7 Using IP to make money with technical innovations
7.1 Introduction
In this chapter we will discuss the topic of strategic management and use of industrial property rights in companies. Copyrights do not belong to the industrial property rights, but they deserve a specific place in companies.
Here it is also important to distinguish ideas from inventions and innovations as they are often used throughout or amongst one another. We presented a working definition of inventions in Inventions. While some ideas about new products and services may lead to new research and development and further product development and hence towards inventions, most of them will not be used in the process of innovation management. As such those ideas will not be translated into inventions incorporated into to valuable innovations in certain sectors of industry. Because, on the other hand an innovation is most often regarded as a new and tangible product or service which can be bought by customers in the market place thus creating economic growth.
In the next section we describe a number of common steps in a company’s innovation process as the basis for the use of IP. In the following sections the use and exploitation of IP rights is discussed in the various steps throughout the innovation process.
7.2 Innovation process
Often innovation is a time and resources consuming process going through various phases from first idea, prototyping, validation to market entry of an novel product or process. Throughout that innovation process information about IP can be used in multiple ways. In figure 20 this innovation process is schematically pictured.
Many companies start their innovation process by assigning market intelligence to one or more specialists. A state of the art research and necessary steps for product development may require significant time and resources depending on the sector of industry. For long term projects a company can decide to cooperate with a university for example for research ends working with scientists and PhD students. The goal of this phase in product development can be to ascertain proof of concept and bringing an idea for a novel product to the next stage.
At the development stage the product will be shaped towards the final version, although the manufacturing process at full scale is not yet determined. Since experts and engineers from various disciplines are involved in this stage, it can be time consuming and expensive.
Next, decisions about the output level of production and the layout of the factory have to be made during the production preparation phase before the start of a manufacturing process. Costs will usually depend on both the final product and sector of industry. For example building a construction plant for new cars can require initial investments of billions of euros.
Although marketing and sales do not seem a logical next step in an innovation process, they are of key importance. A successful market entry of new products will depend on sales to customers, thereby assuring that all investments and expenditures made earlier (like research and development, production engineering and marketing) will be earned back.
Only the sales of the product generate revenues!
All steps in the innovation process prior to the stage of sales require adequate funding and investments. Those initial investments can be substantial while the return on these investments will be realised through sales. Using IP enables companies to create large enough margins when selling their innovative products to earn back those initial investments. Thus while IP contribute to the return on investment of companies, they can incentivize the market launch of their innovations at the same time. Conversely, intellectual properties only have value if a product is brought to market.
7.3 Using IP information for decision making throughout the innovation process
Using information from available intellectual properties in a timely manner is useful to avoid potential issues after market introduction of the product or to reduce certain costs throughout the innovation process.
In figure 21 the type of information that can be used and the moment of use is displayed.
We distinguish two kinds of analysis to retrieve and analyse such information;
patent landscape analysis
- Technical information about known solutions,
- Appropriated technical solutions with potential legal effect to take into account,
- A market analysis with names of competitors or potential partners
Freedom to Operate (FTO) analysis
Information with potential infringement and risks assessment.
7.3.1 Patent landscape analysis
In a global market companies and research organisations are surrounded by competitors and other actors. Using a patent landscape analysis one will acquire more information about them and about their technologies.
In a patent landscape analysis data can be analysed in three ways. Those three ways will generate useful data enabling easier decision making throughout different stages of the innovation process.
A. It is useful to create an overview of known technologies in order to be able to determine which problems and solutions need to be further analysed and developed within your organisation. For this analysis (technical) persons with knowledge of the subject-matter are necessary.
B. Prior to the decision to start developing a new product it is useful to study interesting technologies described by patents and pending patents. Search for possible technical solutions that may come close to the research and development of the organisation. Both technical and (legal) patent knowledge are required for these analyses. Analysing these data from a legal point of view may restrain your willingness to start a new innovation process. However, following decisions will depend on the business strategy of the organisation. Assuming that useful data have been retrieved and analysed one can decide to avoid potential litigation or infringement by redirecting the scope of research and development. A different strategy will be to license in the patents or start working as a partner of the patentee. These strategies will be further elaborated in next sections.
C. In addition to the technical and legal information from a patent landscape analysis, you can also obtain useful data for further market research. You can use this information to discover interesting countries, markets and possible partners for the sale of new products. It is also possible to analyze interesting markets in which you do not want or cannot be active yourself, but can become active through for example a partner.
7.3.2 Freedom to Operate (FTO) analysis
If the product reaches its final appearance at the end of the development phase, it could be useful to make an analysis about the risks to potential infringement of patents of third parties. An infringement of patents of third parties by may seriously hinder or even stop market introduction of a novel product or device. Such a risk assessment is called a Freedom to Operate analysis.
Throughout the patent landscape analysis one has analysed a first indication of potential infringement. But only when the the product is sufficiently specified and defined, an FTO analysis will be able to give sufficient certainty of the risks. Until the moment that your product will become part of the state-of-the-art for example through sales, a publication or a patent, it is still possible that others will get IP rights that will hinder sales of the products. Therefore it is useful to update the FTO analysis.
An FTO analysis requires both technical knowledge and legal IP expertise. Also knowledge about legal and financial risks is required. Due to that multidisciplinary character of such an FTO analysis costs are high. Therefore scope and nature of an FTO analysis better be aligned with the risks and business strategy of the company.
7.4 Strategic IP use
For companies it is important to determine which sort of IP rights are needed for launching successful innovations. Bigger companies and established firms have their own IP division with an IP strategy in place. In line with their strategy they usually start applying for a diversity of IP rights during the various stages of their innovation process. More in depth information about commonly used IP appropriation regimes by economic sector, products and process innovations can be found Cohen, Nelson, and Walsh (2000) and Scotchmer (2004), chapter 9.
We know that IP can enable companies to create enough margins once they sell their products to have a return on their investments thus incentivizing innovations. As IP proprietor the innovator may decide to stop competitors to bring the same product or process at the market price at lower costs or prices. Such mechanism is called a defensive IP strategy and is generally used by companies in the pharma sector. Economic literature about such a price mechanism enabled by product or process patents is described by Greenhalgh and Rogers (2010) in chapters 1 and 2.
Figure 22 describes which kind of IP can be relevant in certain stages of the innovation process.
During research and development leading to technical innovations patents often are used. When publishing articles about scientific results at universities copyrights are important. Depending on the sector of industry in which a company is operational designs becomes relevant at the stage when the product will have a clearly defined outer shape and the shape needs to be easily recognizable by customers.
Brands are important for the marketing of products and services. In the interest of marketing designs can be used as well.
Know-how (secrets) about certain features in a manufacturing technology process, for example the use of parts are regarded as yet another intellectual property. If a company has a more offensive IP strategy patents can be used for (parts of) the manufacturing process. Such patented processes maybe out-licensed for example by companies in the chemical industry.
7.5 Purchasing and selling IP
In most economic sectors technologies are well developed at such a stage that many parts and processes are now available. Hence, there is no more reason to develop or manufacture those parts or processes. This is a huge difference compared with the upcoming economy at the start of the industrial revolution when manufacturers needed to have all parts and manufacturing processes in house by themselves. For example: the Ford Company wanted to have their own rubber plantations for the production of the tyres.
During the stage of research and development it is useful to analyse which technology, semi-finished products or parts can be purchased from others. Next the company can decide what needs further development by itself. Such strategy is also useful to identify interesting technologies developed by others which may solve technical problems and can be applied for further use. If these technologies have been appropriated in a patent portfolio of others they cannot be use as such without further analysis. Maybe there is a possibility to acquire ownership by assignment or come to terms in a license agreement.
7.5.1 Inlicensing patented technologies
A company may decide to obtain a license for a technology in order to start production and sales easier or faster. The results from a patent landscape analysis or Freedom to Operate may show that such a technology already exists or even that obtaining such a license agreement from a licensor is compulsory given the legal situation. Obviously, further information about the legal status on the validity of the patent in the country where the licensee is operating is then required. For example if a Dutch manufacturer who is only working in the Netherlands needs certain technology the patent from the licensor should be valid in the Netherlands.
The business strategy and market perspectives are key in the decision making process to use licenses on technologies from third parties. But a patent landscape analysis is a useful business tool for companies with limited budgets for research and development. Next the company can contact the original patentee to start negotiations to obtain necessary patent licenses depending on its results. This is called inlicensing and presented as “IP in” in figure 23.
7.5.2 Outlicensing patented technologies
Usually a company decides to start production in a country or for a market by itself or by approaching others. Licensing technologies to others or franchising enables the patentee to do both. Such strategic decisions are often taken at central level of a multinational company or organisation and then followed up at decentral level.
But even if the patentee decides not to commercialise the technology itself, licensing to third parties remains an interesting option for example for organisations without production capacity in a particular country or market or a sales force. This is called outlicensing technologies and presented by “IP out” in figure 23. Outlicensing is often used successfully in cooperation with companies who are already active in certain markets and regions using the outlicensed technology to diversify their supply chain of products. Often the patentee is required to show successful sales records in an established home market for its patented technology.
7.5.3 Using patents in IP strategies
Depending on business strategy and use of IP a company can decide to outlicense their patent portfolio enabling others introducing new products or using manufacturing processes. Thereby allowing other companies to generate revenues without prior investments (in research and development, manufacturing, marketing, etc.) which were made by the patentee. This is called an offensive IP strategy which maybe more relevant for companies with products based upon a platform technology or compound with a large and diverse scope of applications.
On the other hand, companies may have a defensive IP strategy in the markets thereby stopping competitors selling look alike products to customers at lower prices. A large portfolio of nationally registered patented products in many countries is usually a prerequisite. Such a strategy may be relevant for companies with patented products based upon very narrowly defined technologies and compounds which can easily be copied or circumvented.
Which IP strategy a company can use will depend on its market position at present and foreseeable future versus those of competitors. A patent landscape analysis gives interesting insights and a global overview on certain technical developments over the years. Such information is useful to determine the market position as defined by patents and can contribute in the decision making process which IP strategy best be followed. At the same time with this analysis one can retrieve information about the patent strategy of competitors.
7.6 Example of IP use at Bugaboo
Bugaboo uses various IP rights. In addition to patents, design rights also play a major role. In the following paragraphs, the IP rights used by Bugaboo are summarized to get an impression of their strategy.
7.6.1 Patents
Bugaboo has used patents since the company’s inception. Figure 24 provides an overview of the number of patent applications per region over time. This information can be obtained from the publicly accessible databases (see the links in Links).
This shows that Bugaboo has regularly applied for patents in some European countries and in North America. In the early years of the company, only a few patents were applied for. The patent in the general example, which forms the basis of the buggy, belongs to this.
7.6.2 Purchase of patents
Bugaboo has purchased two patent families (WO 2004/065192 and WO 2004/065193) from 2003 from French inventor Henry Gilles. These patents were probably necessary for the development or sale of a new model of folding buggy (the Bugaboo Bee) that was under development at that time.
From 2010 it can be seen that Bugaboo is busy to diversify. A patent family from 2015 (WO 2016/116727) for a foldable cot has also been acquired by Bugaboo for this diversification.
7.6.3 Design rights
A large part of Bugaboo’s IP consists of design rights. Figure 25 provides an overview of the number of design registrations per region.
As with patent applications, design rights in Europe constitute the largest amount. In the remaining regions, where patent applications are little used, design rights play a more important role.
7.6.4 Trademarks
