Black Swan events and IP: Managing today’s IP policies and IP strategies for tomorrow’s dawn
Given the recent developments due to the pandemic, including the unprecedented challenges companies will surely face in the coming months and years, the are are considerable IP based implications for innovation and stimulus policy makers, companies, and IP owners to start to act on.
In the short term, we can see the IP shifting in the market in the following ways – with the needs diverging between companies impacted negatively by Covid-19 related slowdowns and those “doubling down” as the work to carve out solutions for global need.
There are at least 4 key topics that will emerge for all firms to start to consider – both offering challenges and opportunists depending on the path taken:
1) Cash flow challenges:
Organizations facing liquidity issues often sell IP well below market value, or fully abandon their IP, with historical and well-publicized bankruptcy IP sales seeing over 80% discounts on expected portfolio values. With cash flow becoming a challenge for some firms, the IP on the open market may only increase with the possibility of lower pricing to come for some portfolios. For companies facing bankruptcy and potential liquidation of assets there is the real threat that the assets will be sold at a high discount, leaving Freedom to Operate control in the hands of competitive ventures or larger market players with the capital to acquire assets for future market control.
Who will come out on top?
- First, for firms that need to liquidate patents, it will be those working out creative solutions for asset backed lending to keep the portfolios and their ability to control them intact. Even post-bankruptcy the ability to re-start in the future and having the intangible asset to support a new emergence will be key.
- Second, firms with available capital to acquire and hold can now move to increase or restructure their future IP positions for a fraction of the cost. IAM’s recent editorial writeup notes “Novel ways of using IP will emerge as well. Individuals and firms who know IP backwards and how it fits into the reconfiguring business environment will find them.“
2) Resource allocation:
Companies planning to survive and grow need to be vigilant of their short term finances and any return on investment and may move to reduce IP budgets or abandon patents or even reduce IP jobs to control costs. Unfortunately, patents are often a costly item that may only be seen to pay dividends 3-5 years in the future and thus may be deferred in favor of today’s finance needs.
Who will come out on top?
- Companies that have a robust IP strategy that takes into account how to spend less but still create or retain intangible value over the long period. While access to continued capital for maintenance of patent portfolios will be important, those that understand which areas of the portfolio to “double down on” and which to divest or abandon that may only have secondary value will be much better position on balancing short term finance needs against long term value retention.
- Likewise, those that have “IP thinking” embedded into key management roles (R&D, Finance, Marketing) will ensure continuity of an IP plan should talent need adjusted. Past investments in IP education for management will payoff today.
- Finally, while some firms cut back on IP it will be those that continue IP investments where possible who will widen the “IP gap” between themselves and market competitors – and do so with the same level of planned investment. Going forward this is an unprecedented opportunity to take advantage of.
3) Market vertical adaptation
Many firms are now seeing a shift to support the short term global needs such as medical or health-technology. In addition, there will be many complementary technologies evolving outside the immediate health-tech area will evolve in the longer term, such as water purification or air filtering technology, due to the potential increase in the compromised health of all global citizens.
Who will come out on top?
- Firms who have spent time building IP portfolios that are broad enough to shift to cover adjacent verticals will be in a strong position. The can begin to leverage their internal skills to not only shift to the market need, but do so knowing their medium and longer term IP position has some level of coverage to protect the investment.
- Second it will be firms who begin to adapt now to todays market needs but also move in parallel to ensure the have Freedom to Operate, with particular attention spent on acquiring lower cost competitive portfolios to build their IP position at a low cost (see point #1 above).
- Firms that work in a collaborative manner (i.e., via a Patent Collective) to develop pooling agreements to reduce the FTO restrictions on their respective teams and enable faster co-development for market ready products. This may already be underway in some areas as the WHO has already been asked to create a voluntary IP pool to develop Covid-19 products, and we are certain some individual Governments are moving to support the same approach within their own borders.
4) Licensing and technology investment approaches
Many firms who in-license technology may already have licensing terms that dictate the requirements of the IP owner to maintain or work to enforce patents – both that require active cash flow from the licensor – meaning if the licensor is unable to meet the terms due to financial difficulty then portions (or all) of the agreement may become void. Similarly, those who rely on out-licensing may also have minimum requirements to be held up by the licensor for them to maintain their geographic or other exclusive rights. Co-development of R&D projects may be contingent on background IP, as well as shared allocations of foreground IP based on continued investment.
Who will come out on top?
- Firms who are reviewing IP clauses of existing contracts to ensure they will not be in breach based on failure to maintain minimum payments, levels of agreed on asset maintenance, or other IP based triggers that will put them at a competitive advantage or disadvantage or the coming months and years.
- In addition investment firms who have considered IP assets as collateral may be in the strongest position to retain and control key assets of the firm if it goes under financial challenges, and likewise those that begin to request IP as collateral going forward will be in a stronger position.
The seismic shift of world economy has been best summed up in 1 tweet, as quoted by Paul Graham earlier yesterday: “A week is the new year”
“A week is the new year.”
— Paul Buchheit on how fast biotech startups are working on Covid-19
— Paul Graham (@paulg) March 24, 2020
For many firms successful short term management of challenges today is key but IP may be the cornerstone that also enables them to succeed or fail tomorrow. And as a “week is the new year”, things will only move faster than before.
A recent editorial by IAM Media’s Joff Wild does provide an optimistic view of “This, too, shall pass…” but at least in the short term the successful firms and IP strategist will be those who advocate, explain, and demonstrate the central role IP can play in developing IP strategies for this new world.
Policy makers need to consider the IP implications of medium and long term innovation investments, realizing that now is the time to ensure innovation is coupled with IP support and specific IP investments. This will ensure firms will be supported well beyond the economic situation we see today. Likewise companies and IP owners need to work to ensure strategic IP positions are managed appropriately (cost control, divested when necessary, re-positioned and refunded when required, or contractually supported), and assessed from the view of both a short term and long term position.
While innovation is needed for today, now is the time for firms and policy makers (corporate and governmental alike) to use this disruption to their advantage and ensure economic prosperity that grows well beyond these troubled times.
Up next post we’ll outline the challenges specific to SME’s, and how they can start to assess and make tangible moves to address IP risks and opportunities today.