A time to be inventive

Faced with the economic downturn, many companies have spent recent months looking at ways in which to reduce their costs, including those relating to the protection of intellectual property (IP). IP should, however, continue to play a key role in the business strategy of innovative companies.

Companies should be advised to take a longer term view of their IP strategy, and this article highlights some ways in which companies can reduce IP costs whilst maximising the value of IP to their business.

Focus on value

Obtaining and protecting registered IP, particularly patents, can be costly and a drain on limited resources. However it is important that companies do not cut costs for short term benefits, risking the value of their IP portfolios in the long term. Indeed a recent survey, conducted by a firm of UK trade mark attorneys, found that some 84% of businesses consider brands are more important in a downturn than in a more favourable economic climate.

Companies should analyse the strength of their existing IP portfolio, and direct the IP budget in a systematic manner rather than simply cutting it. Assessing and identifying where their current and future business aligns with their patents and/or trade marks will enable them to determine those which are no longer required. This allows a company to make informed decisions about abandonment or licensing, and focus limited resources on maintaining key IP.

An economic downturn may only last a small part of the life of IP (20 years, for example, in the case of patents), and therefore IP strategy needs to take into account the long term needs of the business. Companies should develop a cost effective strategy for filing protection. A more focused approach could be taken on choosing the territories in which patents or trade marks are filed. In the case of patents, use can be made of the Patent Cooperation Treaty (PCT) which allows the company to file a PCT application for relatively modest cost, with a decision on country filing being put off for several months/years to delay costs.

Consideration should be given to whether registered protection is required at all. Some companies will identify inventions which can be maintained as trade secrets, providing a sufficient competitive advantage, without the need to file for patent protection.

Assess existing agreements

It is advisable to review and audit existing IP licences; it is not uncommon for companies to find that there has been an underpayment of royalties. Companies may also wish to assess the terms of their IP licences. If changes in the economic climate mean these are no longer beneficial for the business, the company could consider renegotiation levers or seeking an exit.

Improve IP capture

Companies should consider improving the method by which they identify and capture key inventions. Famously improved efficiencies in recording inventions at IBM led to some of the most valuable patents in their portfolio.

Exploiting a portfolio

In addition to costcutting efforts, companies should look at extracting value from their existing IP portfolio. Instead of simply abandoning IP which does not align with the business, explore options for licensing or selling the IP to a third party.

Traditionally buyers have been companies looking to commercialise the IP in a hands-on manner, but increasingly IP has been bought and sold as a commodity by intermediaries with a view to commercialising it in another way. They may build a portfolio and sell it to a third party, or enforce licences for royalty revenues.

Such sales are not limited to “redundant” IP. Some companies are entering into arrangements with buyers where they sell the IP but receive back a non-exclusive licence, to continue to operate their business and develop core products. Such arrangements can be attractive to a buyer, for example where they wish to seek and bring infringement actions against third parties as a result of owning the IP.

Companies which would have sought bank or equity funding, which is less available in the current downturn, are considering selling IP as an alternative source of funding. The cash injection this offers can be deployed to other areas of the business or even used to maintain the retained IP portfolio.

The flip side to this is that the economic downturn may result in competitors or potential partners struggling for funding or going into insolvency. This presents opportunities for acquiring or licensing IP at more favourable rates.

A strategic approach

By developing a strategic approach to protecting, maintaining and exploiting existing and future IP, companies can benefit from both reduced costs and increased value. Importantly, this can be achieved without sacrificing their overall IP portfolio, which will become important when the economy eventually improves.

Ross Nicol, Associate, Maclay Murray & Spens LLPL