Mike Tyson famously said, “Everyone has a plan until they get punched in the face.” Those in the Intellectual Property (IP) world can appreciate what that means. Ask any emerging tech company that has been slapped – or punched – with a patent infringement lawsuit by a competitor. Patent litigation is very disruptive because it require significant amounts of resources to defend against, and can impact marketing and business development efforts. All of these disruptions affect a company’s ability to raise money.
Additionally, it is not uncommon for companies to get hit with patent litigation lawsuits before major funding events, such as IPOs or other upcoming financing, marketing or revenue generating events. To avoid being caught off-guard, companies should have an IP strategy that is aligned with business objectives, provides mechanisms for reducing the risk of unexpected lawsuits, and provides avenues for companies to act against bad actors – be it competitors that are blatantly copying the company’s innovations or former employees.
Here are three questions companies should be asking themselves regarding their current IP strategy:
This is a deep question and one that requires companies to truly appreciate how IP plays a role in their business goals. IP, and patents in particular, can be used to send signals to the marketplace, to investors, and to competitors. For instance, how many patents and pending applications a company has as well as the frequency of patent filings could signal how likely the company is to assert patents, how innovative its technology is, and how close the company is to launching a product. A good understanding of these questions allow competitors, customers, and investors to evaluate the company’s innovative health and protection. For example, competitors can evaluate the volume and pace of filings to assess the likelihood that the company will assert its patent portfolio. Customers can evaluate a company’s patent portfolio to see how innovative the technology is and whether they can shop around for alternatives. Investors can evaluate a company’s patent portfolio to see how defensible the technology is and how well-prepared the company is against threats from competitors.
When formulating an IP strategy, a company should identify its competitors, quantitatively and qualitatively assess their patent portfolios, and evaluate how litigious the industry is. This assessment will allow a company to understand the risk profile posed by its competitors. For instance, are competitors simply filing to bolster their corporate resume, or do they actually serve as threats or deterrents to other companies in the industry? Separately, the quantitative and qualitative assessment should also allow the company to identify whitespace where the company can get patents, and also identify areas for patent protection where they can likely assert its own patents against competitors if the need arises. Finally, the assessment should help companies from a marketing front – not only to customers to whom they can tout their proprietary and protected technology – but also to future investors.
Lastly, aligning the company’s IP strategy with its business goals should take into account, the amount of financial resources the company currently has as well as the amount of resources the company is expected to have due to revenues or financings.
Having a strong patent portfolio that includes litigation-ready patents that read on a company’s competitors’ product or service offerings is one of the best ways to reduce threats from competitors. We often remind clients of the 4-4-4 rule, which translates to having 4 patents directed to 4 features of 4 competitors. Now, the 4-4-4 rule may not work for every company or for every industry, but the idea of having patents directed to competitors’ features (or at least the competitors that also have an offensive looking patent strategy) can serve as a deterrent against lawsuits from competitors or provides a company with a counterpunch if it is metaphorically “punched” with a lawsuit. Getting patents that read on competitors requires a concerted effort both in understanding what the company has developed as well as understanding potential iterations, variations, and so forth that a competitor could use. Additionally, it requires a foundational understanding of the competitive landscape as well as specific offerings of competitors. Often, companies file patents on technologies they are either building or have already built, but they may not think much about features they plan to launch in the future. This is where a lot of the whitespace actually is. Filing robust patent applications that cover multiple different implementations of a particular product or feature can facilitate obtaining patents with broad coverage that competitors will likely infringe, especially if the competitor tries to copy a particular feature that a company has launched and touted in marketing materials.
Market conditions can change very quickly, and it is no secret that the patent process moves extremely slowly relative to market conditions. Getting a patent can take as little as 4 months and as long as several years. That said, when evaluating a company’s IP strategy and the health of its IP portfolio, it is important to evaluate what mechanisms a company has at its disposal to confront bad actors. For example, how will your company address a competitor launching a very similar product offering as you? What mechanisms are in place should an employee leave and starts a competing business? What positions do you have if you are accused of patent infringement?
A company’s IP strategy should consider these scenarios and put the company in a position to handle such events. For instance, have you evaluated your employment agreements to ensure that you own all of the rights of any IP that your employees are inventing? Do you have special provisions or policies in place regarding handling employees leaving to join competitors? Do you have patents in your arsenal to assert against competitors when they copy your product or service offerings? Do you have trademarks in case your competitors are serving ads using your company’s product names? These are all important questions for companies to consider and should be ones that are addressed when formulating their IP strategy.
Most companies do have IP strategies but they often are not aligned or no longer aligned with their business goals and are ineffective in deterring threats or acting against bad actors. Companies with IP strategies that are aligned with their business goals and are constantly evolving as new threats emerge and existing threats wane are far more likely to deter lawsuits, enforce their own IP against bad actors, and significantly reduce the risk of a catastrophic event that can cripple the business.