An integrated approach to managing IP risk

Risk identification, management and mitigation are at the heart of business strategy. Unfortunately, IP risks rarely get adequate exposure in the boardroom and are poorly integrated into wider risk management function. Yet the impact of unmanaged IP risk can be material, resulting in impeded freedom to operate, removal of products from the market or unaffordable royalty burdens.

A number of elements are needed to manage IP risk. Taken together, they can be presented as an integrated defence strategy which protects marketing freedom and profit margins.

Protect your innovation – timing is everything

Protecting the key features of products and services is fundamental to any IP plan. This requires a filing process that tracks R&D and then retains patents that match the products launched in the relevant territories. In addition, trademarks and look and feel of a brand create goodwill and allow for a greater profit margin. However, cost is a major issue, so filing at the right time in the product cycle is important. Done well, the first portfolio review can take place once product design is settled and applications covering abandoned features dropped before significant cost is incurred. Much depends on the time to market, but this is achievable in the consumer products and software sectors.

Reduce the impact of assertion risk – be on the defensive

In many businesses the greatest attention that the board pays to intellectual property is to the royalty load and litigation risk and a clear strategy is needed to address these.

In practice, only the largest and most diverse corporations can generate patent portfolios from their own research that properly defend their businesses. Most cannot and need an active process to address incoming threats. This might include acquiring patents to deter a competitor from suing or to change the balance of power in settlement and cross-licensing discussions.

The measures that one takes for non-practising entity (NPE) defence also help to mitigate competitor risk. NPEs, by their nature, know less of the industry that they assert against than their defendants – this discrepancy is key to reducing or eliminating settlement cost. Prior art is best known to industry and its collection and deployment can be cost effective. The ability to invalidate an NPE’s patent quickly is often the key to a successful dismissal.

While prior art may assist with claims and litigation from competitors, they are also vulnerable to counterassertion if suitable patents are held – those that affect a reasonable economic base in the asserter’s business. These patents are likely to have to be acquired for this specific purpose; but how? Although simple to propose, the reality is much more complex and involves a mix of technical, IP and market analysis skills, coupled with the ability to negotiate favourably priced purchases. The stages include:

• deciding which competitors are possible aggressors;
• understanding these competitors’ businesses in revenue terms to find the products and services that support profitability;
• generating a series of search algorithms designed and refined to generate a list of hundreds of candidate patents that may affect competitors’ business;
• undertaking skilled reading to narrow the list and claims charts to support the infringement contention;
• reviewing validity; and
• approaching (often anonymously) possible sellers and negotiating a patent purchase deal.

None of this is easy. Quantifying threats in terms of likelihood and impact is not an exact science and is best fuelled by their past behaviour and your industry knowledge. But, based on past experience, it is highly unlikely that the patents you want will be available on the open market – instead, direct approaches to potential vendors will be needed and their price expectations managed. It is not unusual for these approaches to result in relationships that lead to company acquisitions. After all, technology-led searching may well result in the discovery of small players with interesting technology.

Once a defensive portfolio has been acquired, its management is important. As competitors’ products develop, so must the defensive portfolio.

Disrupt competitors – rocks in the road

Turning to the future, it may be important to capture and protect elements of technology that disrupt a competitor’s product roadmaps. This can be challenging and involves an element of inspired guesswork. The aim is to predict where a competitor’s products might develop and be the first to patent essential or difficult-to-avoid elements. These patents then become rocks in the road, impeding the competitor or forcing expensive avoidance. Inventions of this type do not arise from one’s own R&D, so a different approach is needed. Success has come from running patenting or invention workshops involving creative people sparking off one another. The approach is to look at the competitor’s offering and speculate on how to improve or alter it to meet the future market and then invent the means to achieve this. The resulting patents create a disruptive path and increase competitors’ costs and product complexity.

This multi-threaded, integrated defence approach secures revenue from current products and deters or mitigates the costs of competitor or NPE attack, keeping the royalty burden low and profit high. It also makes life difficult for competitors, improving competitive advantage and market share. This management of IP risk creates a compelling story for the board and investors by linking IP initiatives, relating to intangibles, to tangible business goals.