Why Business Fails to Generate Patenting Strategies that Protect Innovation Value & How to Make It Easier

easy pictureBusiness leaders often find the decision of whether to obtain patent protection for their company’s innovations to be difficult. Of course, conventional wisdom, not to mention legions of patent attorneys, assert that patents are “important” to “protect” one’s business. In my experience, however, few business people can clearly articulate specifically why and to what extent patents can and will create real financial value for their business. This means that, in many companies, the decision to obtain (or not obtain) patent protection in a particular situation comes down to evaluation of anecdotal information from which a “business judgment” is formulated. In my view, when based only on anecdotes, as opposed to real data, such “business judgment” effectively amounts to nothing more than a “belief system” in which patents are viewed as relevant or irrelevant to the business over time.

As an example of the prevalence of patent-related anecdotes that bombard business people, of course, we can point to the many patent attorneys that you and I know who are in the business of getting patents for clients. So, are patents important? Of course–for their businesses! Less facetiously, each of us likely meets business people who have strong opinions about patents and who will provide their advice to whomever seeks their advice. A successful Atlanta area entrepreneur who makes video hardware expertly asserts frequently to other entrepreneurs that “patents are not important for startups.” And, that’s true–for his business because of a number of reasons that keep competitors away from his business, including a limited number of customers for his unique product offering and his company’s focus on specialized sales and technical service teams that competitors have yet to mirror. Other entrepreneurs I meet are just as adamant about how patents are imperative–for their own businesses. Many of these business people have expended large sums to acquire seemingly robust patent portfolios. Nonetheless, when I ask them to specify how and why their portfolios are necessary for them to meet their business goals, almost never can they align their patenting efforts with a business case of how patents bolstered their company’s success.

Interestingly, as I wrote about in this post about how $100’s of millions were destroyed from lack of IP strategy, rarely is there accountability for business failures that, in retrospect, can be directly attributed to management errors in patent decisions. It follows that the decisions made by business leaders to obtain or not obtain a patent may be right one or wrong, but, unlike other areas of business management, it is doubtful that anyone can learn from past patenting mistakes because no one is collecting usable data that can be used to improve future patenting decisions.

Surely, this can’t be an acceptable proposition: the first axiom of business is that “if it can’t be measured, it can’t be managed.” So, if no one is measuring the results of patenting decisions in the aggregate, we can clearly see why patenting decisions are often not based on data but, rather, on anecdotes.

Along these lines, in a must-read recent article in IAM Magazine, Dr. Chris Donegan posits that the reason that IP is frequently ignored in financial analysis is because it is difficult for non-specialists to understand. While Dr. Donegan is talking about IP broadly in the context of corporate value drivers, I think his mention of “difficulty bias” applies specifically to patent decision-making, also. Put simply, the complexities of patents make it easy for busy business folks to ignore what they do not understand. Certainly, if information about patenting decisions is not collected, no data can be generated for later use by either financial analysts or, for that matter, by businesses in general.

In addition to these failure on the business side to capture relevant data on patenting decisions after the fact, I would add that we patent attorneys are often not skilled in framing patents in the context of business relevance; instead, we often wholly ignore the interplay of our clients’ business issues and patents to focus on the legal aspects of our efforts. This could be either because, as “merely” patent experts, we are not given access to our clients’ business information or, perhaps, for some of my IP colleagues, business is not in our wheelhouse of expertise. In either case, our clients’ business interests likely bear the brunt of the downsides of not understanding how patent decisions could make or break their company’s financial projections. That is, as with business, patent experts are almost never held accountable for failing to generate broad patent rights for their clients.

Of course, the answer is for business leaders to not, in Dr. Donegan’s terms, “put their head in the sand” and ignore substantive analysis when considering whether and to what extent patents are relevant to their company’s respective business fortunes. But, frankly, it needs to be easier for non-patent experts to gather the information they need short of their going to sitting for the Patent Bar Exam.

In the interest of starting a conversation with the goal of making patenting decisions more accessible to business leaders, I submit that there is a somewhat “easy” way to frame patenting decisions in a business context so as to enable businesses to develop and execute on patent strategies that can protect innovation investment. To this end, I think that a simple, yet potentially robust, set of questions can be used by business people when analyzing patent issues in their decision-making.

Before we get to the “easy” framework from which to create patent value, let’s lay down a few ground rules, each of which should be the subject of its own blog post. First, unless you are a patent attorney, we need to all agree that patents do not have value just because they exist. We also need to also agree that just about any company that sells a product that is the result of real innovation may at some time be able to generate more corporate value and reduce downside risk by creating an IP strategy that includes one or more patents. Importantly, however, this innovative company must generate patents that effectively carve out a legally enforceable (or monetizable) competitive advantage that is durable. Lastly, patenting decisions must be made part of ongoing business processes, as opposed to being an event. This means that while it may not make business sense to obtain a patent today, you nonetheless need to incorporate patenting decisions into your overall business strategy on an ongoing basis.

Now that we are the same page with these ground rules, the easy question that business leaders need to ask is:  “Are there customers for the product(s) emanating from my company’s innovation investment and, if so, is there a real risk that my competitors will be able to take these customers from me?”

If the answer to the above queries is “yes,” a real risk exists that your company will not obtain the projected ROI on innovation unless there is a way to legally prevent your customers from being pinched. This means that business leaders responsible for ensure that revenue projections from innovation investment are obtained must evaluate whether these customers can be protected by generating patent protection for the products emanating from innovation activity. But, the inquiry doesn’t stop here: real protection of those customers and revenue streams means that patents have to cover more than the product being sold. Rather, to the extent possible, patents must cover the reason customers buy the product in the first place.

Patents can be a primary driver of risk reduction (and value capture) if, and only if, you can obtain patents with sufficient scope to effectively prevent your competitors from providing the same value to your customers. This means that patents covering the value proposition, and not just your product, are the “gold standard” to obtain. Business must then seek to obtain patents that broadly address the functional benefits of the product resulting from innovation investment. I describe this in a previous post discussing P&G’s Swiffer(R) product line. P&G’s patenting strategy so successfully protected the value provide to customers that P&G has effectively “owned” the market for more than 15 years. In other words, P&G’s patents were “market making” for the company.

This is where the “easy” formula ends, however, and the real work begins. Such “market making” patent portfolios are not only expensive to procure, they can be difficult to obtain, if only because many patent attorneys are not skilled in developing patents of this type. In short, patent attorneys are trained to obtain the details of what an invention is and how it works, which means their primary point of contact in drafting patent protection is the company’s technical staff.  In contrast, the type of patents that I am talking about here require customer-level details that are usually out of reach of the folks who are tasked with obtaining patents at the company. This means that in order to execute on the “easy” patent value formula, business leaders must be prepared to reformulate roles and responsibilities within their organizations as related to patenting decisions.

Of course, in many organizations, changing reporting structures as required here nowhere near “easy” which means that creating real patent value may not be possible without support from the highest levels of the organization. For smaller or more nimble organizations, creating real patent value, while still not “easy,” can be a more attainable solution in the short-term.

I will be writing more posts in the coming months on reducing business risk through implementation of robust IP and patent strategies using strategies and concepts that are easy for business leaders to apply. In the meantime, please feel free to reach out to me directly if you have any questions or comments.