IP Strategy: 1. Exclusivity
By John Storella Partner at Storella & Witt, LLP
The goal of the exclusivity strategy is to create a zone of exclusion around a company’s technology and brands that provides meaningful exclusionary power in the market.? Market exclusivity allows a company to charge premium prices for its products. This increases the company's profit margin and, by extension, its valuation.
"Meaningful exclusionary power" is the power to exclude competitors from product features that give your products a competitive advantage. Patents that exclude competitors from product features customers don't really care about do not provide meaningful exclusionary power. And patents that cover important product features but are so narrow that competitors can easily design around them also do not provide meaningful exclusionary power. The primary focus of the patent strategy has to be on identifying product features that give the product a competitive advantage and covering those features with patent claims that can't be designed around, and that will not be held invalid in litigation.
Beneath this primary focus, we also recognize other ways IP can provide value to a company:
Identify the technology and brands that give the company a competitive advantage
The first step in a company’s exclusivity strategy is to identify where its competitive advantage in lies in technology and brands.? For technology, this involves identifying the features of the company’s products that make them attractive to customers.? The next step is to ask, "What technologies contribute to these features?"? These technologies are the primary focus of IP protection.
For example, in the case of pharmaceuticals, the most attractive feature is efficacy to treat disease. But improved safety, fewer side effects, and convenience also can make a drug attractive. The technology that provides these features includes the chemical entity, but elements such as a formulation or method of delivery may also contribute.
In the case of a diagnostic, the attractive feature might be the sensitivity and specificity of the assay. The technology could be a detection methodology that boosts signal-to-noise ratio.
In the case of instruments, the attractive feature can be a significant breakthrough that allows the customer to do something completely new or that improves a function, such as speed, yield, or sensitivity, by an order-of-magnitude.? High-throughput DNA sequencing and CRISPR technology are examples of breakthrough technologies.
In each case, these technological improvements that contribute to the competitive advantage of the product should be the primary focus of IP protection.
In some cases, a company’s brands provide value.? Witness any product that bears the “Apple” or “Nike” logo. Brand value typically develops over time, as the company's products gain traction in the market.
Determine the best form of IP protection
Once a company has identified its valuable IP, it needs to determine the best way to protect it.? In the case of a technology, this will mean deciding between patent protection and trade secret protection.? Any technology that can be reverse-engineered should be the subject of patent protection.? On the other hand, if it will be difficult to determine whether a competitor is infringing a patent, for example an internally used method, then trade secret might be the better route.
Technology that cannot easily be reverse-engineered may be better kept as a trade secret. However, trade secret protection suffers from some weaknesses. The trade secret could be independently discovered by a competitor (who may try to patent it!). If the trade secret is disclosed, accidentally or intentionally, protection is lost. If it is disclosed or misappropriated, there may be limited ability to recover damages.
Brands, of course, are best protected with trademarks. A company should determine which trademarks are likely to have enduring value, such as the company name, or an important product line, and that the public will come to associate with the company and its products.
Patenting Strategy
Likening a patent portfolio to an investment portfolio, a company should consider a diversification approach to its patents. Some patents will have very broad claims but also be most vulnerable to a validity challenge. Other patents will have more narrow claims, but also be more immune to such a challenge.
A company’s foundational technology will be its most valuable IP asset.? Therefore, at this stage, investment in strong patent applications can be as important as investing in research and development.
Provisional patent applications should be filed as soon as the company has sufficient information to write an enabling disclosure.? The risk of delay is that another company will file an application with an earlier filing date on the same invention, blocking the company’s ability to get a patent.? This application can be updated with supporting information during the year interval before converting to an international filing.
In the U.S., prosecution can be accelerated by filing Track 1 applications that will be examined quickly.? A decision to file a Track 1 application depends on the need of the company to have an issued, rather than a pending, patent application.? One approach is to prosecute narrow claims that cover essential elements, and which have a greater chance of issuance.? However, if an issued patent is of no greater value to the company than a pending application, there is no need to fast-track an application.
Filing abroad is expensive, so a company should consider return on investment.? A patent should only be filed in a jurisdiction if the excess profits a company will make by having the patent represents a satisfactory return on investment in prosecuting the patent.? Factors to consider include the size of the market, the cost of prosecuting there, the kinds of claims likely to be issued, location of manufacturing facilities, and ability to enforce the patent in the jursidiction. In the case of blockbuster drugs, profits in every jurisdiction are likely to be high, so a wide filing strategy is justified.? However, for most products, a good starting point is to file in jurisdictions that represent at least 85% of the market for the product.
Every situation is different, and every patent attorney has his or her own priorities, but here are my priorities for a U.S. company:
In addition to prosecuing patent claims that cover a company's technology, a company also can look at competitor's products and attempt to prosecute claims out of its own portfolio that cover the competitor's product.
If a technology is not important enough to patent, a company can publish the technology in a scientific paper, turning it into prior art that no one else can patent.
Branding Strategy
Brands are valuable, as they represent the associations customers have with your products.? A company should identify its valuable brands and protect them with trademark.? A company’s name represents the company’s most valuable brand.? Brand names of products also have great value, as customers come to associate the brand name with the generic.
Domain names also have value.? Besides a company’s name, registering brand names and generic names of new technologies can drive traffic to your website, rather than those of your competitors.
Sharpen the Saw
IP acquisition is an iterative process.? A company has to periodically re-evaluate its strategy in view of evolving business goals.
In its early stages, a company should file patent applications promiscuously, covering as much ground as possible.? Then, periodically, the company should reevaluate the patent portfolio and abandon applications that are no longer providing much value.? Further spending on these patents will not produce an adequate return on investment.
By following this strategy, a company can execute an exclusivity strategy it can take to the bank.
Stayed tuned for IP Strategy: 2. Freedom to Operate