Intellectual property, from concepts to patents, is quickly emerging to have a growing impact on mainstream business practices. In almost every industry, intellectual property is increasing its presence on corporate balance sheets and demonstrating that it has an influence on product positioning, revenue generation and shareholder. In this article, the author, a patent lawyer and CEO of a Rochester, New York-based patent/trademark registration firm, describes how intellectual property can become a powerful business weapon, if it is managed properly. How to do that, and how to make the management of intellectual property a strategic business issue is the focus of this article. The author offers practical suggestions for developing and managing the various intellectual property resources that are common in most companies today.

Rapidly emerging technology and the Internet have combined to create the ideal circumstances for the once-overlooked assets of intellectual property (IP) to have a major impact on mainstream business practices. In almost every industry, IP is increasing its presence on corporate balance sheets and proving that it has a direct influence on product positioning, revenue generation and shareholder value. Indeed, if managed with diligence, IP can be a powerful and strategic business weapon. Yet if overlooked, a company’s innovations can be left dangerously exposed and easily exploited by competitors in today’s patent-frenzied marketplace.

While many corporations depend on internal or external counsel to advise them on how best to manage IP portfolios, management is becoming more and more involved in the activity. Perhaps the main reason is that IP now reaches far beyond the domain of R&D and legal counsel, into the realm of strategic business consultation. In the article that follows, I will outline a strategy that will enable leaders to sustain their competitive advantage by managing their IP portfolio effectively.

BACKGROUND

Ever since innovation became the prime driver of industry worldwide, companies have been racing to develop their IP portfolios, scrambling to gather the most extensive patenting they can afford. New companies need to make their mark early or risk getting left behind. Established companies need to maintain and build upon their current IP portfolios if they want to remain competitive. This is reflected in the overwhelming number of patents—169,094—granted by the U.S. patent office in 1999. This was an increase of 36 percent from 1997 (124,068).

Also affecting the patent frenzy is the rush by corporations to have a stake in e-commerce. For example, the opportunity to create business-method patents has today become a mainstream technique for disabling competitors in the e-commerce market. The best-known examples of these aggressive business-method patents are Amazon’s “one click order” on the Internet patent. Amazon still holds a preliminary injunction against Barnes & Noble that prevents the latter using the “one click” feature. Priceline is also enforcing its Internet business method through a lawsuit against Microsoft. These are high-stakes games, and for many, the patent war has just begun. Companies that attempt to avoid the IP rivalry can unknowingly infringe on another company’s patent and thus pay exorbitant sums.

This mad dash to the patent office has put an extraordinary burden not only on patent offices, but also on corporations that have to bear the compounding expenses. The cost involved in processing a patent alone is exorbitant, especially when you consider that most corporate giants are patenting hundreds, even thousands of ideas and inventions a year. Legal fees involved in filing a single patent range from $10,000-$15,000. Add in the price of litigation and maintenance, which runs to about $250,000 for the life of a single patent, and patent budgeting can become outrageous. (R. Poynder, P. Goslinger, and M.Carter; Hidden Value: How Intellectual Property Know-How Can Make or Break Your Business, Derwent, 1999.)

EVALUATING IP MANAGEMENT

The expensive price of competing in the high-stakes IP game can be curbed through smart IP management. Roger L. May, general counsel, president and CEO of Ford Global Technologies Inc., affirmed that position in a recent review in Corporate Legal Times, where he stated that, “There is no difference between being a good intellectual capital officer and being a good businessman.”

patents: not the only option

Though everyone around you is making a dash to the patent office, you should consider your own approach. Large companies will likely have an investigative review board to evaluate which innovations should be patented. But is that review board considering the leveraging capability its IP has in the marketplace? Most likely, it’s focusing on the hottest innovation that can build upon or create a new core business. That should be their principal function. Smaller companies may not have the resources of a review board, and rely on internal R&D directors to manage their I P. In either case, a leader needs to have direct input.

Your present patent-review process may involve prioritizing the broadest or most relevant inventions. However, it is estimated that only one in five innovations up for patent review are actually granted. What then is happening to the other 90 percent of company ideas that you may be putting on the shelf? Are your competitors developing those same ideas and patenting them? If you choose to patent everything, you could be wasting millions of dollars on unnecessary patenting. If you don’t patent everything, you risk paying out millions of dollars in litigation fees, verdicts, royalties, down-stream product redesign and lost time to market.

While patenting has traditionally dominated IP strategy, it is an expensive proposition that may not be the best solution in many instances. A patent creates a right to exclude activity only in the jurisdiction of the authority that granted the patent. Most companies, there f o re, file in many countries. Worldwide patenting, though, can increase patent costs significantly. The key question managers should ask themselves is this one: How do I protect my right to practice my own innovation, worldwide, without patenting?

In some cases, trade-secret protection can provide value. But, trade-secret protection is really no stronger than your ability to keep your technology secret. With the market’s current high employee mobility and advanced business intelligence tools, attempting to protect your freedom to practice with trade secrets is unrealistic and even dangerous. It is “dangerous,” because by doing nothing—not patenting or publishing, and not keeping an innovation secret—you at least know that you are at risk. But, if you think that you have a trade secret and you actually do not, you cannot calculate the risk. In that event, you could be forced to pay out large sums in litigation fees to defend your right to practice, or pay your competitors a royalty to use technology you may have developed yourself.

The IP management tool that offers a solution in each of these scenarios is defensive publishing. When used in conjunction with patents and trade secrets, defensive publishing can strengthen an IP portfolio in a cost-effective way, protect the freedom to practice, and help leverage your products and ideas in the marketplace. (Defensive publishing is as powerful for Canadian companies as it is for American ones. Innovation published anywhere in the world can be used by patent examiners to prevents patents from issuing. Unlike patents, which are jurisdictionally restricted, one defensive publication can defeat patents all over the world.)

A STRATEGY FOR MANAGING IP

defensive publishing

Defensive publishing, or defensive disclosure, falls under public disclosure and is the practice of placing innovation in the public domain. It’s a tactic IP-savvy companies have employed for years as part of their IP strategy. Used hand in hand with patents and trade secrets, it allows companies to cost effectively build and maintain a winning IP portfolio.

The main advantage of defensive disclosure is that it protects your freedom to practice without patenting. Moreover, it protects a company’s freedom to practice worldwide, with one publication. (i.e., not one in every jurisdiction).

Leveraging the Internet to place innovation in the public domain is an advantage in that it can occur faster than with traditional methods of publishing. Using the Internet enables a company to get immediate results, without the lengthy peer or editorial review necessary with re f e reed publications. This is exceptionally important when time is of the essence. As well, the editor of a re f e reed journal might cut enabling content to suit the audience. The Internet, on the other hand, allows the author to control what is finally published.

Defensive publishing can also help build stronger relationships with, and incentives for, your R&D staff. If they have the option and the power to author many of their own ideas that might be otherwise discarded, publishing those ideas will recognize those employees. It can help control turnover and significantly raise staff morale. It can also help keep ideas within the corporation, should the employee move to another company. In this way, defensive publishing also serves to retain intellectual property.

Over the years, a variety of defensive publishing techniques have emerged that IP managers can exploit. There are several important considerations for incorporating published disclosures into an IP strategy. Also, as you will see, defensive publishing can become quite “offensive” when coupled with clever strategic management techniques.

The defensive publishing tactics below offer road maps for waging the patent wars and provide tools for leveraging IP to remain competitive and be proactive. Of course, these tactics also protect your IP in today’s volatile marketplace.

The first tactics to be reviewed will focus on defensive posturing. These include Incremental Innovation, Trade Secrets, and Finders of the Lost Art and Conference. The Pied Piper and the Publish Part-Patent Part tactics and disclosing corporate misinformation will be described as tools for offensive posturing.

INCREMENTAL INNOVATION

Many companies have innovations that are, to some degree, pioneering and essential. These often justify an investment in patent protection, as the companies need to protect their freedom to innovate and block others from competing in the marketplace with like innovations. A well-known tactic for devaluing patents is to create a “picket fence.” With this tactic, a competitor would surround the pioneering patent with many patents on the incremental innovations necessary to take the original idea to market. This would interfere with the company’s ability to make and sell products customers really want, without licensing the surrounding patents.

For example, company XYZ developed the core Scanning Tunneling microscope technology, and filed patents covering the core innovation. Years later, company ABC approached XYZ for permission to license the core patent. However, in conducting due diligence, ABC found that X Y Z ’s competitors had surrounded the core patent with a host of patents for an improved stage, improved tip, improved visual system and improved electronics. This was technology that XYZ had previously developed but not patented or published. ABC required the improvement patents to commercialize, but it had a limited budget for licensing. XYZ, the pioneer, could have prevented the other patents from ever issuing and have extracted the full licensing share. Since XYZ failed to publish around the core invention, ABC spread its licensing budget around to many companies. As a result, XYZ lost millions of dollars. It could have controlled the entire technology space for years, if it had only published defensively around its core innovation.

To ensure that competitors are not creating a “picket fence” around your core innovation, you could choose to protect it by placing patents around that innovation. But spending such exorbitant fees for the sake of protecting incremental patents may not be financially practical or even necessary. Defensive publication of these innovations would effectively increase the scope of the original patent by disallowing these incremental competitive patents. Since the original patent is fundamental to the incremental improvement, it extends its protection over the new ideas.

Since the disclosures poison the ground around the original patent, they provide the most cost-effective means for protecting your technology.

FINDERS OF THE LOST ART

A research group has just discovered a new telecommunications device for which it hopes to obtain a patent. Much to their disappointment, their prior art search reveals a Russian abstract from 1992 that appears to describe similar technology. (Prior art generally consists of documents that were published prior to the filing of the applied-for patent. A search is conducted during the prosecution of patent applications to determine if the innovation claimed was previously published, and therefore, unable to be patented.) After obtaining an English translation of the entire document, it becomes clear that this technology cannot be patented, since the Russian article disclosed similar details of the technology that the research group thought were novel. The irony here is that these researchers could have obtained a patent if they had not discovered this prior art, since examiners in most countries would never have found the Russian article. However, inventors are bound by law to disclose prior art which they are aware of when filing a patent application.

After careful internal review, the inventors decide that they will pursue the technology further in their commercial application, despite the fact that they will not be able to patent it. The question arises: What if a competitor files a patent application for a similar technology and the patent examiner never discovers that article? The competitor may then obtain a patent after the researcher’s company is close to commercializing the technology? It could be sued for patent infringement. Yes, it could use the Russian article to support a defense based on invalidity. But how much will that defense cost? Patent litigation is called the “Sport of Kings” because it costs millions of dollars to get through a trial. Is there an easier, less costly way?

The solution to this and many related situations it to publish old prior art in disclosures. The fact that prior art is already in the public domain does not mean that an examiner can find it during a prior art search. A hidden reference is of absolutely no value in helping to prevent an overly broad patent from issuing. Rather than risk the time and expense to fight such a patent, a defensive publication of old prior art will bring it to the attention of examiners. If copyright is a concern, a summary of the prior art reference can be published in the disclosure with a reference to the original. Publishing translations, such as the Russian document in the above example, is an ideal use of this tactic.

CONFERENCE

A chief developer is scheduled to present a paper describing the company’s latest innovation in power production machinery, one that the company wants to present because of its potential to acquire increased venture capital for the entire corporation. The presentation is to be made to investors at a major conference in California. Leaders in industry and academia, as well as other R&D specialists, will also be present, working on new ways to solve the energy crisis.

Although the developer has already submitted a paper for publication, there is almost no chance that worldwide patent examiners would find the publication during the prosecution of an application claiming that innovation.

The developer is rightfully concerned that others may obtain a patent on his invention. At the same time, his company is under pressure to communicate its success to potential customers and the investment community, so he is committed to making his presentation.

Defensive publishing is a sound solution to this predicament. At minimal cost, you can protect your innovation by publishing your conference proceedings in a forum that is routinely searched by patent examiners. Patent examiners can then reference those proceedings. You have thus prevented others from patenting your inventions or obvious components or extensions.

DEFENSIVE PUBLISHING BE COMES OFFENSIVE

Pied Piper

Another more recently developed technique, the Pied Piper, involves publishing technical details of a pending patent whose contents are kept confidential by the patent office. Other companies, not knowing that patents are pending, will unwittingly adopt the technology before the patent is granted, in effect leaving them with little leverage in negotiating licensing rights once a patent is granted.

Patent part, publish part

With this strategy, you patent what an invention does and publish what it is, or patent what it is and publish what it does. You tend to patent the item that can deliver the most value with patent-based exclusivity, and publish the one that drives the sale of the patented part. The combination yields more value than patenting or publishing both parts would yield. The principle is known in marketing circles as the concept of “give the razor away for free and sell the exclusive blades at a premium.”

Corporate misinformation

Yet another strategy can be to spread corporate misinformation, as competitors refer to your patents and publications to determine technology and product trends. Publishing disclosures related to non-core technology mixed with core technology publications can make it difficult for others in your industry to gather accurate competitive intelligence.

Using your IP resources

The power and market value of intellectual property are immeasurable today. Research and development has never been more prolific, and new investor trends have created new opportunities for larger corporations to use IP as a business practice. Smaller businesses and start-ups have also benefited from the emergence of the New Economy and now have a new platform for launching new products and services. Right now, the revenue and valuation opportunities based on a superior level of IP management are phenomenal. With the right resources and techniques, defensive publishing can meet your critical need to manage your IP smartly. You should also keep in mind that education is crucial if you and your company are to take advantage of the sophisticate leveraging power of intellectual property.