IP strategy – it’s alive!

IP strategy is a living creature – formulating a strategy at one point in time is all very well, but the market and competition will not remain idle. Players that did not exist when an IP strategy was first formulated may suddenly appear and the new market will need to develop to keep pace. It is clear that businesses should be adaptable and prepared to renew and improve their IP strategies. Intellectual property will have an impact on the decisions of the market players, while the market’s trends and movements will have an impact on the intellectual property in terms of new filings and IP maintenance.

There is no one single answer telling businesses what to do with their IP portfolios. This chapter looks at available tools and the factors to consider to optimise IP use.

Duration and regional coverage

It is a simple but often missed question: should a company aim for the greatest benefit for its business or reduce the competitor’s income? The greatest benefit for the company is usually what business leaders have in mind, but reducing the income of a competitor may lead to such benefit.

In order to directly benefit from the exclusivity of intellectual property, a company should consider whether it is willing to allow licences. A company allowing another player to license its intellectual property may be possible without affecting sales, provided that the company manages to carve out a space to out-licence which covers a slightly different technology from where its own edge or key products are. However, there is sometimes a point in a product’s life cycle where a company obtaining a royalty stream from allowing licences for technology equivalent to its own could increase that company’s total income. Obviously, this will be possible only after thorough analysis of the global market prospects for the product combined with solid market intelligence.

In order to focus on reducing the success of a competitor, preventing their market entry right at the point when the need for a product has just appeared, may prove very efficient. A long-term benefit may be obtained by a business initially accepting the expenses for prosecution and maintenance of intellectual property in a large part of the world to buy enough time to establish its own company as the number one provider. At an appropriate point, the regional scope of the intellectual property may be reduced substantially. Again, a thorough market analysis will be required to ensure that the rights are dropped at the appropriate stage (eg, when a large enough part of the market has become accustomed to the product) or included it in a regulated process.

Thus, both the company’s benefit and its impact on the competitors’ success are highly dependent on the timing of IP use.

Patent duration as a tool

Due to its possibility of providing strong and broad protection for technical solutions, patents have proved to be the most valuable IP assets in life sciences. Some of the key options available when it comes to the level of their exclusivity are as follows:

• A patent may be maintained in its original regions for up to 20 years. For pharmaceutical and plant protection, supplementary protection certificates (SPCs) are available for up to five additional years, provided that certain criteria are met.
• A patent may be maintained in a gradually decreasing geographical area by pruning back countries or regions that turn out to be less important markets.
• A patent may be maintained in its original regions and dropped globally at a point when relevant product sales are below a defined threshold.
• A patent may be maintained in its original regions, with a decreased level of exclusivity by out-licensing either in specific regions or of defined technical solutions.
• A patent may be maintained even after discontinuing the protected products in order to out-license and benefit from royalties.
• A patent may be fully or partially disposed of by sale or transfer.

Other IP rights aligned with patents

The present analysis uses patent rights as the stepping stone, but optimal IP protection will usually involve one or more of the other available rights as well. In fact, certain segments of life sciences may be better analysed starting from another IP right.

Utility models are similar to patents but with a lower requirement for technical innovation. Although not available in all geographical areas, they have proven to be beneficial to their owners in certain countries such as China. Thus, the utility model adds a geographical aspect to analysis, but should also be considered due to its lower cost and as an option when patents are not possible due to low inventiveness.

Design rights protect the look of a product and in some regions are legally limited to non-functional features. This means that it is a clearly supplementary right to patents and may therefore be used in combination with a patent rather than as an alternative. Typical life sciences products subject to design protection are the outer shells of medtech instruments and details of certain consumables (eg, containers, packages and caps). Thus, the design right will add a more conceptual aspect in terms of attractiveness to the customer and is successfully used for products where technically equivalent alternative products exist on the market.

Trademark protection is the ultimate conceptual IP right, linking a product to perceived quality and/or benefit to its user. As a general rule, the less complex a product, the more important a trademark. In the highly complex technical market of life sciences, customers will still ascribe properties such as quality, effect and reliability to products due to their trademarks. This may be due to the speed at which the market grows, making decisions harder, and maybe to a certain extent to the subconsciousness of decision makers. Charging a trademark with goodwill is a long process, which is sometimes initiated and planned through campaigns and targeted marketing. In other cases, a substantial trademark value is simply the result of a lasting product presence and success on the market.

Unlike for patents, design rights and utility models, there is no novelty requirement for a new trademark application. Thus, at least in theory, abandoning trademarks could entail a bigger risk than abandoning patent rights. While a dropped patent will allow for co-existence on the market, a dropped trademark may be registered by a competitor and exclude the former owner from the market. An exception would be if the dropped trademark qualifies as well known, something which is often difficult to prove. However, this happens relatively rarely. Trademarks may also reflect the present and that the use of a reused trademark could be perceived to reflect a lack of new ideas and innovation.

Market case studies

Pharmaceutical products

Pharmaceutical products are extremely expensive to develop and are obtained from research that includes a higher level of risk than most areas. Thus, it is no surprise that patents protecting a pharmaceutically active substance are commonly kept as exclusive assets in order to secure the necessary return of investment. To extend the effective patent term and market exclusivity, patent applications directed to the formulation of a drug including the active substance are filed at later stages.

By applying for an SPC, the effective term of a patent protecting a product may be extended under certain circumstances. Legal practice around SPC protection is constantly challenged in order to obtain additional years, weeks or even days of the important exclusivity of a pharmaceutical product.

Trademark protection is advantageously used in combination with patent protection to generate goodwill and facilitate recognition of a pharmaceutical product. To avoid degeneration of the trademark, rules should be set up and communicated internally to prepare for when no patent protection remains. Watching third parties and, if necessary, actions to stop unlawful use of the trademark are also important elements of an IP strategy in the pharmaceutical segment. A strong trademark strategy referring to the use of trademarks is also crucial, as almost all misuse starts within a company.

Medtech

Medtech (ie, instruments for medical or diagnostic applications) is a group of products containing elements that may be protected by virtually any IP right available. Although these products are also expensive to produce, due to their complex technology and high requirements of performance, there are two important differences from pharmaceutical products that will affect the IP strategy:

• If an element or component is not available due to third-party exclusive rights, it may well be technically possible to design around it (ie, to achieve the desired functionality by choosing a different route). Thus, it is usually possible to resemble or even copy medtech products.
• The development of a medtech product will not normally involve the same level of risk as a pharmaceutical product, as there are no clinical trials that could fail and close a project.

As a result, a medtech product is normally IP protected in fewer countries than a pharmaceutical substance. A balance must be reached between the expense to maintain a patent portfolio in a large territory and a competitor’s financial threshold to produce a competing product for launch in countries without patent protection. This balance will gradually change during the lifetime of a patent. Similarly, the risk willingness of competitors when it comes to operating close to patent rights is also known to increase towards the end of a patent’s lifetime, as the patent owner will have to balance the cost of enforcement with the financial benefits of doing so. In this context, patent lifetime is usually 10 to 15 years, as fewer medtech patents are maintained for the 20-year total.

At some stage, out-licensing could well contribute to a larger total income for the patent owner. Additional factors to be considered are if the sales in a certain region could be increased if sold by a party native to the region, in which case regional out-licensing would be an option. Such a patent licence may be granted in combination with a licence to the relevant trademark.

In other cases, the use of separate trademarks may benefit both parties if some customers turn to one supplier rather than the other for historical, emotional or other reasons not directly linked to the product’s performance.

Diagnostics

Diagnostics is a segment which takes another step towards shorter product lifecycles and includes less complicated technology (eg, devices and assay formats for use in labs and hospitals). Point of care is a fast growing market where the user may be any individual with little interest or knowledge of various suppliers and their reputation and a higher susceptibility to trends in trademarks and branding. Thus, design and trademarks will be important to this user segment, but the time available to build value will not be as extensive as other market segments. Patents are used to protect key functionalities, but patenting products with short cycles easily becomes expensive and is therefore often limited to certain geographical regions (eg, where competitors manufacture).

Fast market penetration after a launch is key in diagnostics, as consumer solidarity is more readily won by the first player. Entry into the market as a second player is more difficult and may start a pricing war. Since patenting is a broadly substantial expense, a geographically broad initial patent filing with early pruning of the portfolio may keep IP expenses at a reasonable level.

Areas with a lower cost of product development are known to include greater acceptance of risk when it comes to IP infringement. Thus, an active strategy for policing IP rights is vital to keep copies off the market and for creating a commercial reputation. Using information about IP rights in marketing is a tool that will add value in the customer’s eye, as intellectual property tends to reflect quality to a consumer. Trademark strategies using a generic family name to which a product-specific denominator is added are frequent – goodwill is built into the family name for longer periods than each product will last. Out-licensing of intellectual property in diagnostics occurs, but more often non-exclusively to a technical feature than as access to product sales. Agents or various partnering arrangements could assist in quickly establishing a global position, at least for a limited period (eg, three to five years), during which a market position is established.

Consumables

Consumables include some of the shortest lifecycle products and are used in medtech instruments or diagnostic devices, among others. It is not unusual for consumables to have the least faithful of customer segments. Products are used in large quantities and price is crucial. Direct copies are also easier to produce than in the other life sciences segments. The importance of performance of consumables may vary, as it will range between the extremes of simple a yes/no answer to situations when very exact quantitations will decide which treatment a patient receives. In the first case, direct marketing activities to customers will be important, while in the latter case, the technical function will become more important. Hence, understanding the selling point of the product will guide an IP strategy including either a patent protecting functionality, or bigger investment into design protection of the package, as well as an attractive trademark.

To increase the values of consumables patents, claims are often included regarding the user of the product. Combined with active advertising of the existing patent in marketing materials, many customers are encouraged to turn directly to the patent owner for supply of products, even if a competitor product is lower priced.

Trademarks are used in a similar manner to diagnostics, where a two-part format will ensure that the trademark survives, while value is generated though more than one product cycle.