Monday 20 February 2012

Keeping on top of IP strategy

The start of a new year is a great time for new ventures to refocus.  Business plans and strategies can be dusted off, critiqued, amended or binned.

IP and commercialisation strategies are no different.  They need regular review and refinement to make sure they're not heading in one direction while your business heads in another.

The long lead times with R&D and IP development mean new ventures in particular must take care to try and avoid spending in areas that won't be relevant to the business in 2-3 years time.  Patent strategies in particular may need regular tweaking as technologies, markets and commercialisation strategies change.

Changing business models

We're working with several clients currently whose business models changed radically in 2011 due to market changes and financial pressures.  In some cases clients have switched models from manufacturing their products themselves to licensing others to bring them to market.  This might involve licensing a product as a whole, or licensing components of the product which might have application in their field as well as other fields.  In other cases our clients' market focus has changed from making and selling in Australasia to taking a more global approach.

Irrespective of the change, the businesses all need to take a close look at their IP position and tailor it accordingly.

For example, some patent families relating to manufacturing processes may not be so relevant and could be lapsed if the business is licensing others to manufacture.  On the other hand, patent families covering the end product may need to be filed more widely given the product may be being licensed and sold to a wider global audience. 

If licensing becomes a major focus for a business then just relying on trade secret protection may not be viable long term because those trade secrets will need to be disclosed to potential licensees.  Even though licence agreements can include safeguards to protect confidentiality, once the secret is out, it is very hard to maintain a royalty stream from it and your only recourse will be litigation against your licensee which won't be easy or cheap.

On the other hand, if patent protection is becoming too expensive for the business to sustain, then keeping manufacturing processes and formulations secret and just selling end product could well be a better commercial strategy.  The key point is to make sure your IP strategy is updated as the business model changes.

Sale of IP as a commercialisation strategy

A key feature of 2011 was the sale of IP as a commercialisation strategy in itself.  At the big end of town there were major transactions such as Nortel's US$4.5b portfolio sale, Google's acquisition of Motorola Mobility (reportedly for its patents) and the rumoured sale of Kodak's patents to stave off bankruptcy.

This has led IP owners all over the world to look critically at their portfolios to see what value could be realised by selling out.  It has also encouraged IP licensing companies to continue to aggressively develop their portfolios as they look for successful exits.

Managers and directors in the US are now looking at this type of active portfolio management as a matter of course when portfolios and business models are being reviewed.  Billionaire investor Carl Icahn actively encouraged Motorola to look at monetising its patent portfolio in the wake of the Nortel deal.  The issue of IP value has reached the mainstream of business, although whether future values remain at this stratospheric level is another question. 

What's ahead for New Zealand in 2012?

Traditional arguments for developing IP will continue to remain sound. These include maintaining a competitive advantage, creating roadblocks for other businesses and building value in your own business.  On top of this, developing IP will continue to lead to more global licensing opportunities for local companies.  This is a trend we expect to see continuing. 

However, the emerging trend could be the sale of IP as a strategy in itself.  Although we are unlikely to see a US level of transactional activity in New Zealand in the short term, there are deals happening here and local ventures should keep up to date with global trends because sale opportunities will arise from time to time.  Developing IP can provide companies with currency to trade and we expect that, with more high profile global deals, awareness of this option will grow in the New Zealand boardroom.

So now is the time to dig that IP portfolio from the bottom drawer and think seriously about what needs adjusting to suit a changing market.  If no major changes are required, that's great.  At least you've confirmed the IP and business strategies are still aligned and you're in position for growth.

An edited version of this article was published in the 38th edition of Idealog magazine