IP strategist: Managing IP risk proactively

Intellectual property may be the most important set of assets that a company possesses, whether it be in the form of patents, trade secrets, copyrights, trademarks or know-how. It is an investment that companies must make in order to protect and potentially enforce the value captured through innovation. For small companies, their intellectual property is sometimes the only hard asset they possess, so being in a financial position to defend or enforce it is critical. Unfortunately, merely securing a robust IP portfolio is not always sufficient to adequately address IP risk. We live in an age where companies of all sizes and technology spaces must be able to deal with such risk.

IP risk is a harsh reality that occurs if you make, use, sell, offer for sale, distribute, supply or import a product or service that has features which can provide you with a competitive advantage. One such risk is patent litigation, which may result from third parties that own relevant patents covering these features. The number of new patent litigation cases filed in 2016 alone was over 4,000, while median litigation costs are in the region of $5 million (or more) for full-blown litigation in federal court involving a high-stakes patent case, which can take years to resolve. With industries such as the smartphone sector becoming highly competitive and similarities between the features of smartphone and mobile electronic devices becoming more prevalent, it is unsurprising that so many patent litigations have arisen in recent years between competitors in this field. The ubiquity of smartphones has given rise to an increasingly large number of patents issued to cover the features of these devices. Major smartphone competitors use these patents as weapons against one another, generating a huge amount of IP risk for all competitors in this space. The question is, how can a company avoid this risk of patent litigation and other IP risks?

IP risk management is all about defining, anticipating and addressing the various IP risks that might affect your company’s businesses. The businesses supported by your IP organisation must be informed of such risks, and you must be able to proactively mitigate them. If your company has a diverse set of products and service-based businesses, then the process of identifying and mitigating these risks can become a difficult, expensive and time-consuming exercise, but one that is ultimately vital to secure the freedom of action that such businesses require when marketing their products and services. You must be able to either proactively secure measures to prevent IP conflict from happening or secure strong defence mechanisms to address conflicts.

One key proactive measure that a company’s IP department should employ in addressing IP risk is to secure a robust IP portfolio which extends into the various geographies in which the company operates. As this can be quite expensive, it takes careful analysis to determine the correct filing strategies and the selection of quality outside or in-house patent counsel in order to secure patents that adequately address your company needs. The cost of filing and maintaining patents is one element to consider but time is another. As patent attorneys can attest, filing and securing a patent in various jurisdictions can take years and can often take multiple sets of communication back and forth to the patent office in order to address any claims issues or questions. Alternatively, a company can secure the right intellectual property by acquiring it from third parties. This process involves the careful analysis of existing patents owned by third-party entities and determining which best match your specific quality and content needs. There are many patent service firms, patent brokers and agents worldwide which can be utilised to conduct the appropriate patent search and help you to procure the necessary patent assets for your company.

Another key proactive measure to consider is carefully analysing third-party agreements to limit responsibility for damages, as well as limiting your obligations to defend third parties under agreements involving products or services that your company may provide. In third-party agreements, the company must carefully secure IP ownership rights (foreground and background) in order to secure optimum freedom of action when it comes to exploiting the resultant technology. Taking the time now to draft quality contracts with third parties that have adequately addressed such sensitive issues will save you time (and potentially money) later on in the unfortunate event that these terms are not in your favour.

Over the past 10 years, various patent defensive entities have emerged to help address and mitigate IP risk, including Allied Security Trust, Unified Patents, the License on Transfer Network, Open Invention Network and RPX. These entities each address different, but to some extent overlapping areas of IP protection which should be explored by a company’s IP department. In addition, IP insurance policies are available from various service providers to help reimburse you for any litigation expenses incurred when defending your company from third-party claims; for smaller companies, these insurance offerings can be quite cost effective. However, you should carefully review the terms and coverage associated with such offerings to ensure that you have procured the appropriate levels of insurance protection.

By effectively addressing IP risk, you are in a sense helping to preserve the market share for your company in technology segments which are critical, while also preventing unnecessary and unexpected cash drains on your bottom line. IP risk management starts with a robust IP portfolio, which can address IP risks and make your company more attractive to investors.