A Business Leader’s Guide to IP – Part 7: Leveraging Your IP Assets to Drive Growth and Returns
Editor’s Note: This article is part seven of a seven-part series titled “A Business Leader’s Guide to IP”, in which we will focus on the strategies, opportunities, and impact you can achieve by integrating IP as a core element of your overall business and innovation strategy. As each article is published, we will update links here:
- A Business Leader’s Guide to IP: Part 1 – Understanding Your Potential Risks
- A Business Leader’s Guide to IP: Part 2 – Sound Strategies to Mitigate Your Risks
- A Business Leader’s Guide to IP: Part 3 – Combating Theft of Your IP Assets
- A Business Leader’s Guide to IP: Part 4 – Shore Up Your Market Position
- A Business Leader’s Guide to IP: Part 5 – Protecting and Growing Your Market Share
- A Business Leader’s Guide to IP: Part 6 – What a Weak IP Position Communicates to the Market
- A Business Leader’s Guide to IP – Part 7 – Leveraging Your IP Assets to Drive Growth and Returns [this article]
A Business Leader’s Guide to IP Part 7
Leveraging Your IP Assets to Drive Growth and Returns
When enterprises evaluate their assets and opportunities for driving growth, they tend to think in terms of tangible assets, established products and well-defined messages to market. These are all most certainly important pathways to growth, but they also leave the company at most risk for seeing meager returns or finding growth efforts stunted by competitive pressures, since these all represent incremental means toward progress.
In fact, W. Chan Kim and Renee Mauborgne of INSEAD describe these in their best-selling business book, Blue Ocean Strategy, as highly dangerous and ultimately ineffective ‘red ocean’ strategies, i.e. those most likely to find the enterprise struggling to make headway. This is due to the presence of a sea filled with competitive threats, downward price pressures and the fickleness of an already-established customer mindset. In contrast, companies have another option, which the same authors refer to as pursuing ‘blue ocean’ strategies in which new innovations and the delivery of solutions to emerging or previously undefined customer segments leads the company to calmer waters and greater margin protection.
Two of the key ingredients in such a strategy are the development of product and service innovations, and the creation of strong brands that position these innovations effectively, so they can establish a new position in the marketplace. With that in mind, consider that both product/service innovation and brand development/deployment are primarily outputs not of tangible assets or existing offerings, but are in fact intangible assets that collectively derive from the firm’s intellectual property (IP) portfolio.
Furthermore, companies who implement blue ocean strategies typically achieve 20-30% greater returns than their competitive peers. The point is clear: companies who embrace IP as a cornerstone for growth are far more likely to achieve the growth and returns they seek.
With that in mind, let’s look at three powerful ways in which we can drive growth by harnessing the power of IP in the enterprise.
Driving growth through brand development and protection
Many of us tend to think of branding as something that benefits from regular change, due in no small part to the fact that brand identities (logos, fonts, color palettes) regularly adapt to meet evolving tastes. What this obscures, however, is that when properly managed, brands build extraordinary value over time. Put another way, a strong brand is an appreciating asset, and should be treated as such.
Sure, companies like Apple, Citibank and Hilton have revised their logos and brand systems over the years, but they have done so in a context committed to building and strengthening the core brand itself in order to achieve what smart enterprises refer to as brand equity. Brand equity recognizes the value a company gains from its name recognition when compared to a generic equivalent. It possesses three core components: customer perception (knowledge), negative or positive effect (preferences), and the resulting value (financial consideration).
As you build brand equity, competitors will notice this and perceive it as a threat they may try to mitigate through any number of counterefforts, many of which ultimately constitute forms of brand abuse. These include outright counterfeiting; the use of rogue websites, manipulative directory and ecommerce listings, and social media impersonation or misinformation; copyright piracy; trademark squatting; and patent theft.
In response to this proliferation of threats, companies need to consider two key points. The first is that a strong brand is harder to hit. For example, if you pursue design patents on a product design and trademark the brand identity that accompanies that product, you not only strengthen your legal rights but you also make it harder for unscrupulous parties to successfully abuse your brand. Perhaps the logo looks correct but the shape or packaging of a counterfeit product may mismatch with what customers know and expect. In addition, as you invest in strengthening your brand you can also educate consumers to know and look for official versions of your products (for example, you may have seen the “Officially Licensed Merchandise” hologram stickers on many forms of athletic wear featuring team names.
Along with brand development comes brand protection, which takes both preventative and defensive forms. Key steps in brand protection include pursuing strong registration of intellectual property; ensuring strong contracts and nondisclosure agreements with partners at all points across the supply chain; establishing a strong and powerful online presence (such as an official online store, branded social media accounts, and strong customer education resources.
Driving growth through incremental innovation and defensive publishing
While we opened this discussion by emphasizing the power of blue ocean strategy and similar efforts to develop completely new market ‘oceans’, we also need to recognize that once we’ve invested in these new oceans, we must protect ourselves from encroaching competition as long as we can. In fact, it’s an established fact that the greatest risk in pursuing blue ocean strategies is in failing to recognize that all oceans in the marketplace eventually turn red. Bill Gates, the founder and former chairman of Microsoft, described intellectual property as an invaluable asset “with the shelf-life of a banana”: if you don’t use it, you will lose it.
Incremental innovation is a strategy that helps protect your company’s hard-won gains in one of two ways. One is to create a patent minefield around your new marketspace, by pursuing patent protection for additional innovations that would be required in order for other companies to build incremental advantages off of your hard work. When this is achieved in reverse (i.e. when a competitor pursues this strategy against you), it’s known as a picket fence strategy. Either way, the point here is that incremental innovation strategy ensures that your core innovations are not at risk due to a loss of a clear pathway to market acceptance by losing the opportunity to secure related IP that can connect your innovation to marketability.
When a company possesses the patent to a core enabling technology, it can strengthen its position by employing defensive publishing. Defensive publishing addresses the challenge faced by companies who are not necessarily able to pursue patents for every incremental innovation necessary to create a protective minefield around their core technology. In this situation, defensive publication increases the scope of the original patent by disallowing competitive patents. The way this is achieved is by ensuring that the original patent is fundamental to the incremental improvement. As a result, the existing patent protection is extended over the new elements. By using disclosures of this nature, a company “poisons the ground” around its original patent, which provides a highly cost-effective approach to technology protection.
Driving growth through IP licensing
IP licensing can provide you with additional revenue and a strengthened market position, but to be achieved successfully it must rest on a foundation of extremely well-defined IP rights, lest the company expose itself to new financial and business risks.
The first necessary ingredient for a successful IP licensing model is the clearly defined and secured rights to the IP in question through a patent, copyright, trademark or trade secret. The second necessary ingredient is a valuation for the IP asset that generates interest by one or more other parties in securing the license. Once these are established, the innovating company needs to work diligently to engage with relevant and potentially interested parties to create a strong market for the licensing opportunity. In essence, you’re still selling something; the only difference is that instead of selling a product or service to the end-user, you’re selling the right to create such products or services to another company under defined conditions.
Those conditions constitute the key elements in the IP licensing agreement. A strong licensing agreement generally includes five essential components. These include (a) scope of exclusivity or non-exclusivity, (b) purpose and authorized application(s) for the license, (c) geography and market scope of the authorization being provided, (d) length of the license term and indication of whether a term may be extended, if applicable; and (e) royalty compensation terms. Royalties typically include a combination of a specific amount per sale of the licensed product or service, or a percentage of the selling price. In most cases, these royalties are paid monthly or quarterly. In some cases, the agreement may also include an upfront payment along with the royalty component.
You can also combine tactics to achieve maximum market impact for your licensing strategy. Competitors often have a tendency to walk right up to the line of infringement and can easily cross that line in a crowded technology space. Monitoring your competitors’ patent activities and product launches is critical in identifying these potential infringers. However, such activity can create very lucrative opportunities to offer licenses as a means to avoid costly infringement litigation and generate ongoing revenue while protecting your innovations and brands.
As we can see, IP assets provide forward-focused companies with many pathways by which growth and returns can be achieved. The key is to build and execute an IP strategy that is strong, comprehensive, proactive, and sharpened to address the realities of a competitive marketplace. The benefits to the well-prepared and IP-aligned enterprise, however, can be enormous.
This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.