Intellectual Property Business Strategy For The Independent and Small Business Innovator; Part II in a III Part series.
Part II: Building An Intellectual Property Portfolio; Your "Inventory"
This three part series is in response to many of my readers' requests specifically asking for more information on the business elements of intellectual property. I agree with their conclusion; there is precious little reference material on the Net regarding Intellectual Property strategy, in general, and Patent Strategy, specifically.
This series (delivered over 3 weeks) will touch upon some of the legal issues, but as you already know, I do not provide legal advice; there are good attorneys for that. The focus is business --pure, capitalistic profit strategy related to the creation, development, ownership and sale of intellectual property.
Invariably, however, one will find that successfully commercialized IP will usually encompass more than a single form of intellectual property (a trademark is developed for product packaging for a patented product, and the product instruction sheet is copyrighted; a song is recorded and covered by a copyright, the album cover and band's name and logo are covered by trademarks and additional copyrights).
Part II: Building An Intellectual Property Inventory
Before you get starry-eyed about being the proud owner of a patent copyright or trademark, replace "patent, copyright or trademark" with "house" in the following scenario. This is a very clear way of putting the ego and self aggrandizement behind you so that a more objective approach to intellectual property can be pursued. The phrase in ( ) is the intellectual property equivalent.
If you own a house, you obviously should know its value. You can increase the value by adding small upgrades (CIP), adding on a den (divisional patent) rent or lease it out (grant a license), over build for the market (invest in a patent after over-estimating [or failing to estimate] the market potential), default on the mortgage (fail to pay maintenance fees), trade it (Fed. 1031 real estate exchange), allow it to go into disrepair relative to the neighborhood (fail to continue development and file additional patents), sell it at market value (you broke even on your I.P. investment), sell at a loss (your competition out-did your technology right under your nose), or sell at a handsome profit (you strategically developed value along the way and read all business and market indicators correctly). Your deed can be incorrectly written and recorded, and either your neighbor's or your lot line is really on the other's land (you have infringed or have been infringed upon), or you and your neighbor will go to court to fight it out (intellectual property litigation).
In the business world, Intellectual Property is a company asset, just like real estate. Your patent, copyright or trademark is simply a deed to your "property". The costs of developing, filing, prosecuting, maintaining, and litigating are all rolled into the company balance sheet. Although patents, trademarks and copyrights will be handled differently by different accountants, suffice to say that a consistent method of recording the "investment" in intellectual property is part and parcel to the value creation process.
If you become a landlord, your risks are spread over a large area - you can take a devaluation in one part of town while the other areas increase in value. Savvy real estate investors already know these secrets, but you should also know that there are a few different reasons to develop an inventory (some call this a "patent portfolio", "trademark portfolio", etc.). And depending on the reasons, there are a few different methods of going about it.
The independent inventor rarely considers developing a patent portfolio, and most small to medium sized companies ($50 million and less) which I have consulted for, rarely consider the prospect of building an intellectual property inventory. If they did, the thought was simply to own quantity - not to strategically develop quality.
But they ALL should have. Here's why ... and this means you too, Mr. & Mrs. "Small Entity". By no means is the following outline exhaustive; it's laid out to get you thinking about the value creation process associated with your intellectual property.
Take a look at what I call "PROTECTION & PROJECTION".
Major Reasons for Building a (Patent) Portfolio
(To protect your existing - or first piece - of intellectual property)
To create a "buffer zone" around your original patent (to increase the complexity of your claims within a certain industry, technology or product line, To create "bargaining chips" to be used in cross-licensing deals or trades when they are necessary to negotiate settlement in a litigation or to expand your market position, And simply, to claim everything under the sun (if possible) to keep the market you have created, yours.
(To project your intellectual property into new market growth areas)
To leverage a patented "technology" into exclusive functional application in products, To expand the breadth of your patent coverage through CIP. or through Divisional Applications, creating a very long term Patent chain or Patent Ladder,
Reasons for building Copyright & Trademark portfolios are similar, but of course are more specific to a particular original creation or tangible "work" rather than the genesis of a new technology. Nevertheless, artists, programmers, musicians, and entrepreneurs should consider these reasons for expanding your portfolios:
Of course you need to thoroughly understand your market and market potential for your I.P. before you can begin to apply these concepts:
To create a "buffer zone" of related or derivative works around your original work - thereby working toward a "look and feel", To validate or reinforce your claims to the right to exclusive use of your trademark(s) within a more broad industry segment,
In order to develop better long-term brand recognition or brand preference for your original series of trademarks and copyrights.
As many of you know well, especially the independent inventors who routinely read my Online posts, I am an advocate of using proper legal counsel for all of my Intellectual Property matters. One can clearly see that if you are going to solidify your intellectual property position within a marketplace and reap the long term economic rewards, competent legal counsel is absolutely critical. A good attorney or I.P. firm will make you much more than they will charge - and they like strategic challenges! [Reasons # 12, 64, and 67 of why I advocate using an I.P. attorney] Get a good attorney and develop the relationship early (if only for your first patent or trademark filing). Tell them I sent you, and I'm sure they will give you a BIG discount when you bring them the volume of business outlined above, too. :-)
In all of these reasons I mentioned above follow a few basic strategic principles. If you think you have a proprietary product, technology, logo, etc., and you are going to put a LOT of money into commercializing it (even though it goes on the balance sheet), it only makes business sense to protect your original investment. After all, that's why you went after your patent in the first place. The Pet Rock® did not have a long term strategy - and consequently did not have a future as a revenue generator for its creator. Dilbert® and Monopoly®, by contrast, do.
To carry that thought a little further, ask yourself why you would be satisfied with your original patent when YOU KNOW YOURSELF THAT ONE OF YOUR ORIGINAL SPARKS OF "GENIUS" WAS REALLY SOMEONE ELSE'S PATENT OR PRODUCT. I can't believe the naiveté of innovators I come across every day (some even very wealthy and successful) who think they have made the "ultimate" improvement and expect to have a protected market position forever. Unless you put your recently awarded patent in your bottom desk drawer or better yet, the safe deposit box, and begin working on improvements (and subsequent patents), someone just like you will steal your thunder (and market share ... and revenue) right out from under you. This is a primary reason for you to consider building a buffer zone.
Think of "Protection" in These Terms
Put your first patent in the Bull's Eye of a target. YOU have just become the target for your competitors. Now, start building rings around that Bull's Eye - expanding ever further your technology or other intellectual property usage and claims into THEIR marketplace. Not only does this result in better protection of your Bull's Eye original property, it expands your claims into their unprotected market segments - your competitor's Bull's Eyes. A simple analogy, but I hope it sends a clear message.
Think of "Projection" in These Terms
"You don't win in business by allowing your products to die. You win by walking into the other poor dumb ...'s market using your expanded intellectual property claims to make HIS products die". (Corny quote from me.) Nevertheless, that's as fundamental as competitive business reality gets - especially if I.P. is your major weapon.
But how can you AFFORD to do all of this - especially when you are struggling to tool up new products, expand inventory, hire a secretary, or even trying to pay the PTO your first patent issuance fee? Ever watch the late night "how to buy a house with nothing down?
Oh, no. Back to real estate again!
Well, without belaboring the point, you can once again see why I advocate strategic thinking early in the game. But if you haven't thought of these techniques before, simply begin to think about the strategy you will use from here on out. Always keep a view towards expanding, and do not be satisfied with your first (or second) patent or trademark.
Here are a Few Tactics to Expand Your Portfolios
You have got to know that there are many opportunities you can go after. Understand first that business is like growing up. Children (and struggling "small entity" innovators) are inventive and inquisitive - always looking for solutions. Most of the time, they find innovative solutions only because they are entrenched in the process; they are doing the grass-roots work that brings them closer to the "marketplace". They usually have a small group of trusted, genuine associates or friends who they can communicate with - others who share the notion that they are on the "leading edge".
Adults (and successful big businesses) disassociate themselves all too often with their past; they leave behind the grass-roots efforts and peer knowledge that got them where they are. They have "outgrown" the investigation of seemingly incidental things, even though it was a single incidental thing that put them on the road to success.
As long as you remain grounded, your spark of innovation can go a long way towards unseating the aloof successful businessman.
Develop More IP
Ask you attorney specifically how a divisional patent or Continuation In Part (CIP) works, and how it might be employed as your business goes forward. Both of these options basically work off of your original patent, thereby allowing you to leverage what is already claimed into additional separate and unique, but related, claims. This broadens your protection to include new improvements on your original work as you develop them. Otherwise, someone else can file an application (if they are doing similar improvement to your patent, and you are not). The improvements over time will obsolete your original patent; the question is, "who will have claim to the improvements?.
You can joint-venture with one of your associates who has a similar technology or product, or with a business which has access to a marketplace into which your product could easily and profitably go. Have your attorney structure the deal so that you have ownership or other profitable rights to that technology, whether or not you actually own it.
[Special Notice To Non-technical Entrepreneurs and Innovators: This next strategy is one of the best kept secrets on how to obtain good, marketable I.P. without having to develop it yourself. (And innovators; if you continually look to license your ideas instead of commercializing them yourself, understand that your ideas are valuable only to the extent an entrepreneur can create a profit. If you chose not to commercialize your idea, you have little credibility in suggesting your idea is "worth" millions to the licensee. They can find inexpensive alternatives! Tune in next week to learn how I run through the numbers to determine value.]
If need access to a certain or new technology, trademark or copyright you needn't be stifled because you can't "develop it all" yourself. Take a look at this idea for growing your business's I.P. portfolio on someone else's original ideas:
Acquire Intellectual Property
You (with the help of your attorney) can obtain access to patents through liquidation auctions of companies which have gone out of business. [Reason #102 to build an early relationship with an I.P. attorney]. If you know have intellectual property you think you can successfully commercialize, try to buy it for pennies on the dollar. My brothers and I negotiated with the banks back in the early '70s for the "Bricklin" car trademark rights --we were going to go into the car business! But at only 17 or 18 years old, we did a reality check and felt that a car business and high school didn't mix. BUT, the bank was ready to sell the U.S. rights to us for ONLY $500! It just goes to show how someone else may undervalue what you would value highly. And even back then, $500 was a lot less expensive than developing and filing for a new trademark --which would not have had any goodwill recognition.
But you don't have wait for a company to go out of business to pick up some good technology. The most current technology, developed a very high cost through government-funded R&D programs, is available through technology transfer programs. These programs are intended to help funnel advanced technology from the research lab (which has no marketing or business infrastructure) to the commercial sector (which many times can make, market and sell, but can not afford the advanced R&D costs). Contact your local Universities, or Government Technology Transfer offices such as the SBIR or DARPA, DDR&E Dual Use Program for more information on how to get into the "tech-transfer" mainstream.
Or you can check out U.C. Berkeley's excellent site for an introduction to some technology transfer resources. Look at the "Government Programs" under the Invention/Inventor Resources heading, and under the "Entrepreneur's Links" heading. Although not all of these links are timely updated, most of them will get you deep into the technology transfer process in no time.
Trade Your IP
Yep! Here it comes. But you can't trade what you don't have. IF you have managed to build a portfolio of "bargaining chips", or if you commit to building a portfolio from this point forward, this strategy will allow you to capitalize on it once the right opportunity comes along. If YOU own intellectual property someone else wants, and they own something you want, have your attorney structure a cross-license (so both of you retain ownership. But both of you might be able to use the other's technology for little or no difference in royalty payments to each other). Alternatively, you both can simply cross license your interest in the intellectual property - for a nominal agreed to price of, let's say, one dollar. (See why it is nice to have a closet full of I.P. to use as bargaining chips?) By working cooperatively with one another, both parties should realize a synergistic business result.
Although the trading concept sounds easy, greed always seems to crop up; one will ALWAYS think the other is going to benefit MORE by the transaction. Keep in mind that IF both parties think they will gain, BOTH parties should not concern themselves with how much the other will gain, only with how they will develop a profit from the venture themselves. Although attorneys have been called the "deal-killers", if your attorney really understands the benefits which a transaction of this type will bring to your company (and give you the ability to pay him), your attorney will be the best objective team player to wrap up the agreement. [Reason #98 to build an early relationship with your attorney] My recommendation for an objective "negotiator" other than an attorney is a professional consultant familiar with such business dealings - but when the deal comes down to the contract, the consultant will have to rely on your attorney.
Of course, this practice can be applied to copyrights, trademarks and patents, alike.
So, Just To Review
I have just discussed the big-picture process of growing your first piece of intellectual property into a larger portfolio. I've discussed the reasons why portfolio development is important, which is to fundamentally provide Protection and Projection. There are various ways to protect your I.P., the least of which is that patent, copyright or trademark "deed" which is issued - the most of which is your business strategy to grow your original works. And don't forget that growing your portfolio does not mean that you have to be the "1,000 patent inventor". Even the greatest musicians and artists have a few Platinum albums for songs they purchased or licensed from songwriters. Learn to venture out and acquire compatible I.P. from other sources if it bolsters your market position.
Well, long winded as I am, I hope to have opened your thought process to how to create and keep the value in your initial intellectual property. More importantly, regardless of the scale of intellectual property inventory or portfolio you decide to pursue, you can easily, efficiently and successfully expand your initial claims so that you strategically obtain enduring protection, increased market share, brand recognition, revenues, and a strong, long term business foundation.
In the next and final segment, Part III, we'll cover methods I use of actually attaching a dollar value to the intellectual property - a necessary step if you are going to try to "cost-justify" the "property investment" required to expanding your portfolios; I'll show you a few ways you can increase that value through profit-driven business decisions. (Dust off your calculator.)
Please drop me a line and let me know if you have used these strategies, or others I have omitted, successfully. I would even be interested to learn if any of these techniques failed to meet your expectations. I'll be sure to pass along your tips in the final segment.
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