent infringement.
Second, can the invention truly be kept secret by the organization? An organization must have procedures in place to protect a trade secret. This involves restricting the people inside the company who can access the secret and, from time to time, auditing the procedures to determine compliance. Trade secret audits are pretty extensive but necessary to prove the organization did, in fact, take efforts to keep the innovation a secret. These are sophisticated procedures that should always be implemented and checked by an IP lawyer.
Third, how long will the invention provide a competitive advantage? Patent rights only last for 20 years. Trade secret rights never expire, unless they stop being secret. Few inventions today are exploitable for longer than 20 years, so it is often better to file for patent protection than try to keep trade secrets secret for decades.
An organization must have procedures in place to protect a trade secret. - Peter Hoeller
In practice, the patenting process is usually the better way to go. It may only grant an exclusivity period of twenty years, but that is a long time for most inventions. While few patents end up generating money for a company, the ones that do end up generating more than enough revenue for all of them. In other words, the patent game is usually a numbers game, and you want to make sure you have developed a strong pipeline of innovation and adequate procedures to draft strong patents.
So how can we implement a strategy that is not overly onerous on the inventors while at the same time capturing and securing the IP rights of the company? First, you should have appropriate forms that capture key details about the invention: inventor names, date of invention, a summary of the invention, date of release, etc. Once inventors provide these details, they should be sent to your patent attorney to start the process. At the time, you may want to conduct a patentability search using the summary of the invention provided by the inventors. This will help the attorney better assess the likelihood the invention can even be patented, given the current prior art. Then, allow the attorney to meet with the inventors to discuss the invention. After that, determine whether to move forward with the patenting processing or not. You should only need the inventors to fill out a short form and talk to the attorney for about an hour to get the process well underway. The final decision about whether to move forward will likely come down to the business case for the invention, what the prior art looks like, and the appetite for the company to make the financial investment to obtain the patent. Once you implement this pipeline, the process should run pretty smoothly.
Peter Hoeller is a seasoned patent attorney with more than 15 years of experience procuring, litigating, and licensing patent rights in the high-tech industry. He represents businesses of all sizes, ranging from the Fortune 100 to start-ups, and helps his clients realize the potential of their IP assets — either in court, before the U.S. Patent and Trademark Office, or across the negotiation table.
Dermot Roche
Patent Director — Secerna LLP
Just like with any other aspect of a business, having a strategy as to how to deal with intellectual property rights (IPR), such as patents, trademarks, copyrights, trade secrets, is vitally important. The entire process of preparing and filing a patent application with a patent office and then dealing with the examination may take a number of years. There are large backlogs at the major patent offices and it may take 3 or 4 years until a patent is granted in the US or in Europe. There are significant costs associated with the patent process also. All businesses from the small individual inventor to the start-up enterprise to the large multi-national corporation should put in a place a defined plan for how to handle IPR. Part of such a patent strategy is to identify new inventions being created. The first step is to designate someone responsible for IP within the organisation — that could be a team for larger organisations or even a single person for a small SME. Regular review meetings should be conducted of the projects being worked on by the engineering or scientific teams to identify potentially patentable inventions.
The first criterion to look out for is whether the project involves anything new or different compared to what is typically done in the industry. Some basic searching could assist to confirm if there is a good candidate. From a patent perspective, it is important that the innovation is not merely new but also a significant development that would not have been straightforward or obvious to people in the industry. In some areas of technology, such as software, there is a further criterion of relevance. The new innovation must be related to some form of improvement or advance in the technology rather than in a purely business or accounting or finance sense. An example of a technical advance would be an improved feature of a telecommunications network to enable greater bandwidth for transmission of data. A patent attorney may be engaged to assist in identifying potentially patentable inventions.
For start-up businesses, patents may be particularly important as a vehicle for generating investment. - Dermot Roche
If a new invention is suitable for patenting, it is crucial that there is no disclosure of the idea, or publication on the internet or blogs, or presentation at a conference — until after the patent application has been filed. Otherwise, this could potentially undermine any patent protection for the new development. This is probably the most frequent error made by individual inventors or start-ups. It is acceptable to have discussions with other people, for example, suppliers or financial backers, or research partners, but only if in confidence. The best practice is to agree and sign a confidentiality agreement in this case.
The patent strategy should also consider how to commercially exploit the IPR. The traditional purpose of a patent was to be used as a fencepost to exclude potential competitors from a new market segment. Other companies use patents as an instrument to generate royalty revenues by licensing the IPR to other partners.
Patents may also be used as a defensive deterrent to discourage a competitor from enforcing its own IPR against your business. It is possible to use a patent portfolio as leverage to arrive at a mutually acceptable cross-licensing arrangement. For start-up businesses, patents may be particularly important as a vehicle for generating investment as the patent may be a very real piece of property to attract venture capital. IPRs may even be employed by some companies for marketing and sales purposes to demonstrate to customers that cutting-edge technology is being developed by the business. In some countries, there are financial incentives, such as tax breaks, associated with filing patent applications or having a patent portfolio. These should also be considered as a potential benefit in the patent strategy.
When deciding whether to use patent protection or trade secret protection a business needs to balance many factors. - Dermot Roche
Not all innovations are patentable. Sometimes a business may prefer to keep the new invention secret instead of filing a patent application which will eventually be published. When deciding whether to use patent protection or trade secret protection a business needs to balance many factors. If a new innovation will be sold widely and could be relatively easily reverse engineered, then there will be little if any effect of trade secret protection, and a patent would be preferable. If an innovation is not patentable, for example, because it relates to a purely economic model, and there will be close control as to who will have access to the information, then treating this as a trade secret would be appropriate. Some innovations have a relatively short life span and the maximum term of a patent of 20 years would provide plenty of protection. In other cases, trade secret protection may be more valuable because of a potentially much longer life span. External expert advice should be obtained to ensure patents are filed as early as possible.
Dermot Roche is Qualified as a Patent Attorney and a Trade Mark Attorney. More than 20 years experience in the patent profession in computer-implemented inventions and medtech. Experience in private practice and as an in-house patent counsel for Accenture and for Dolby Laboratories.
Joe Doyle
Intellectual Property Manager — Enterprise Ireland
When enterprise leaders approach the subject of intellectual property (IP) for the first time, it is typically with the question: “Should we file a patent?”. This is a very important question but it is not usually the right place to start as it can overly limit the IP focus of the company. Also, it often arises reactively in response to pressure from the external environment such as investor interest, a cease-and-desist letter, entering a new market, and so on. By the time events like this arise it is commonly too late to patent and it can be very expensive to remediate the situation.
A better, more proactive question is: “Do we need an IP strategy?” This is better because a) the answer is always yes b) it widens the focus to include a broader range of IP assets — which may or may not include patents c) it frames IP in the context of the business strategy and d) it changes the emphasis from resolving a short-term issue to developing a long-term plan. So why do all companies need an IP Strategy?
Most value-creating assets in business today are intangible, underpinned by knowledge. - Joe Doyle
There is no company nor industry in the world today that is not impacted by the forces of technological innovation and digitalisation. As a result, the most value-creating assets in business today are intangible (non-physical) and underpinned by knowledge — in other words, they are ‘intellectual capital’. It is estimated that about 85% of the value of today’s leading global corporations is based on intangibles. For start-ups and SMEs, it is likely to be >95%. A 2019 study, commissioned by Aon Insurance plc[1], sought to assess the insurance of risks of an estimated $21 Trillion of intangible value in the S&P500 corporations. The study identified that the assets underlying this value are, largely, various forms of IP (patents, designs, trademarks, copyright, trade secrets) and commercial rights (e.g. license agreements) that are protected by the IP.
Other studies, on start-ups and SMEs specifically, by the European Patent Office (EPO) and the EU IP Office (EUIPO) have shown that SMEs that own registered IP, generate on average, 68% more revenue per employee than those with no IP. Furthermore, companies that adopt a broadly based IP strategy, early in their lifecycle, are 33% more likely to achieve future high growth than those that put IP on the long finger[2].
Therefore, in a world where innovation is so fundamental to enterprise success, IP is the cornerstone of Innovation and technology-led enterprises. It is the currency of many innovation-related third party engagements including collaboration, open innovation, innovation financing, M&A as well as being a key source of competitive advantage. In this context, a broadly based IP strategy is necessary to ensure that this critical store of value is appropriately identified, protected, managed, and deployed for the benefit of the business. There is a saying in the IP world that “innovation without protection is philanthropy”, but unfortunately, the EPO/EUIPO studies also show that only a minority (<10%) of SMEs protect their IP[3]. Considering that a much higher proportion are innovating, a large portion of intangible value must remain uncaptured and potentially lost as spill-overs to competitors.
Intellectual Property is the cornerstone of innovation and technology-led enterprises. - Joe Doyle
So, it is never too early to start to develop an IP Strategy. A good first step is to conduct an IP audit to identify any IP that should be protected, and also assess IP risks and review internal IP capture and management processes. This will guide the development of an IP strategy focussed on how the company will protect and utilise IP to achieve their business scaling objectives. The IP strategy will evolve as the company scales and it will involve many complex internal and external interactions. Therefore, as well as developing the internal IP culture and systems it is essential that companies access appropriate external IP expertise.
Then, “to patent or not to patent?” is no longer a binary choice. It is an IP strategic decision that must be asked repeatedly as the business and technology develop.
Framed this way there are many things to consider: Is it patentable? Is it the right time to patent? How will a patent advance our short and long-term business objectives? Are we at risk of disclosing our idea e.g. through a sale, trade show, field trial, etc? Have we collected all data necessary for the patent specification, to increase our chances of obtaining a high-quality granted patent? Have we budgeted for it in our multi-year IP protection budget? Are we comfortable making a public disclosure of our invention in a patent document or do we have the option to keep it as a trade secret? How does this patent fit with our existing IP portfolio and freedom-to-operate? And much more.
So, does a company need an IP strategy… absolutely! Should they file a patent…well, that depends!
Joe Doyle is IP Manager with Enterprise Ireland, his role is to support EI clients to integrate of IP strategy with business strategy. He has a BSc in Materials Science, M.Sc in Business Practice. Previously he held senior roles in R&D and technology commercialization.
Excerpt from 60 Leaders on Innovation (2021) — the book that brings together unique insights and ‘practical wisdom’ on corporate innovation. Created and distributed on principles of open collaboration and knowledge sharing: Created by many, offered to all; for free.
