IP and intangible asset strategies are a critical feature of ALL businesses regardless of size, product or customer. But why? Put simply, leaders need to be comfortable that their companies have the mechanisms in place to capture the value that you see possible from the venture. Without foresight and action, other businesses will be able to capitalize on the first/early mover’s advantage.
This happens often when a US company develops a new product, as well as the market for the product, and ex-US companies come in with a lower priced product to take the market away from the first mover. I have also seen customers (that is, big box or other consumer facing retailers) actually instigate the knock-offs: when the first mover demonstrates that a market exists for a product, the retailer will reach out to an Asian manufacturer to create a private label product with the same consumer benefits as that of the innovator’s product. The retailer is motivated to do this because it can gather all of the profit margin associated with a successful product, instead of having to share the proceeds with its supplier. If the innovator does not have some form of legally enforceable protection, such action is not only legal, it makes good business sense for the retailer.
Sometimes (but not as often as people think), patents are the strong way for the innovator to capture value in the long term. Other times, we look at alternate forms of IP and intangible assets like trademarks/branding, contracts, employee incentives etc. In the product example above, effective patent protection that prevented or greatly restricted the retailer from making an non-infringing alternative would have likely done the trick because in a cost benefit analysis, the retailer would see reduced profit margins for the product as preferable to the costs of redesign and/or patent litigation.
However, patents are not the only source of protection for product innovators like those in my example. If the innovator had a supply or other form of contractual agreement in place, it would have been more difficult for the retailer to outsource to an alternative manufacturer even in the absence of strong patent protection for the innovative product. Although not many patent lawyers would admit to this, it is far less costly and complex to litigate a contract claim than a patent. It follows that a strong and enforceable supplier contract may be a preferable form of intangible asset protection if the goal is to capture first mover advantage found in strong product placement in a retail environment. Continue reading →