Recently, I have been spending considerable time working with innovation professionals to demonstrate the value-creation opportunities available by embracing IP strategy as an aspect of their processes, and why patent drafting should be an aspect of their roles and responsibilities. More specifically, my efforts have focused on why and how patents matter to the ROI of corporate innovation today. Most business people would likely acknowledge that patents are important to protect their products from competition, however, the vast majority of the innovation professionals whom I meet have no idea how critical patent strategy can be to the success of their business plans.
Modern innovation processes typically start with identification of a consumer need or the like. In so doing, the innovation team undertakes detailed research to draw dimension around a product that will solve this consumer need. This research will be directed toward identifying the multiple ways the consumer need can be addressed. For a number of reasons–some of which will be related to specific competencies of the company–only one of these ways will be selected as the go-to-market product strategy. By the time the product is fleshed out, these myriad alternative ways to solve the consumer need will be left by the wayside when the patent application is prepared. This means that the resulting patent intended to protect the innovative product from competitive threats will not successfully do so.
Let me be clear here: most patent attorneys competently work with their clients to obtain claims as broad as possible. This means that a patent application covering a product design will typically encompass a variety of different product designs. However, the broadening of the claimed product will center on the actual product design. This claim broadening exercise will almost always occur between the inventor (i.e., R & D personnel) and the patent attorney. The inevitable result of this siloed patent drafting process is that the detailed research conducted to identify and solve the consumer need is not considered in preparing the patent application.
This failure to include the functionality of the go-to-market product in the patent application often means that competitors will see an avenue to design-around patent protection. An example of ignoring the consumer need when preparing the patent filings is illustrated in this actual commercial example. (The product details are removed to protect client confidentiality.)
A multi-national company (“MultiCo”) sought to reduce its reliance on commodity hand soap sales, such as those used in bathrooms. by introducing an automated soap dispenser into the marketplace. This product solved a significant consumer need by offering hands-free dispensing of MultiCo’s product to reduce a user’s contact with typically germ-ridden surfaces. MultiCo’s innovation centered on solving the long unmet need of providing a consumer with a reduction in actual or perceived contact with germs while they were undertaking an activity meant to eliminate germs–hand washing.
MultiCo spent several years and deep corporate resources to not only develop the automated dispenser, but also to develop the market for the product. Notably, the buyer of the product, here building and facilities managers, were not users of the product. (Significantly, consumers did not need any convincing to use the product: they loved the hygienic aspects of the dispenser.) The automated dispenser required considerable retro-fitting of locations where it was installed. As such, MultiCo undertook substantial marketing and sales efforts. In addition, MultiCo’s R & D and corporate patent teams filed several patent applications to protect the automated soap dispenser. These patents were very well written and, indeed, no expense was spared to ensure that MultiCo’s dispenser was well-covered to product from competitive dispensers of comparable design. At least 5 patents issued covering MultiCo’s dispenser product and the associated soap refills.
MultiCo’s marketing and sales efforts paid off: in a short time after introduction of the automated dispenser, it became the market leader, and MultiCo’s sales of product specifically designed for the dispenser significantly increased profits. This effectively meant that the company was successfully moving from “commodity hell” to developing a differentiated product specially designed to fit in the dispenser that could be sold for a premium price. In addition, buyers began replacing existing (non-automated) dispensers with MultiCo’s product, which resulted in competitors beginning to lose sales for their own products. These competitors reacted as expected: they decided to introduce their own version of the automated dispenser.
Today, there are at least five other companies that are manufacturing an automated dispenser product, for which each sells its own specially configured refill for the soap. None of these competitive products infringed any of the many MultiCo patents that cover the specific MultiCo dispenser, however. Each product managed to solve the consumer need of hygienic dispensing in a slightly different manner. The consumer did not care how the innovative dispenser specifically functioned, as long as it worked. The buyer (i.e., the facilities manager) was interested primarily in lower cost to own, and the competitors were able to address this need with their alternative dispenser. Put simply, MultiCo’s patenting efforts resulted in covering the invention as defined by the form of its dispenser, not the innovation defined by the function of its successful product.
Moreover, even though MultiCo effectively created the market for automated dispensers for the business purpose of obtaining premium pricing for its previously commodity-priced soap refills, MultiCo’s competitors were able to capitalize on its substantial innovation investment. This allowed others to successfully enter the market at far lower cost, a fact which allowed them to better operate in an environment of increased competition and price erosion. Today, while MultiCo remains the market leader in automated dispensers, and therefore sells its refills at a premium price, it finds itself working increasingly hard to achieve new customers.
So, what went wrong with MultiCo’s patenting efforts? Quite simply, the team preparing the patent applications, which did not include any member of the innovation team, focused on MultiCo’s specific solution to the consumer problem of hygienic dispensing of soap. Unfortunately for MultiCo, consumers did not care how a manufacturer solved their problem. Competitors used the successful MultiCo automatic dispenser itself and the multiple patent filings as a roadmap to design alternative automatic dispensers that did not operate in exactly the same way as MultiCo’s dispenser, but still effectively addressed the consumer’s need.
Like with most products that make it to market, the specific features included in the MultiCo product were a result of preferences and commercial biases of the team making the decisions about the go-to-market strategy. For MultiCo’s competitors, these discarded features remained viable and, indeed, provided them with means to get a product to the market without fear of patent infringement. Unfortunately, these features did not make it into the patent due to the siloed nature of MultiCo’s patent preparation processes.
MultiCo could have likely prevented such value-destroying competitive activity by including its innovation team in the patent preparation process. Using their knowledge of the consumer research done prior to the actual development of the go-to-market product, the team would have been able to provide guidance for the patent attorneys about how others might seek to knock-off the product, and to include those features in the patent application.
Of course, the prior art could have prevented MultiCo from obtaining claims sufficiently broad to prevent all competition. However, because MultiCo’s patent drafting efforts did not start out from the vantage point of the competition but, rather, the actual dispenser product invented by MultiCo’s R&D team, there was no way that the claims of the patents addressing the automatic dispenser were ever going to be broad enough to provide the company with a durable competitive advantage.
For MultiCo, the failure to obtain market share at the intended premium price point has resulted in the expected ROI of the dispenser innovation project widely missing the mark. While one cannot blame this solely on the lack of an integrated patent strategy, one must acknowledge that competitors would have been less likely to knock-off the dispenser if MultiCo’s patents better covered competitive alternatives. Those developing potentially game changing innovations for their organizations would be well-served to use this case study as a cautionary tale.