IP Fridays: Creating Value with Patents
Shmuel Silverman discusses with IP Fridays how businesses can create strong, valuable patents that will protect their business from the competition.
Archive for month: March, 2019
3 Questions to Answer Before You Develop a Patent
Most CEOs that I meet believe that IP protection is important in protecting their business. But when they’re faced with questions like, “Why are there so many competitors if your business is well protected?” and “Do you believe your competition is infringing on your patents?” They commonly answer with, “We are in a high-value market,” and “I don’t believe so.”
Are you sure that you aren’t developing IP that can be easily circumvented by your competition?
If you aren’t protecting your IP properly, then your IP can be easily circumvented by the competition and therefore brings no value to your business! What a devastating reality! Let’s pause that nightmare for a moment and review what circumvention means in a bit more context.
The value of your IP changes with your target audience. If you plan to sell or exit with a large S&P500 company then you need to consider their strength and ability to work around you.
For example, if you plan to sell or exit with a mid-market company, then adjust the cost number in the above figure by a factor of 10, e.g. $20M is $2M and so on. However, you cannot change the time associated with circumvention. Time and cost are two independent factors that need to be considered while you review your patent portfolio. Anything that can be circumvented in less than 2 years is considered to be easy to circumvent. So what you are looking for is to create patents that are hard and/or difficult to circumvent by your competitors. Now, to create a hard and/or difficult to circumvent patent must be valued within the context of your business. Thus, we arrive at the next question:
How well does your IP protect your value proposition?
Your value proposition is an innovation, service or feature or a combination, which you intend to use to make your company or product attractive to your customers. The value proposition is used to differentiate between a company and its competition in the same Serviceable Obtainable Market (SOM). So, are any of your patents unrelated to or add directly to the overall protection of your value proposition? If not, then you should consider them as a liability and you may even consider abandoning those patents.
This begs the question, “How do I know that a patent is protecting my value proposition?” This is a good question and the answer is actually pretty simple: If a patent or a portfolio of patents prevents a competitor from delivering your Value Proposition or a subset thereof to your clients, then you have created a valuable patent and/or portfolio.
Once you have identified how easily your patents can be circumvented and what your business’ value proposition is, you can begin thinking differently about your patent portfolio. Now, you must answer the 3 key questionsbefore developing your patent strategy:
- What is your business objectives context? This will help you define your circumvention criteria.
- Can your value proposition be protected? It isn’t always obvious that any business value proposition can be protected, in fact, based on my experience, some can and some cannot be protected.
- If you answered ‘yes’ to question #2, then: Is this patent that I am about to draft part of a cohesive and clear strategy that will protect my value proposition?
If you cannot yet answer these questions, then you should stop spending your time and money on patents that are most likely going to be circumvented by your competition and therefore worthless in protecting you and your business.
But never fear! If you think that you ready to develop a patent and are just unsure of your strategy, there are resources available that can support you. So when you are asked next, “Do you believe your competition is infringing on your patents?” you will answer with a confident, “Nothing is breaking through my patent strategy!”
The key three questions every leader should answer to protect their business
Have you created a patent portfolio that protects your business? Here’s what you need to know.
You have an idea and you have pitched it successfully. Congratulations! Now you have a team and investors who are enthusiastically building the product that you believe is the next best thing. It has lots of promise, you are solving a real problem, and you expect a high return on your investment. You’ve hired an excellent team of IP lawyers who are developing patents that you expect to protect your technological innovations. You’re working overtime — your spouse isn’t thrilled with how much time it’s gobbling up, but hangs in there with you, while your kids see you occasionally on weekends. You’re doing your best to do everything right.
You try not to worry because you are very aware of your competitors and want to be sure you create a splash in the marketplace. But there is someone else who has figured out how to deliver another solution to the same problem that you are solving and it’s already selling very well in ‘your’ market. Things are changing fast!
In my opinion, there are three questions that every business owner should consider when it comes to protecting their intellectual property:
First: Do my patents protect me from the competition?
Probably not. The hard truth is that most patents can be circumvented relatively easy, which means that there is another solution that could enter your market without infringing on your patent. If you want to protect what you have worked so hard for, then your patent(s) need to do way more than preventing others from copying your technology. You’ll need to think strategically about creating a portfolio of patents that does far more than just copy protect your specific designs. Strategize with a patent specialist — look into how well protected you really are and how protectable your business really is against the competition.
“In business, I look for economic castles protected by unbreachable ‘moats’.”
— Warren Buffett
Next: How can I use patents to truly protect my business?
To truly protect your business, you’ll typically need to protect far more than your technology. In fact, a patent portfolio that protects just your technology only guarantees that no one else can copy ‘your’ technology. It is like creating a new type of knife to slice bread while missing all the other types of knives that can slice bread, as well. Protecting your knife does not protect your business, it only copy-protects the knife design that you invented.
What you need is a patent portfolio that protects the business opportunity that the bread knives offer… a barrier to entry to your competition. To do this, you will typically need a strategic portfolio of patents that protect the overall use case that your design is solving for. Done right, a patent portfolio will protect your business like an unbreachable moat around a castle.
The law allows you to protect your invention, and at the same time encourages competition — so. Other people will have their solutions for the same use case and will go right to protecting their technology while competing with you.
“The strength and vitality of the U.S. economy depends directly on effective mechanisms that protect new ideas and investments in innovation and creativity.”1
For a patent portfolio to be of any value it must act as a barrier to entry or at least be a significant speed bump for competitors. You can read more about patent valuation here, and how to compete with the ‘big boys’ here.
Finally: Can I create a patent portfolio that effectively protects my business?
Usually, YES! In fact, this is exactly what most S&P 500 companies are doing. They create patent portfolios that aim to protect their overall business strategy first and specific technology second. This is very different than what most people who submit patents do. If you start by truly protecting your business strategy with a strategic set of patents, you will protect your business well ahead of your competitors and buy the time that you need to truly dominate the market. This takes an important blend of strategy, innovation, and just plain know-how when it comes to intellectual property. Gather the right team to help you, and you’ll be well protected in the long run!
Why IP valuation can miss the mark for your business
You’ve created a portfolio of patents to protect your technology, but do you know their value? Do you know why you should care? There are many situations where valuation is required: mergers, acquisitions, licensing IP rights, fundraising, and litigation. IP valuation is also important for any company making strategic business decisions.
The actual IP valuation process may include quantitative and/or qualitative valuations. The quantitative valuation takes into consideration the economic value of the IP whereas the qualitative approach focuses on analyzing the uses and legal strengths of the IP. The first four quantitative methods are used when considering the economic value of one’s IP. Whether it be cost, market, income, or option-based, the economic value of your IP assumes that you are able to license it and/or can attach a real tangible value to it, including the cost to replace and develop it.
The qualitative valuation, or evaluation method, revolves around the rating of the IP, eg. determining its importance, or commonly known as its ‘patent score.’ This method focuses on the legal aspects — the technology level of the innovation, market details and company organization. Some simple questions when using this approach include: How would you define the IP innovation compared to the relative state of the art? Which level of its life cycle has the patent reached? And most importantly, where does this patent fall in the market and how much of it does it dominate?
Both qualitative and quantitative have strengths and weaknesses, but the number one issue is that they don’t demonstrate how well a patent protects the value proposition of the business. Patents are handled in a vacuum as if they are designed to protect technology, and the business reasoning is often lost in the process.
The Multi-Innovation approach address a key question first: “How does this patent protect your business?”
The key question we don’t always ask is, “how does this patent protect your business?” We focus so much on patenting specific designs or technologies we can lose sight of the bigger picture. Answering this question is critical when evaluating the value of the IP and provides the necessary context for the valuation to be truly meaningful. When we consider whether a given patent truly protects a business, we need to look at the overall value proposition that a given technology is solving for. What is the overall business opportunity? How many other solutions are addressing the same opportunity? How easy would it be to circumvent this particular idea and still enter the same marketplace?
The Multi-Innovation approach to valuation starts with a clear understanding of the overall use case and how protectable it truly is. The patent strategy is then founded upon that information. It aims to create a strategic “moat” around the business opportunity so that the business value potential can shift exponentially — literally to the power of the IP. Using IP strategically, a company can make it difficult for others to be successful in the same space without needing to share their returns in one way or another. This means that a well protected company can enjoy the fruits of their competitors rather than spending lots of energy trying to squelch them from the market.
While it is optimal to implement an IP strategy early in a company’s launch, it can also be effective when executed after the fact. Whether your organization is just starting or it holds a full portfolio of patents, be sure to step back and evaluate how well your business can truly be protected through patents. It will be a small investment that could reap huge rewards for you and your business. And who wouldn’t want that?