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So, What Is an IP Strategy?

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2014-05-15-Life-of-Pix-free-stock-photo-montreal-indoor-corridor-light copy.jpg

Entrepreneurs often ask “What is an IP strategy?” It can seem somewhat a nebulous concept if one is not familiar with IP and its importance whether you are a startup or an established company. For the most part, an IP strategy consists of policies and procedures that are consistent with the goals and needs of the company. It should help entrepreneurs and CEOs prioritize their efforts develop a portfolio of IP (e.g., fortress IP) while optimizing/minimizing expenses for both R&D and patent support (e.g., attorneys and filings).

Key Elements of an IP Strategy

The key elements of an IP strategy are, in approximate order of importance:

  1. Align the IP portfolio with the company’s mission and goals. Alignment of the IP portfolio with the company’s mission and goals provides the best use of human resources (especially the technical human resources that are focused on innovation, invention, and IP) and financial resources. The goal is to achieve the highest possible return on investment, protect the essential value of the company, create and maintain competitive advantage through innovative products, protect future revenue and profit opportunities, and secure investors based on the quality of the IP portfolio. The “quality” of the IP portfolio is based on considerations such as technology and its uniqueness, evident innovation, number of patent applications considered foundational, ability of IP to protect target markets, perceived competitive advantages, etc.
  2. Focus R&D effort on validating proof of patentability. Eventually, filed patents are reviewed by the USPTO, and their due diligence will focus on the proof of patentability. Thus, early efforts, no matter how affected by potential deficiencies in company funding, must be used to develop the robust underpinnings of the patent applications. Any effort not central to that goal should be minimized.
  3. Select an appropriate patent attorney. A patent attorney should be chosen on the basis of experience in the areas germane to the field of the company, his/her familiarity with working for start-ups, expectations for payment of fees (for instance, will he/she tolerate waiting for your company to be funded before being paid), experience with both prosecution (e.g., patent development and filing) and litigation, and your own intuition about developing a good working relationship with the patent attorney.
  4. Continuous surveillance of the external landscape. Regular searches of granted patents is essential to keep on top of developments, but it should be kept in mind that those granted patents will be based on technology and ideas developed several years earlier. So, while relevant, these granted patents only define the rough areas where you may or may not operate. Patent attorneys are useful in surveying and understanding the patent landscape and will often refer to the concept of “freedom to operate,” or FTO, as a fundamental principle behind the more general notion of external landscape. The external landscape also includes reviews of competitor products, marketing materials, and web postings, as well as incidental conversations with competitors at conferences and similar venues, etc. Understanding prior art and the data from FTO searches are vital pieces of knowledge for tailoring innovations, inventions, and IP (especially claims) so that they can eventually compete in the public marketplace. Envisioned products to be sold must be supported by underlying markets that are large and growing or offer high potential gross margins. Understanding the external landscape is an intrinsic part of the marketing-and-sales plan.
  5. Consider the number of formal patents. Given the cost factors and importance of the invention itself, a few good high-quality patent applications are much preferred over a plethora of lesser applications. It is tempting to file many applications with the thought that the sheer number of patent filings will make the company more valuable. Such value creation may not accrue, however; investors will spend considerable time attempting to understand the potential of an invention in terms of future revenue and profit and may not agree with founders. Patent applications that lack in innovation, quality of invention, or usefulness in terms of potential future products and markets will erode investor opinions of the value of the investment opportunity. Simply put, fewer high-quality applications are generally better than higher numbers of lesser quality.
  6. Make a long-term budget and be realistic. Entrepreneurs and their patent attorneys should carefully select countries to file in to make optimum use of cash relative to their market/profit potential. File only NPAs that are essential. Carefully differentiate ideas and innovations that should be patented (to create value, protect products and markets, etc.) from those that can be more economically preserved as trade secrets. Creating IP can be expensive. The cost for filing patents and prosecuting them (including maintenance expenses) must be included in the financial plan. When, as is often the case, patents are filed in multiple countries (e.g., major markets), the cost increases proportionately. PPAs are relatively inexpensive and can be filed in as many numbers as deemed necessary to capture the incremental improvements of the invention and their proof of patentability.
  7. Consider the “promotional” value of the patent filings. Patents may take years to develop, and in the years between the filing of a PPA and the receiving of the granted patent, the written information available for the inventor/entrepreneur for use with potential investors is limited to the filing papers for the patent application. Thus, aside from the obvious value of generating good and robust patents, their usefulness begins the day the PPA/NPAs are filed. Promoting the value of the patent applications based on the quality of the written word (in addition to the invention, of course) can be achieved though good writing, solid arguments, and profuse and relevant data.
  8. Preserve IP as trade secrets. Some thinking should go into the issue of what IP should be kept as patents and what should be kept as trade secrets. For instance, aspects of the invention that may be easily seen in a product (visual) may be patented, as detection of infringement is relatively easy. On the other hand, process-oriented IP (e.g., how something is manufactured or made by chemical composition, etc.) may be better preserved as a trade secret, as discovery of infringement may be too problematic and expensive. If something can be reverse engineered (most everything can be) or made in several different ways, then a process patent may have less use; however, if there is only one best or unique way and you intend (or have money) for major markets, then it may be worth patenting versus keeping as trade secret. These can be difficult issues, and their resolution should be accomplished in consultation with the company’s patent attorney.
     

Deciding whether to patent something or preserve it as a trade secret is often an important issue with respect to developing an IP portfolio. On the one hand, patents are well understood and often formally valued, but trade secrets, while appreciated, can be somewhat amorphous and hard to validate in terms of value.

Othen Important Actions

Other important aspects to consider in the IP strategy are:

  1. Keep IP ownership clean and unambiguous. Many potential start-ups have been stopped in their tracks when their founders discovered that ownership of IP was confused by one or more factors, such as
    1. Lack of proof of IP assignment to the company. This often occurs either through negligence or absence of timeliness on the part of a founder/inventor who is hesitant to share IP presently in her/his name with the company in the form of an assignment document.
    2. Founders who have come from, or are still working at, another company whose technological focus is very similar to that of the new start-up contemplated for formal incorporation. In this situation, the ownership of the envisioned IP (usually in the form of ideas not documented yet) is suspect because of the prior or current employment. These situations are extremely problematic for future investors because of many potential unknown factors. These factors must be sorted out with a patent attorney before forward motion can be achieved. It is often better to simply not invent or file a PPA until the terms of the prior employer’s employment (or separation) agreement is satisfied and a period of time has passed since resignation.
    3. Employment agreements that secure IP developed during employment have not been executed, and discoveries, innovations, and inventions have occurred before a legal relationship is secured via the employment agreement.
    4. A founder’s use of a prior or current employer’s resources or development on company time without disclosure or agreement to distinguish the ownership of the IP.
  2.  File “omnibus” patent applications as a way to economically preserve multiple inventions. An omnibus patent application is one for which multiple separate inventions are expected to be the result of the USPTO’s initial application review. While some may argue that separate applications should be made from the onset, the advantage of the omnibus application is that it establishes a filing date for all the potential inventions at the price of an individual application. The USPTO will have an initial office action that specifies that one or more invention applications be subsequently filed. At that later time, the entrepreneur may elect, with patent counsel concurrence, to file the individual patent applications believed most appropriate. While some time is lost with respect to filing the other applications, by that time, the entrepreneur may have raised more funds for the purpose of building the IP portfolio.
  3. Consider acquiring IP from external sources. Securing additional IP that can support the company’s goals is a potentially valuable strategy. IP can be secured from universities, other companies, and governmental sources (NASA, DOD, etc.). While securing the agreement can be challenging for a young company with limited or no resources, potential license agreements can be momentarily secured via agreements that call for only a token up-front payment in return for time (six months or a year) needed to raise additional money.
  4. Train employees to be sensitive to the importance of IP. While the formality of a patent application often serves to secure IP for the company, other forms of IP, such as trade secrets, have no legal protection (outside employment, nondisclosure, and noncompete agreements) and can be easily divulged, often by accident. Employees need to be instructed on the forms of IP, their importance to the company, and the mechanisms and procedures used to secure and protect that IP. This training needs to occur for all new employees, and all employees need to be reminded on a regular basis of their legal obligations and the company’s policies.
  5. Preserve IP with contractors with agreements. Agreements with contractors and consultants must contain clear language as to the ownership of that IP in all its forms. If the company pays for consulting or research, it is generally recognized that the paying party owns 100 percent of the IP; however, legal agreements must make this clear. For example, copyright ownership with a nonemployee requires that the work be characterized as a “work for hire.” Consultants need to be reminded and sensitized to their obligation to not discuss company research or activities.
  6. Protect IP when discussing technology with strategic partners or potential customers. IP can be created when discussions with partners’ employees occur in unscripted situations and without agreements that define who owns the ideas and derivative IP. This situation can occur with strategic partners and potential customers when advance sales are contemplated. Salespeople are prone to discuss technology, innovations, etc., whenever they suspect a potential sale can result. Salespeople must be advised to simply collect information on problems experienced by the customer and the products/solutions desired. Those problems/issues can be brought back to the technical team for solution determination and possible patent filings. Once a PPA is filed that addresses the solution, the sales team, under a confidentiality agreement, can return to the customer and present/disclose a potential solution. The customer then knows that the underlying invention is owned by the early-stage company. 
  7. Be sure to maintain patents by paying fees when required. The company’s patent attorney will maintain schedules of filings, office actions, USPTO filing fees, etc., so generally a CEO/CTO will not need to do the tracking.

An IP strategy does not need to be documented in a long, formal document; however, it should be documented in several pages and then made in the form of a corporate policy for each employee to read and understand. The IP strategy can be promulgated to employees with e-mails (all or in part), along with regular reminders and meetings with senior managers.

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