This is Part 5 of a 8 step series on how SME’s can strategically manage IP during economic events: Contractual needs
Joint Development, in-licencing, and out-licensing impacts
For internal IP positions under review, there needs to be consideration for any overlap or interaction with business rights and restrictions already agreed to. IP leaders should seek to answer “What are both our businesses and our partner’s contractual obligations with respect to IP? What heightened risks or opportunities does this raise for our business?”
In practice there are at many types of contracts to prioritize considering, including licensing agreements and joint development agreements. Key points to review may be as follows:
- Requirements on IP maintenance & enforce the IP against infringers – Will the licensor / licensee continue this to keep the contract valid if they are under financial pressure as well? Will divesting or non-payment of maintenance fees impact agreements?
- Requirements on licence scope – will shifts in the market change need for Licensed Product scope on a geography basis? If major market shifts (or contractions) have happened, does a new contract need negotiated to either reduce costs or take advantage of different markets?
- Patent rights & control – is there first right of transfer for patents from one party to another if the first party opts to abandon or not patent a novel technology? Which party has responsibility for continued prosecution, defense, and maintenance of rights and what terms will trigger a transfer of control? This may be seen more often in joint development agreements.
As one may see, adjustment to IP rights (divest, abandonment, or even portfolio-repositioning) has the ability to impact pre-existing contractual rights and restrictions in various aspects of businesses they support – and likewise, IP leaders need to understand current business obligations required by 3rd parties they being supported or serviced by.
A useful patent strategy still needs to have real market applicable patents that can be used to at least defend, license, or enforce. In-prosecution repositioning will build on the IP Audit (Step 1) and budgeting (Step 2) outcomes. When mixed with IP operational updates (Step 3) while building a business relevant portfolio (Step 4), it will will ensure contractual reviews can be properly assessed to ensure (and anticipate) any business opportunities or risks that may occur during a companies or vendors response to large economic challenges.
Up next in Part 6, leveraging outside expertise for additional strategic benefits.
This is Part 4 of a 8 step series on how SME’s can strategically manage IP during economic events: Strategic prosecution repositioning
The key to successfully managing strategic IP prosecution during economic challenges relies on an understanding of “what specifically” you IP actually protects and has the opportunity to protect, not just a general understanding that IP may apply to your business once the patents grant in the future.
Targeted patent prosecution with IP and business intent is usually not the status quo…. but should be.
Research (and personal experience) indicates only about 5% of a typically patent portfolio is the value of the portfolio as a whole. This, coupled with the Aistemos and IAM magazine research indicating only 19% of firms believe they have the right portfolio, suggests refocusing prosecution may be one tangible way to ensure value can be shown in a portfolio when pressure to control costs are being mandated.
But how can SME’s practically enable prosecution repositioning for value, which is reserved for open applications?
As a first action, there are 4 technology positions that need mapped out:
- Company technology offering (today)
- Company technology offering (future)
- Market technology needs (now, future)
- Key competitors technology position (now, future)
The end result will be a technology map of the company’s technical direction, key competitors direction, and market direction – similar to what the organization would need or use for strategic planning but used in this case for IP needs.
As a second action, both in-prosecution claims AND specification support need understood and overlaid with the above to illustrate where coverage is – more importantly where coverage is missing but there is opportunity to reposition claims.
Based on this the following types of patents will emerge to be acted on, which becomes the basis for prosecution repositioning:
- New opportunities: Applications where claim scope can be expanded via prosecution changes or divisionals, giving new claims to leverage market or competitively relevant specification support.
- Repositioning: Applications where claim support falls outside competitive or market use, but can be revised in prosecution to better match protection.
- Abandonment / Divestment: Applications where claim support falls outside
competitive or market use, and return on continued investment is low. This may even include applications once thought “core” because the scope was meant to cover a “core” technology, but the review suggests otherwise.
For larger portfolios this can be a tremendous amount of effort, but has the potential to generate a high return on investment by focusing key patents and also flagging patents for divestment or abandonment that were once thought core. IP leaders can begin to prioritize efforts by referring back to Step 1 and Step 2, as outcome of the IP Audit should have categorized the patents into virtual priority levels or groups to begin with (Core, non-Core, Divest, and Abandon groups at minimum).
There is little difference between this approach to prosecution than firms actively focusing claims for enforcement in an industry or against a specific competitor. Claim charts may not be necessary, but the though process in strategic prosecution repositioning can be considered the same.
A useful patent strategy still needs to have real market applicable patents that can be used to at least defend, license, or enforce. In-prosecution repositioning will build on the IP Audit (Step 1) and budgeting (Step 2) outcomes, and when mixed with IP operational updates (Step 3) will help focus in a cost efficient manner a portfolio for relevant commercial use by the business.
For firms in tough economic times this approach can not only help rightsize the portfolio for today but also ensure the protected technology scope matches with company needs in the future. The end result has the potential to be a focused patent portfolio with higher intangible value and lower cost to prosecute and maintain.
Up next in Part 5, applying IP audit, budgeting, and operations thinking into portfolio repositioning so business risk through contractual reviews can be properly assessed.
This is Part 3 of a 8 step series on how SME’s can strategically manage IP during economic events.
The key to successfully making large IP operational changes is rooted in understanding your IP talent, specifically understating all “IP supporting” roles in the company that interact with IP assets – from R&D, management, finance, to human resources, investors, and IP teams.
Successful IP operational changes are much more about changing a process or mandating a lower budget spend …
Innovation outputs are undoubtedly coupled to Intellectual Property (IP), but what happens to the IP when the innovation environment shifts? As a firms outputs grow or contract, should the IP shift in parallel, or is it stand-alone enough to warrant separate considerations? How can firms implement a standardized budget reduction for costs savings, say 30%, knowing the innovation cycle can be paused but the associated IP costs such as maintenance fees may still remain?
These are questions that firms should be considering if the firm itself is going under transformation, or even an IP operational shift needs to happen – impacts of changes on intangible assets need to be considered. But to ensure continuity of an IP portfolio or effective operational changes to a portfolio, one critical consideration is the breadth of talent that should be involved in large IP operations changes. In short, firms need to understand the talent or “IP culture” overlap that is typically connected in various other roles: Human resources, R&D teams, finance, investors, etc.
A first perspective – IP support at an operational level
For example, consider a typical firm that has a simple portfolio management process laid over top of an innovation cycle, where 1) IP is created, 2) IP actions decided on, and then 3) business (IP asset) outputs are generated.
As seen in the figure below there is overlap in the entire process by R&D, management, finance, contractual or funding support teams, human resources, marketing or investor executives, and finally legal or IP executives.
For a firm pausing or winding down innovation programs: the management decisions of portfolio or maintenance questions still require discussion. For a firm downsizing R&D or other talent groups: there is know-how or institutional knowledge that may be lost. In all these cases, if IP talent is overlaid with the innovation cycle one can begin to see the reaches IP changes have with various roles and responsibilities.
As one may realize, despite a shift in innovation programs or even a shift in operational direction, some IP may be shifted in parallel yet other IP assets may be worthy of separate considerations. This highlights that any large firm change which impacts IP operations or actual intangible assets really needs considered beyond a narrow “IP only” mindset. This is key because this mindset will ensure any IP changes are done with the larger firms team weighing in on the larger firm-wide impact of changes. For example:
- Are you downsizing? Human resources need to ensure exiting or incoming employees have interviews to ensure departing employees are aware of trade secret obligations and incoming employees are not bringing IP (a topic seemingly in the news when it comes to Autonomous Vehicles, as seen by Uber/Waymo/Google and Tesla/Zoox).
- Are innovation or research projects put on hold? IP or internal R&D teams reducing staff need to ensure institutional knowledge on IP files are codified, so management decisions and future product protection can be revived efficiently in the future.
- Is there a blanket cost reduction request? Leadership or finance teams implementing cost cutting measures need to consider IP cuts differently, perhaps not a fixed cut as a goal but more from the view of which core IP vs non-core IP reduction to move forward with and seeing how that decision impacts the firm in the future. Once IP is given up, the innovation programs can be restarted but not always with the IP to support it.
A second perspective – IP support by talent interaction
One needs to also consider roles outside the organization, more specifically talent that interact with an IP team to help manage and grow the IP assets.
An analysis of high-growth SME’s who had strong IP positions revealed at least 12 different roles interacted to support the IP assets, yet typical businesses only engaged approximately 3-4 of the roles in a typical IP program. Those that did consider IP from a strategic view often included a mix of external and internal roles that one would normally consider: IP attorney or agents, IP based analysts, IP strategists, licensing executives, etc, but also included influences by other talents on financing / funding, as well as board or investor level interaction.
Why is this important for strategic management of assets? Discussing or implementing large shifts in IP operations due to economic events with these roles will undoubtedly provide myriad of views and impacts to consider, and give the IP team a clear understanding of impacts due to change. At the very least, engaging this wider list of talent can be used as a sounding board to query on how intangible asset changes will impact their current mandates (and ability to achieve future mandates!).
Preparing for IP right-sizing or IP asset growth may be seen as an operational exercise: Reduce patent filings, abandon un-used registered trademarks, or even just hold or slow on innovation delivery. However, intangibles are often an asset class that has a long life if maintained and managed correctly, yet just as easily “walk out the door” with a key employee.
While an IP team is traditionally the operational owner of the intangibles, there are numerous traditional business and operational roles that need engaged to make any successful and lasting operational change. For a firm to strategically manage IP during economic events, engaging to understand impacts and gather different perspectives will enable the IP team to see the impact of potential changes and adjust the plans as needed. Even for a SME, if these roles are a single person with multiple responsibilities, it still will allow for discussion around deep IP changes and the short / long term impacts it may have in the overall organization.
If a firm has conducted an IP audit (Step 1), prioritized assets through budgeting (Step 2), working to understand the global talent pool that supports the core and non-core IP assets will provide insight into where IP operational changes can be made with minimal impact and maximum cost. Likewise it will help flag operational inefficiencies as well as clear “high risk zones” to continue supporting through any economic event. The end result will be the ability to make large operational shifts while understanding the full impact to the organization and, more importantly, understand more clearly where the intangible assets and value will be in the future.
Up next in Part 4, applying IP audit, budgeting, and operations thinking into portfolio repositioning.
This is Part 2 of a 8 step series on how SME’s can strategically manage IP during economic events.
A 2020 study from IP analytics firm Aistemos and IAM magazine noted businesses spend $40B on annual portfolio maintenance, but only 19% of firms believe they have the right portfolio. For many firms having difficult times, an IP budget is often one line item to be scrutinized – and given the majority of companies not having the correct optimization, it is clear this is one area to focus on.
Step 2: IP Budgeting
In order to maximize value while ensuring cost control through budgeting it is critical for any firm to have a detailed view of their IP assets first, which can be done via an IP Audit (Step 1). Once an detailed IP asset view is understood, budgeting can be done with a much deeper insight into which assets to continue to support, and which can be scrutinized in more detail.
There are at least 2 IP budgeting exercises for a firm to consider implementing: Budget by time, and foreign filing budgeting. A SME experiencing cash flow constraints can apply these exercises to their portfolios to enable c-suite business discussions on where to continue IP funding, where flexibility exists, and where potential IP cash generation exists in divestment or licensing opportunities.
Budget by Time: Reviewing and planning IP budgets should be considered against multiple time frames. For patents, it is recommended to approach budgeting in a 3, 6, 12, and 18 month time frame, or at least 5 business quarters. This allows for planning and decision making for a longer R&D cycle (new patents), as well as patents in prosecution (upcoming and expected foreign filing decisions). As well, budget items need overlaid with the “IP Asset priority” that was categorized in the earlier IP Audit. Using patents as an example, the combination of the IP Audit priority groups laid over this extended timeline provide a detailed picture with respect to the following costs:
In this example, a SME with a annual $85,000 patent budget can reduce “Core IP” costs to under 50%, but this reduction is done with a longer term understanding of where expenses will arise, and where reductions can occur. For C-suite discussions the Budget x Audit table demonstrates where costs are critical to still fund, where flexibility exists in reducing fees, or where potential capital generation exists in divestment opportunities.
Foreign Filing: In addition to budgeting by time, foreign filings should be budgeted for from the perspective of country decisions on at least a 12-18 month cycle. In practice, making decisions on an ad-hoc basis as PCT or nationalization extensions arise over a 12 month cycle may put a company in the position where non-core patent extensions are approved early on in the year and core patent extensions at the end of the year are not actioned due to cost considerations. However, having foreign filing decisions, such as PCT decisions, done in this longer time frame allows insight into critical foreign extensions that will require budget allocation in the future.
Other IP Assets
Registered IP: The above example is specific to patents, but the same approach can be applied to trademarks and other registered assets.
Non-registered IP: Other IP, such as data sets or specific trade secrets identified during the IP Audit should also be flagged during an IP budget review to ensure resources on protecting these assets are still maintained. For example, SME’s with a heavy emphasis on trade secrets as their Core IP need to ensure overall budget changes in the SME that have an impact on staffing reduction are flagged to the C-suite. This will ensure appropriate actions are taken to ensure maintenance of the trade secret (i.e., staff reduction may require now a transfer of know-how before key staff leave, or review of exit interview processes to ensure departing employees are aware of their trade secret and IP obligations). The recent high profile trade secret theft by a Google employee as he moved to Uber highlights the importance of managing and monitoring trade secrets during employee departures.
SMEs will need to ensure IP assets that do not typically appear on a budget sheet as a cost are still considered so steps can be taken to ensure IP rights are managed and maintained.
If almost 80% of firms do not feel they have the right portfolio size, this highlights there is tremendous opportunity to right-size a budget to focus on corporate value.
For those SME’s not experiencing cash flow issues this exercise provides a way to streamline budgets and ensure they are focusing on efficient use of funds.
For SME’s experiencing short term cash flow issues can utilize this approach to understand which critical assets need maintained, which may be optional to consider divesting or abandonment, and which have expenses that can be deferred for a later quarter.
Up next in Part 3, applying IP audit and IP budgeting to streamline IP operations (both IP talent and operational resources)
In uncertain times – either for a business or an economy as a whole, finance and cash flow management is a critical aspect to ensure sustainability of the business both in the short and long term. For SME’s holding or needing to support their IP (patents, trademarks, etc), it is even more critical as working capital is required for ongoing IP related costs as well as continued investment to ensure future rights are still available once these difficult times have been weathered.
But what are the tangible points SME’s can consider today? We would encourage SME’s to consider taking the following steps to begin preparing for any economic event (black swan or otherwise).
Step 1: IP audits – Prioritization matrix of assets (patents, trade secrets, trademarks). Seek to answer “What assets do we have, and how do we prioritize and manage them efficiently for maximum benefit? What is our IP inventory to use?”
Step 2: IP budgeting – At least a 3, 6, and 18 month budget laid over the audit output. Seek to answer “What are my cash flow considerations, and business impacts on our ability to retain and continue to invest in IP over time?”
Step 3: IP operations & talent impacts – preparing for right-sizing also means ensuring operational IP knowledge is transferred, and exit-interviews need to be conducted to ensure departing employees are aware of their trade secret obligations. Seek to answer: “Are we able to ensure continuity of portfolio management? Do we have IP policies in place to limit or prevent trade secret theft?”
Step 4: prosecution repositioning – Specific to patents, ongoing prosecution status needs reviewed. Seek to answer “For my ongoing applications, does the claim scope and specification still meet our projected future market needs? Are there wider specifications we can add to the IP Audit list to flag for future low cost divisional as part of a cost efficient strategy to continue our portfolio?”
Step 5: contractual reviews – Joint developments, in-licensing, and out-licensing of technology may come with IP rights, requirements, and restrictions. Seek to answer “What are both our businesses and our partner’s contractual obligations with respect to IP? What heightened risks or opportunities does this raise for our business?”
Step 6: outside counsel – Many SME’s may rely on outside counsel for SME support, and should reach out for specific advice and options available to them on the changing landscape, relative to their position. Seek to answer “For our business and our existing IP plans, what can be delayed and deferred using traditional patent office extensions, and what is critical that will prompt loss of rights? What other IP obligations do we need to consider? How can we be creative with our IP to fit this new world?”
Step 7: Updated IP strategy – A full reconsideration and update of the SMEs IP strategy to create a “wartime IP plan” will be critical. Cost and time spent today will be planning that will reap benefits in the future. This strategy should take into account divestiture or abandonment plans, or other portfolio shifts that need to happen in the short term.
Step 8: Asset Leveraging – For many firms there are untapped intangible assets to leverage. With the above steps considered, now is the time to actively manage these assets to see if the potential value can be realized.
In this post I will detail out considerations in “Step 1 IP Audit”, with the remaining points to follow in the coming days.
Step 1: IP Audits
IP Audits: Moving to a triage mode, it will be critical to know what IP assets exist, and be able to prioritize core needs for the business. To accomplish this, SME’s intellectual assets could be categorized into virtual levels or groups. One example is as follows:
- Level 1 Core: IP is critical to the SME’s position to today to maintain its business, both now and post-event. This includes considering IP required for contractual obligations that may be present in license agreements or joint development agreements. Note that a patent family may be spit up in this categorization, such as considering your local jurisdiction as “Level 1 Core” regardless of the patent to ensure local Freedom to Operate is retained.
- Level 2 Core: IP is critical to the SME, but may have factors that impart flexibility in the assessment. This may include “Level 1 Core” patents but would be family members held in a foreign jurisdiction that has lower current and future value, or highly narrow patents that have limited legal and lower business strength.
- Level 3 Non-Core: IP is considered secondary to the businesses success. This may include patents covering non-core or low-volume product lines, or even smaller jurisdictions of future value for the SME even if the technology is considered “core”
- Level 4 Divest: IP considered of value to the market, but little or no value to the SME’s short or long term plans and thus would have out-licence or divestiture value. This may include older innovations the SME has evolved or shifted from, yet the IP remains intact.
- Level 5 Abandon: IP considered if little or no value to the market or the business, or has value but abandoned with intent to ensure others cannot patent the same invention (prior art creation).
Factors in categorization of IP are not always available to give a clear, binary score to each asset. Example factors related to patents to consider may include:
- Contractual rights: Are the patents linked to contractual obligations?
- Strategic intent: is it defensive to retain FTO, offensive for competitive blocking, or a strategically crafted to enable coverage if the market needs shift? Will this patent be needed to defend or enforce against a large competitor who has the capital to weather any economic storm?
- Competitive needs: If competitors are undergoing the same challenges, does the patent still hold the same value for the market?
- Foreign costs: foreign filings and translations can be exponentially expensive, so is there high-cost jurisdictions that do not have the same ROI as others? How does time change this assessment?
- Strength: Not all patents are granted equally. Are the claims very narrow or do the claims have low detectability, and thus legally would be costly to enforce or show infringement? Each SME should have its own internal definition of “patent strength” to enable this factor.
- Use case: What is the use case of the patent, and does it meet the need? Was the asset created to block a specific business, protect core product, or hold future rights for a long term innovation plan? Does this use case still exist, or has it shifted? Is there license opportunity either now or in the future?
- Bundled rights: Is this patent linked with other rights that can be prioritized, including trademarks and trade secrets? This is critical because it allows a SME to consider how a technology or innovation is protected as a whole, and enables better decisions on priority. For example, an core innovation covered by both a trade secret and a patent gives more flexibility to consider divestment of the patent due to lack of funds, than an innovation protected by “1 patent only”.
It will take time and talent, and needs done with at least three complementary views supporting the audit: Business, Technical, and Legal. It is critical that these three views are involved as they will ensure the quality of the asset is considered. For example, a “core” innovation may have business and technical value, but if the legal assessment is weak (meaning for example the patent could be easily worked around) this needs considered. When working capital is short, an IP team or SME needs to be able to identify strong as well as weak IP to help refine the priority list.
For SME’s the output of an IP audit should be a clear picture of rights relative to the organizational goals. A matrix style approach to priority allows a SME to being running scenarios on budget changes (increases, decrease, status quo) as well as market shifts (where to increase efforts, or decrease efforts). If structured successfully this may be embedded into the overall SME’s strategic planning cycles and provide an efficient way of discussing IP impacts with the C-suite.
If an SME’s assets are bundled into one single list, the risks of abandoning a strategic asset is high, as is the risk of missing an opportunity to capitalize on. In summary, an IP audit will help an SME move their IP towards a strategically managed asset that can be shaped based on external market forces or internal cost considerations.
Up next in Part 2, applying IP budgeting to the IP Audit matrix…