Analysis of the company’s IP situation and recommendations on its improvement essay
The intention of this memo is to use available information about the case in order to analyze current position of the company with regard to intellectual property protection, consider possible risks and possibilities, and to develop a set of recommendations on improving the position of the firm with regard to intellectual property protection. The first section of this memo contains brief description of the case. Section 2 includes general recommendations on procedures which should be undertaken prior to making any decisions in the sphere of IP protection. Section 3 provides a brief overview of available IP protection options and the variations of these options, together with the recommendations on appropriateness of each of these variants.
1. Description of the case
The company currently has an important project underway, which will lead to the creation of a new set-top-box for multimedia services which can be installed in private houses. The prototype of the project is named “Major-domo”. According to the information of the R&D department, there are no such products at the market now, and the product is expected to have commercial success. The company has been working on this project for 2 years, and significant contributions were made by enthusiastic employees.
Up-to-date results are the following: the hardware was developed explicitly for the product, and it is supposed to be brand new in all senses. The same situation is with software: the company’s engineers have developed a new operating system from scratch. This system was creating using proprietary language, and this operating system provides numerous functions which are easily available. Using the product, it is possible to transmit signals from all possible devices using the “Major-domo” product, including computer systems, cell phones, refrigerators, cameras etc. For the next two years, the projected market for the product is expected to be $400 million.
There are several urgent problems with regard to IP protection. First of all, some of the researchers (strategic employees) left to competitors, and due to the poor performance of the company during the last two years, several other employees might be intending to leave. Nobody knows what pieces of the project are relevant in order to complete it properly, which is the sign of another major problem – possible “uninvention” (loss of knowledge because of ineffective use of information and departure of key people).
It is highly likely that prior IP management and protection approach was not adequate (or nonexistent), and current inventions are exposed to disclosure threat as well as to the threat of being patented by someone else. It is clear that before actually finishing and marketing the product, the company should analyze available IP protection options and develop a certain strategy for protecting the company’s intellectual property.
2. General recommendations
First of all, the company needs to undertake detailed analysis of the existing situation, including such areas as documentation, agreements with employees, situation with existing employees, and current state of the project. The scope of the invention and details of invented hardware or software solutions have to be precisely determined and documented. From the description of the product it seems that there is also a new technology involved, which allows to transmit signals between all existing devices. If it is really a new technology, and not the modification of an existing one, it should be also properly researched and documented, and is the object of IP protection apart from software and hardware innovations.
The positions of competitors and their recent activities should also be analyzed, especially the activities of those competitors where former strategic employees are working now. In addition to this, the company should research existing patents in order to avoid patent infringement. Special attention should be paid to this fact in order to avoid future costs. The company should use all possible means to check for similar patents: use online search, review products and strategies of competitors, contact competitors if there is evidence of possible product similarity, and perform a preliminary screening of patent infringement. If there are patents which might lead to infringement, it is necessary to turn to patent attorney and order preliminary and formal infringement review as well as patent invalidity review.
It is indicated that the new operating system was created using proprietary language: it is necessary to find out whether this language belongs to the company, or is protected by other company, and commercial use of this language involves costs and patenting issues. The company should gather all available information relating to the product, and decide on the future strategy. Overall, there are four situations with regard to information sources and company awareness: a company knows that it knows (possesses an invention), a company does not know that it knows, a company knows that it does not know, and the company is not aware of not knowing. In this case, the company is most likely not knowing what exactly it knows (although there is a certainty that the product is valuable and will embrace a commercial success). The major choice for the company is to raise awareness, i.e. to gather information about the product. It is necessary to invest into the level of awareness, and it is also necessary to monitor the activities of former employees (and to invite them back, offering incentives or even royalties, if it is possible).
After raising awareness, the company should thoroughly research the product and its features. The company should consider geographic markets where the product is likely to be popular, and estimate the volume of each geographic market. Future value of the product (hardware and software parts) and the technology associated with the product should also be evaluated. Basing on this data, it is necessary to consider general strategies of IP protection for the company: trade secret, patenting, licensing or other form of protection. For each form of protection, it is necessary to study the costs of this strategy regarding the selected markets and to estimate the appropriateness of these markets with regard to these costs (taking into account potential litigation costs). Finally, the company should evaluate all strategies of IP protection as well as their costs, and select a strategy with minimized costs and maximized long-term gains.
3. Available options
Three key strategies available to the company are trade secret (know-how), patent protection and licensing. Patent protection and licensing can in fact be combined, but the choice of trade secret as a strategy can not be combined with all other searches. Here it should be noted that the company has at least two different objects of innovation: hardware (Major-domo product as such) and software (operating system). A technology of transmitting signals between various devices can be another object of protection. For each of these objects, different strategies of IP protection can be selected, and the main goal of such selection is to maximize IP protection and to maximize long-term benefits associated with the product.
Three key strategies and their details, advantages and disadvantages are reviewed in brief detail below. Trade secret approach is highly beneficial, when the invention is going to be highly popular, does not represent a “state of art” and cannot be easily reinvented. Legal costs of this strategy are practically equal to zero; however, costs of keeping the information secret are rather high in this case. Organizational and technological measures to prevent leaking of information can be costly; this strategy does not allow for cooperation between R&D groups, and the loss of key inventors might lead to the loss of product itself. Moreover, once the trade secret is disclosed in some way, the invention is no longer a competitive advantage for the company. Finally, it is problematic to determine theft in case of trade secret approach.
In order to protect IP property in case of trade protection, the company should closely watch the actions of competitors, suppliers, employees and customers. The knowledge should be compartmentalized and meta-knowledge used for recreation of product should be generated. Overall, this strategy might only be good for the company if the combination of hardware, software and signal transmission technology is so promising, that many other highly competitive devices can be created using this combination, and this solution cannot be easily reinvented or copied.
A generally more secure strategy of IP protection is patenting. A patent is a legal title to prevent other companies from practicing the patented invention, in accordance with the boundaries of the patents determined by the claims. Patents are limited in time and space (associated with certain geographic region). Ideas or inventions which were already disclosed to the public cannot be patented. European patents are provided for the inventions in all fields of technology possessing the following characteristics: the invention should be new, involve an inventive step and should be susceptible of industrial application. It is clear that “Major-domo” is an industrial application of the innovation; however, it is necessary to prove that the hardware, software and technology are new, and involve an inventing step. “New” with regard to patenting means that the invention is not part of publicly available information (state of the art). Inventing step for the invention means that with regard to the state of the art, the invention is not obvious to a practitioner skilled in the art who does not have inventive abilities.
The analysis of applicability of patenting should be performed by the company. Currently, it is possible to state that the product has the following characteristics of a patented object: it overcomes technical difficulties using materials or devices in a different field, includes technical progress (signal transmission technology), satisfies a longstanding need, and might even be a pioneer invention. Thus, it is highly likely that all three objects (software, hardware and technology) can be objects of patenting, and this strategy looks like the most appropriate IP protection approach for the company. One major disadvantage of this strategy is patent exhaustion; however, some patenting techniques allow to overcome this.
There are different variants of patenting:
Fence and wall patents – protect not only the invention but its substitutes which are easy to build
Patent flooding – multiple patenting for minor technology variations
Royalty maximization patenting – strategy based on high royalties from patents
Torpedo patents – are not disclosed until a certain standard is defined
Free licensing – profit is gained on associated products or services
Cross licensing – exchange of licenses with a competitor
Patent pooling – several companies form a pool of patents to reduce costs
Patent portfolio – accumulation of patents to create market barriers
Layering – tying products patents for which are about to expire with newly patented products
Advertising – dissemination of information on the company’s patent portfolio
For the given company, possible choices might be fence and wall protection (if the new technology is very promising and the company can bear the costs), torpedo patenting – if competitors are already working in this sphere and might be willing to create a new technology, cross-licensing – if there is one powerful competitor which already knows part of the secret, and has important technologies as well, patent pooling – if several competitors are already copying the innovation, patent portfolio – if the company wants to gain own market niche (like Apple) and can afford this, and layering – if there is space for modification of the technology or other innovations.
In addition to patenting, the company should also consider licensing. Licensing is a specific authorization to use the product/technology/innovation by one party to another party. In case of licensing, the ownership of the patent remains with the original inventor, and the implementation or practice of the invention is performed by another company. This might work good if the company does not have sufficient manufacturing and R&D capabilities to satisfy the projected demand. Licensing can be exclusive and non-exclusive. With exclusive licensing, the right to use the invention is solely passed to the licensee. For non-exclusive licensing case, the right to use to invention can be exercised by multiple licensees and by the patent owner as well. Specific licensing agreements have to be developed basing on the projected market value of the product, perspectives of the product and the company’s projected capacity.
Overall, two strategies might work best for the company. The first is to adopt fence and wall patenting or create a patent portfolio, and develop a specific market niche where the company would be able to operate and reap and benefits for a certain period of time. Then the products could be modified and updates, and further patents can be filed. This is Apple-like model, where the company creates own specific competitive niche (and develops own market). This scenario is good if the company has enough funds and other resources to win in this challenge. If the company’s position is weaker, then it is recommended to patent the inventions separately, and to offer non-exclusive licensing for the operating system and for the technology. The company would then be able to gain profit from licensing, and can also manufacture and sell own hardware products using this operating system and signal transmission technology.
