Corporate Business Leaders: Want to Create Value from Your IP? Stop Making it Your Lawyers’ Problem.

Business leaders should expect their lawyers to provide them with legal guardrails, not roadblocks for their business.

One of the biggest complaints I get from corporate innovation and product development professionals is how risk averse their lawyers tend to be about dealing with intellectual property (“IP”) issues.  It doesn’t matter whether these business people are talking about their outside or in-house lawyers, either.  To a person, the complaint generally tracks the contention that their IP lawyers “don’t get what they do” and, as a result, make it more difficult for them to meet the objective of adequately filling their product pipelines and introducing innovative new products that will keep the lights on at their corporations.

I have written and spoken about this topic on several occasions.  But, recently, I have been thinking a lot about the issue of risk aversion and IP lawyers for a couple of reasons.

First, I am co-leading a workshop at the 2nd Annual Open Innovation Summit next week in Chicago with my good friend Deb Mills-Scofield and Mike Riegsecker of Menasha Packaging.  In this workshop, we are going to discuss our experiences with corporate culture and incentives as these relate to achieving success in the world of Open Innovation.   Much of what I am going to talk about is how those seeking to implement Open Innovation in their organizations can understand their lawyers better–by way of incentives, thought processes and mind sets–so that they can reduce the possibility that their lawyers will put the kibbosh on their efforts.

Second, I have recently wrapped up a substantial project with a large consumer products company where I worked jointly with a VP of Innovation and her legal team to navigate a competitor’s highly complex patent portfolio to provide product design direction in the face of substantial patent infringement liability risk.  In the past 7 years, the competitor has obtained a number of patents that appear to be of questionable validity.  In short, the competitor obtained multiple patents on a consumer product that closely match products that existed in years prior to the date they filed for patent rights.  At a minimum, most of their patent filings reflect obvious improvements over the prior art and, as such, should not be patentable.  Moreover, the competitor’s strategy clearly was to “throw stuff against the wall to see what would stick” in regards to its patent filings and, somewhat surprisingly, some of the filings “stuck.”  In other words, the competitor had been successful in obtaining patent rights that are likely invalid, but which nonetheless held a presumption of validity in the eyes of the law.

For my client’s perspective, the competitor obtained patent rights that effectively prevents his company from participating in the market by offering a product in a growing category.  My review of the patents and patent filings demonstrated that the patent examiner who allowed most of the patents to issue was either asleep or incompetent (or both), and the competitor capitalized on this to file continuation patent applications incorporating increasingly complex language to describe was actually a pretty darn simple product.  This complex patent language was certainly a good strategy:  in recent months the “kinder, gentler Patent Office” has granted even more of these filings, one of which covers a product that has likely existed in the marketplace since at least the mid-1980’s.

There is no question that the competitor’s actions in regard to its patent strategy is–in a word “skeezy”–and, some might say, could amount to a violation of the US antitrust laws.  But, from the perspective of my client’s IP lawyers, the multiplicity of patents and pending patent applications gives rise to a huge potential for risk.  As we know, the role of the IP attorneys is to reduce or eliminate such risk, and they are incentivized by the organization to do so. Therefore, the natural tendency of the attorneys is to not be open to allowing the innovation team to undertake a project direction that, at best, heads toward the possibility of expensive legal opinions and, at worst, contentious litigation involving the competitor’s complex patent portfolio.  So, even if the IP lawyers ostensibly understand the need to investigate whether the business situation requires that they should develop a competitive product, they naturally will want to move in a different direction.  

In other words, the lawyers’ inclination is to act as “traffic cops” for my client’s innovation team and set up roadblocks effectively preventing the business teams from moving forward with their innovation pathway, as opposed to providing them with “guard rails” within which they can operate with minimal IP legal risk.  Note that the “guard rail” metaphor does not mean that the innovation team always “stays within the lanes;” rather, it means that the lawyers provide them with the ability to prevent their “crashing and burning.”  In the process of developing and commercializing a successful innovation, they might indeed scrape against the guardrails or travel into oncoming traffic–hopefully not to experience a head-on collision.  But when the lawyer provides the proper tools and information to prevent them from careening off a cliff, the innovation team will likely get to their business destination faster, with fewer obstacles and at lower cost.

At this point, IP strategists like myself normally say something along the lines of “to succeed in IP strategy, you have to ensure that incentives are aligned between the business and legal teams.”  There’s nothing wrong with this statement–certainly, there is no question that success in creating and maximizing corporate IP value requires the business and legal teams to work together to advance this common goal.  However, in working with this corporate client recently, I realized that this was a correct, but misguided, approach to the issue.

In working with the VP of Innovation at this large corporation in his collaboration with his in-house and outside legal team, I realized something that had never occurred to me:  no matter how well aligned the legal team was with the business team, the people who would suffer most if the competitor brought suit for patent infringement were exactly the people being asked for permission to proceed in this potentially risky direction.  This was like asking the traffic cops to place themselves in the path of traffic to likely get run over by their own advice.  Most IP lawyers, as well as most traffic cops, would no doubt try to slow things down, if not totally stop the cars, lest they become “human speed bumps.”

So to obtain true alignment between an organization’s business and legal teams, the decision-makers driving the innovation process and who are seeking help from their legal team must engage closely with not only their lawyers, but also the legal process.  This means that the business team must not only agree to pay the bills for any outside counsel legal expense–which is generally the case at most corporations–but they must also provide the legal team with the internal resources that they will require if their workload increases as a result of the business team’s moving in a direction that that is more likely to incur legal effort and cost.  In addition, the business team must also embrace the fact that it was their decision to incur more risk and, as such, they must commit in advance not to penalize their legal team–whether actually or implicitly–for the unpleasantness that will result when increased cost, litigation and business difficulties later ensue.  In other words, to achieve success in IP strategy, both the legal and business teams must work in concert as a cohesive team, much as a pit crew does in a NASCAR race.

So, rather than restate the old saw of “alignment of business and legal teams is needed,” I think we need to reframe the conversation to something that clearly illustrates the commitment by both teams required for success.  Asking only for the legal team to change the way it addresses IP legal risk is a task  destined to fail at most organizations, and for good reason:  who wants to willingly throw themselves in the path of a speeding automobile, as most business people are asking their legal teams to do when they say “let’s choose the direction for our innovation that opens us up to the highest risk of patent infringement liability.”

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