How SME’s can strategically manage IP during economic events (Step 1)
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…