IP strategist: SMEs embrace intellectual property as an essential and integrated business function

Small and medium-sized enterprises (SMEs) are widely perceived to lack the necessary means to maximise their IP potential. However, the European Patent Office (EPO) has published a series of case studies on a variety of SMEs across Europe which contradicts this (http://epo.org/sme). The companies interviewed spoke candidly about the commercial and financial benefits that intellectual assets contribute to their businesses and the importance of developing IP strategies early to best serve their long-term business interests.

For example, the case studies demonstrate that SMEs are aware that the scope of patent protection must be broad to protect the company’s core technology, yet sufficiently flexible to secure unforeseeable product opportunities and allow strategic business model adjustments if new markets, products or services are required at a later stage.

As most companies can attest, the key to this is to develop a strong relationship with an IP adviser and to trust their advice on how to protect a diverse range of product applications. Great importance is now attached to developing in-house IP competence through staff training programmes, which improves the translation of R&D output into patentable inventions.

As the SMEs in question matured, they reported that IP strategy became an integral part of their corporate strategy. Review and refinement procedures have become an annual task for many companies to help them ensure that their IP strategies align with other key business functions (eg, R&D, manufacturing, business development, sales and finance).

While core patents (in most cases) underpin the protection and defence of products and services, many SMEs were quite strategic in building patent portfolios with other specific aims and in deciding what to withhold with regard to know-how and trade secrets.

For example, Skeleton Technologies, which utilises graphene-based materials in energy storage cells, introduced an advanced system to document and manage access levels to its trade secrets on a need-to-know basis. This formal approach to managing trade secrets reflects current best practice brought about by the US Defend Trade Secrets Act 2016 and the EU Trade Secrets Directive (2016/943/EC).

Several companies – including the 3D-printing company Lithoz – have seen merit in protecting incremental advances to their products to ensure that every aspect of their technology is covered, including potential workarounds. Other objectives included patenting inventions that, while not the immediate focus of the business, widened the patent ring fence by adding to the prior art and blocking potential competitors from entering the field. Further, this created a valuable patent pool for the benefit of partnerships and also strengthened bargaining power for a freedom-to-operate licence, should the need arise at any future point.

Webdyn, an Internet of Things hardware and software components supplier, did just that following discussions with a prospective customer. Initially, supplier and customer argued over suspected infringement of each other’s patents. Wisely, they settled for the benefits of cooperating on expertise, products and patent protection, avoided contentious patent rights enforcement action and combined their mutual strengths in a cross-licensing arrangement.

However, a settlement between Fractus, a contract engineering service provider designing fractal antennae for mobile devices, and one of its customers was less amicable.

Fractus designed customised antennae for specific devices, but customers replicated them in other smartphone products for which no licences were held. As its revenues plummeted, Fractus faced closure. However, the foresight of a well-considered IP strategy at its inception and the creation of a robust IP portfolio paid dividends in helping the company to reassess its business model and adopt a patent monetisation model in order to turn the business around.

When Fractus began enforcing its patents, its efforts were met with customer resistance, which left it with no alternative but to run the gauntlet of litigation. Following a successful suit against Samsung in the United States, customers finally settled for royalty-based licence agreements. Today, Fractus is a profitable technology development and licensing company with revenues of over $100 million.

While litigation is an unwelcome course of action, the advice from Fractus and other companies is that it can be a necessary part of pursuing an IP strategy to protect business interests. Encouragingly, the decision to pursue litigation will be made even easier by the impending unitary patent system. SMEs have indicated that this new regime will remove the necessity for multiple parallel infringement suits in Europe and lessen the financial burden of litigation – only one action will be required to enforce a patent in 26 EU states.

These EPO case studies demonstrate how intellectual property may be used to place a business on a stronger footing and should benefit companies from the insights provided and encourage them to uncover their own latent IP value.