improving innovation roi using early stage patent expertise

8/13/2019 Improving Innovation ROI Using Early Stage Patent Expertise

1/10


2/102 Feature article #3-2010 brought to you by InnovationManagement, Ymer&Partners AB All rights reserved. To order please visit www.imstore.se.

KNOWLEDGE IN PRACTICEThe innovation team of a consumer packaged goods (CPG) company undertook a

preliminary assessment of an opportunity that would require signicant (> $75 Million U.S.)investment and substantial change in business focus. The team understood that patent issuescould be highly inuential to any long-term ROI. They therefore asked their corporate patentcounsel, an unusually business-savvy lawyer, to perform an early-stage assessment of patentsexisting in the general technology areas of the proposed product. The counsel reviewed rel-evant patent data to assess whether the company could gain patent rights to the new productof sufficient breadth to justify the innovation investment and whether it appeared likely that patent infringement liability could occur when the product entered the market.

At the time of the review, no product had been developed; rather, the patent counselsreview dealt only with a general description of the proposed product innovation, which al-lowed the patent counsel to provide only directional information regarding potential patentownership and risk. The review showed that, given the number of patents owned by othersin the vicinity of the innovation opportunity, it was highly doubtful that the company couldobtain patent rights of broad enough scope to prevent others from directly competing andthat patent infringement liability would likely occur if development was pursued as planned.Largely as a result of the patent assessment, the innovation team decided not to pursue thenew product opportunity due to the likelihood that the desired ROI from the investment couldbe readily obtained.

EXECUTIVE SUMMARYInnovation teams are often removed organizationally from a companys patent

matters. This can mean that corporate innovation processes move forward with little or noconsideration of whether competitors can legally knock off the resulting consumer offering.Companies may then not attain expected ROI because competitors can legally copy theinnovationbe it a product, technology or otherwisewithout incurring legal liability.

It may not always be necessary to protect innovation efforts with patents, such as wherea product has a short shelf-life or where the company may desire to maintain trade secret protection for the technology. However, for innovation endeavors where go-forward nancialmodels assume exclusivity, companies often require patent protection. Also, the absence of patent insights at an early stage frequently means that innovations are not properly scopedfor potential infringement risk until signicant efforts are expended, a fact which can furtherlimit innovation ROI.

It follows that companies can realize nancial benets by including patent informationat an early stage. A key to successful inclusion of patent information in early stage innovation processes is the realization that not all patent experts can operate in this environment andthat corporate leadership must competently manage the situation. Nonetheless, companiesthat effectively include business-focused patent counsel on innovation teams can improve theability to obtain innovations protected by patents as well as reducing legal risks to improveROI.


3/10 3

Improving Innovation ROI with Early Stage Patent Expertise

Feature article #3-2010 brought to you by InnovationManagement, Ymer&Partners AB All rights reserved. To order please visit www.imstore.se.

ABOUT THE AUTHOR

JACKIE HUTTER, MS, JD

Jackie Hutter is one of the pioneering ranks of Intellectual Property(IP) Strategists. She is Chief IP Strategist of The Hutter Group LLC,a consultancy providing IP-related business and investment counselingto innovation-driven organizations of all sizes that seek to maximizetheir greatest assetintangible assets. She has over 15 years experiencecounseling all types and sizes of organizations in all facets of IP creation,protection and enforcement. Jackie was named one of the 250 top IPStrategists in the world by Intellectual Asset Management magazine for2009 and 2010. Jackie was named a SuperLawyer in IP in Georgia in2004, and she is a frequent speaker on IP strategy. Jackie was previouslySenior Counsel at a multi-national corporation and a partner at a well-known Atlanta, GA law rm.

Innovation requires substantial corporate resourceinvestment. Moreover, decisions made regardinginnovation typically dene a companys direction,by way of products, technology, business processesand otherwise, for the foreseeable future. Manymanagers now realize the importance of innovationand have modied, or even revolutionized, theirmanagement processes. However, few of thesemanagers have made comparable modicationsto how they address patent matters. The failure torethink how they integrateor more precisely: failto integratepatents into their processes means thatthey are likely limiting their ability to fully capitalizeon innovation investments.

OLD MODELCorporations traditionally viewed patents asprimarily R&D and legal functions. While business

teams certainly provided input into patent decisions,such involvement was typically minimal, at best.

Such siloing resulted in patents being too narrowto effectively prevent competitors from knocking-off a successful consumer offering. The absence ofpatent expertise from business decisions also resultedin surprises when the company discovered that itsconsumer offerings infringed third party patents.For many companies, this standard model of patentcounseling made it difcult, or even impossible, toattain the desired ROI on innovation processes.

NEW MODELToday, forward-thinking managers increasinglyrealize that patent issues permeate innovationdecision-making and therefore must be consideredat an early stage. These organizations introducecorporate patent experts into the front end of theirinnovation processes. These experts can then providereal-time counseling as the innovation team identies

and validates new product and technology ideas forinclusion into the companys consumer offerings.

Improving InnovationROI with Early StagePatent Expertise


4/10


4 Feature article #3-2010 brought to you by InnovationManagement, Ymer&Partners AB All rights reserved. To order please visit www.imstore.se.

VALUE PROPOSITIONBy including patents as a component of informationgathering at the earliest stages, a company canbetter ensure that a new product or technologywill provide the durable competitive advantageneeded to validate innovation investment. That is,for one or more innovation pathways, patent datacan provide insights into whether the companyis likely to obtain patent rights of a broad enoughscope to prevent competitors from legally playing

in the same market space. Incorporation of patentinformation at the early stages also provides a signalof whether one or more innovation pathways arelikely to lead to costs and business uncertaintiesresulting from patent litigation, both of which will

make it difcult or impossible to fully capitalize oninnovation investment. Put simply, incorporation ofpatent insights into go-forward nancial models canimprove the probability that a company will achievethe expected ROI on its innovation.

PATENTS AS SOURCES OFINNOVATION DATAA primary way to introduce patents into the frontend of innovation processes is to utilize patent

information, also called patent landscapingor patent analytics, as a source of data used indecision-making. As shown in Figure 1, the numberof U.S. patent lings has increased dramatically inrecent years and, as a result, a wealth of competitive

0

50

100

150

200

250

300

350

400

450

500

1965 19 0 19 5 1980 1985 1990 1995 2000 2005

T h o u s a n

d s

Patents Applica7onsPatents

Applications

FIGURE 1: U.S. patent lings from 1965-2008. Source: U.S. Patent Ofce.


5/10


5Feature article #3-2010 brought to you by InnovationManagement, Ymer&Partners AB All rights reserved. To order please visit www.imstore.se.

data is hiding in plain sight. The specics of theselection and use of patent data are beyond thescope of this article, however, it will be useful todiscuss why such information can provide signicantinsights at the early stage of innovation processes.

Patent information, which includes both issuedpatents and published patent applications, comprisetwo substantive sources of information:

1. technical details as required by applicable law;and

2. the specic property right(s) owned (or soughtto be owned) by the patent ler as set forth inthe claims. (See Figure 2.) FIGURE 2: The relevant parts of a patent document.

The technical data in patents can generally beviewed as the neighborhood in which othershave previously developed innovations considered

signicant enough (at least in the eyes of the patentlers decision-makers) to merit the effort andexpense of seeking patent protection. Similarly, theclaims of a patent conform to the specic propertyboundaries that the patent ler sought to own. Boththe disclosure and claims can provide relevant andactionable insights for innovators, most notablywhether sufcient space exists for someone else toobtain patent rights and whether someone else alreadyowns rights to a certain product or technology.

For many innovation projects, the number of patentsidentied as potentially relevant may be quite large,especially when the early stage idea deals with broadconcepts, as opposed focusing on a specic productor technology idea. Analyzing a large number ofpatents can add signicantly to the cost of early stageinnovation assessment, and the typically-uid natureof the project can make it difcult to develop anaccurate opinion about the actual risks each patentwill pose in the nal consumer offering. Fortunately,

a number of patent data collection and analysisproducts have entered the market in recent years thatcan help streamline the process.

However, innovation teams should not embrace anycommercial patent information product withoutvalidating the methodology used by the vender, as

many of these products are based upon awed datacollection and analysis techniques. Use of faultyinsights extracted from such products will invariablylead to the innovation team making incorrectassessments that could cause them to focus theirefforts in the wrong direction.

One way to avoid selecting a awed product is forthe team to work with a patent expert in validatingthe methodology, such as by conducting an analysisfor a product or technology in which the generalresult of the patent landscape is already known.Notwithstanding the costs and risks associated withincorporating patent information into early stageinnovation processes, as shown below, the rewardsof doing so can be signicant.

CASE STUDY OF PATENT USEA CPG company successfully incorporated patentinformation into the front end of its innovationprocesses to decide that pre-existing third party

patent rights likely prevented the desired ROI on itsinnovation investment and that it therefore did notmake nancial sense to proceed with a new green

Disclosure

TechnicalInformation

ClaimsOwnership

interest

PatentDocument


6/10



product. The total corporate investment estimatedfor effective technology development, infrastructureimprovements and product launch was at least $75Million U.S., and it was expected that the productwould serve as a platform for future innovation andgrowth.

Recognizing the need for awless execution of thisexpensive, but potentially game-changing, projectthe innovation team integrated their corporate

patent counsel into decision-making. This corporatepatent counsel, who was an unusually business-savvy attorney, conducted a detailed analysis of therelevant patents at the same time the innovation teamwas collecting more traditional innovation metricsfor us in the preliminary go-forward decision.

By including patent information in the front end,the innovation team was able to conclude that thegreen product did not constitute a good businessrisk. Specically, the presence of third party patents

in the vicinity of the likely innovation pathwaysmade it doubtful that any resulting product wouldallow patent rights to be obtained of suitable scopeto effectively prevent competitors from introducinga product that the consumer found equally desirable.

This fact alone substantially reduced the probablelong-term competitive advantage resulting from theinnovation investment. It was also highly likely thatthe resulting product would incorporate technology

owned by third parties, which made it likely that theCPG company would need to obtain one or morepatent licenses and/or the company might be suedfor patent infringement.

While patent information did not serve as the solebasis for pulling the plug on the new green product,the infringement risk and low ownership potentialidentied by the patent counsel was instrumental inthe teams decision to invest its innovation resourceselsewhere.

PICKING THE RIGHT TEAMCritical to the CPG companys ability to bring patentinformation into the front end of the process was thefact that its patent counsel was able to communicateeffectively with the innovation team and vice versa.In other words, the patent counsel got innovationand understood how to work in the often ambiguousarea of early stage product development. This is notalways the case, however.

Why can it be so hard for patent counsel to adjustto the world of innovation? The short answer is thatpatent counsel, and lawyers in general, are rewardedby proper management of risk. But, innovation,

especially at the earliest stages, is inherently risky.This means that when faced with a risk-ladensituation, many attorneys will naturally react to stop

the activity perceived to create risk and be oppositeto their incentives. They may thus perceive theirroll as a trafc cop to stop activity that mightconceivably cause risk. This positioning is counter-productive to any innovation process and havingsuch a risk-adverse person in a decision-makingcapacity is no doubt undesirable.

To obtain the benets of including patent data ininnovation processes, the patent expert includedon the team must possess a personality that can setout guard rails within which the company shouldmaintain their innovation activities. As long as thebusiness team stays within this specied range,

risks can be managed and potential opportunitiesmaximized.

Managerial implications


7/10



Guidelines for Including Patent Expertsin Front End of Innovation Processes

Businessleaders must

makeultimate call

regardinginnovationpathways

Align patentexpert

incentiveswith

innovation,not just riskmitigationand costcontrol

Realize thatnot all

lawyers willoperate well

in theinnovation

space

Considerintroducing

patent expertsinto formal businessreportingstructure

Recognizethat costs

may initiallyincrease when

addressingpatent

matters earlyin innovation

process

FIGURE 3: Steps for successfully including patents in corporate innovation processes.

With regard to successfully integrating corporatepatent experts into the innovation realm, Figure 3provides further guidance to the reader. Specically,it is critical to recognize that even though the patentexpert functions as a member of the corporateinnovation team, the business team shouldnonetheless retain decision rights as to whether toproceed in a particular innovation pathway.

If decisions do not reside with the business team, it is

likely that the inherently conservative nature of manypatent counsel could reduce the overall effectivenessof the innovation processes. The corporate patentexpert should also be rewarded for providing advicethat may amount to no more than an educatedguess, as opposed to the dotting the Is andcrossing the ts type of advice that most legallytrained people are more comfortable in providing.

Further, those who make the organizationalmanagement calls should recognize that not all

patent experts will function comfortably andeffectively in the ambiguity of innovation processes,and that the company may need to go outside to ndthe appropriate patent expert to play well withtheir innovation team. Some companies have seensuccess when they introduce their corporate patentcounsel into the formal reporting structure of thebusiness, as opposed to having lawyers reportingintoand being incentivized bycorporate legalmanagement.

Lastly, the ambiguity of early stage innovationprocesses typically gives rise to less discrete questionsand, as such, more complex analysis which, in turn,will likely result in higher costs than the company isused to paying for patent-related advice. Corporatedecision-makers must therefore be willing to absorbthis cost increase in exchange for the opportunityto generate markedly improved ROI on theirinnovation investment.


8/10



Corporate patent counsel do not traditionallyparticipate in the early stages of the innovationprocesses. Rather, they typically become involvedto provide legal guidance only when a consumeroffering has been generated and is headed forinternal development to be followed by marketintroduction; . This can lead to several issuesregarding expectations relating to the team members

roles and responsibilities:

1. Management must realize that front-endpatent counseling cannot fully prevent patentinfringement risk because the actual consumeroffering has not yet been identied. Patentclearance efforts must therefore be conductedon an ongoing basis to ensure that the nalconsumer offering is free of patent infringementliability.

2. Innovation professionals must acceptresponsibility for including corporate patentcounsel on their teams. This is a paradigm shift

at many companies, and may require personnelthat do not normally play well together tobecome part of a cohesive team. Additionally,to enable them to competently address patentissues, innovation professionals must beprepared to obtain at least a working knowledgeof relevant patent principles.

3. Corporate patent counsel must be able toreorient their counseling to provide directional--as opposed to absolute--advice regardinginfringement and patentability. In other words,they must view their role not as trafc cops,but as placing guardrails along the innovationpathway within which the innovation teams cansafely operate.

4. Legal costs will necessarily increase when patentissues are addressed on an ongoing basis in

innovation processes, as opposed to the typicalsituation where they comprise discrete taskshaving predictable budgeting events.

Organizations that substantively include patentmatters in the front end can markedly improve thereturn on their innovation investment. Specically,by determining at an early stage whether productslikely to result from innovation efforts can beeffectively protected from competition and thatthey will not likely infringe existing patent rights,

innovation teams can develop a more reneddecision-making process when selecting potentialinnovation pathways. Care must be taken, however,to ensure that the appropriate processes are putin place to allow innovation processes to operateappropriately after the addition of a patent expertto the team.

Lessons learned

Concluding remarks


9/10


9Feature article #3-2010 brought to you by InnovationManagement, Ymer&Partners AB All rights reserved. To order please visit www.imstore.se.

Further readingSuggestions of further reading to help the interested reader explore the presented knowledge further.

For more information on how patent expertise can enhance the ROI ofinnovation processes, business professionals should consult:

The Invisible Edge: Taking Your Strategy to the Next Level Using IntellectualProperty, Mark Blaxill and Ralph Eckardt (Portfolio, 2009).


10/10

To order please visitwww.InnoavationManagement.se

For general enquiries, please send us an e-mail:[email protected]

The number one online magazine for innovation management practioners

retweet

improving innovation roi using early stage patent expertise

Documents