A number of drivers require that IP benefit from investment in R&D
be maximised.   These include the growth of the knowledge economy, a
mobile workforce, the high degree of competitiveness in the markets,
and the business value of a proprietary position.  Today, capital
markets and investment analysts are increasingly focusing on IP assets,
which themselves are becoming tradable assets.     

From: 5th Annual Intellectual Property Conference, July 2006

Introduction

A
number of drivers require that IP benefit from investment in R&D be
maximised.   These include the growth of the knowledge economy, a
mobile workforce, the high degree of competitiveness in the markets,
and the business value of a proprietary position.  Today, capital
markets and investment analysts are increasingly focusing on IP assets,
which themselves are becoming tradable assets.     

Although
some high tech companies have created huge wealth through IP, the
securing and the use of IP rights are not a panacea; whereas IP rights
provide an opportunity to enhance market success, they are not a
guarantee to wealth.  Today's businesses are increasingly seeing a
greater degree of patent litigation.  Therefore, there is a need to
tread wisely and cautiously in this space.

Why is IP capture is important?

Good
IP capture can be foundational to the security of a company and can
become its primary advantage for attracting financial investment.  IP
rights can also secure a company's business, secure its future products
and technology, and enable competitive edge to be developed and
retained in the market.

IP ownership also brings greater
choice.  A company may choose to benefit from its IP rights directly by
commercialising its invention.  Alternatively, it may choose to license
its technology and gain royalties as a benefit, or to sell its IP.

Part I General considerations in IP capture

A
number of factors have to be considered as part of the IP capture
strategy.  Key amongst these is an understanding of how the business
plans to use its IP rights.
 
The R&D context and the
business purpose determine what', why' and how' IP will be captured. 
For business success, the IP capture strategy and the commercialisation
strategy must be aligned.  The business purpose(s) served by the IP
portfolio depends upon the nature of the company and its business goals.

Very
large corporations have the capability of working at both ends of the
innovation-commercialisation' spectrum: they can do blue sky research
and are able to convert science discovery into commercial products. 
They have marketing and distribution outlets and good R&D budgets. 
Some choose to capture IP but not to commercialise.  They can grow an
IP portfolio solely to create a positive image in the market place. 
The portfolio may be used to demonstrate that a company has high
quality expertise, creative skills and/or specialist technology
capability.  As a marketing tool, the portfolio can be used to bring
confidence to (a) potential partners for joint venture work, (b)
shareholders for investing in the company, and/or (c) customers (help
associate positive images with the company or its products).
 
Smaller
companies may have to decide in which part of the
innovation-commercialisation spectrum to work.  If they do not have the
capability to manufacture and/or market the products of their
innovation, they may need to determine at what point they will engage
with partners, to define critically what is to be delivered and how,
and to identify who they will engage with to commercialise outcomes. 
IP capture and innovation development, from very early on, have to be
aligned to where and how the products will be used.  The business plan
will need to align the R&D, IP, and partnering and
commercialisation strategies.

Companies engaged in blue sky
R&D have the potential to deliver blockbuster products from
research.  If R&D groups are not linked to commercially focused
teams, they may not be able to see how to convert research outputs to
new product development.  Blue sky work will not be picked up for
commercialisation unless there is good communication between
researchers and the commercialisation team, and IP protection becomes a
part of the commercialisation strategy.
 
Market knowledge allows
a small R&D company to make its research commercialisable.  This
can be built from knowing who would use the innovation and building
relationships with them in the target market.  Some companies can
undertake contract research in the market to build trust, which allows
easier commercialisation in that market.
    
Risks in IP capture

A
number of risks attend IP capture.  These include developing a product
that has no market, insufficient funds to capture IP rights core to the
business, lack of knowledge of how the market or industry or technology
is changing as the product is being innovated, and an absence of
business strategy to guide IP capture.

Types of IP that can be captured

A
number of modes secure IP from R&D effort.  The mode that best
serves the purposes of the business will differ from setting to
setting.  The four main instruments by which IP can be captured include
the following.

•   Patents

Patents arise from ideas that
have been converted into innovative products or services.  Patents that
enable competitive products to be marketed can significantly increase
the profit margins for the business.

Patents can be gained for a
number of innovations: these include new or improved devices, some
(packaging) designs, new processes for the manufacture of products, new
methods of use of existing products, the useful or functional aspects
of an innovative technology (e.g. product compositions, methods of
manufacturing), and, where allowed, methods of medical treatment or
doing business.  Design patents are used to protect the ornamental (not
functional) aspects of a commercially useful article.  Examples are the
body shape of the Apple Ipod, Nokia cell phone or Sony MP3 player. 
Patents commonly have a life of between 17 and 20 years.

For
patenting, the invention must be: (a) novel, (b) not obvious to a
person ordinarily skilled in the art' at the time the invention was
made, and (c) commercially useful.  Patenting is costly and it can take
between 3 and 5 years to grant a patent. 

•   Trademarks

Trademarks
are a common form of protection for slogans, logos and/or product names
(trademarks are discussed in another presentation).

•   Copyrights

Copyrights,
commonly used in the music industry, protect songs, graphics or styles
of text (copyright is discussed in another presentation).

•   Trade secrets

Trade
secrets are useful in a number of situations.  These include when: (a)
secrecy can be maintained for a long time, (b) the IP is not patentable
or the IP is not of great value as a patent, (c) the IP relates to a
manufacturing process rather than a product (products are more easily
reverse engineered), and (d) interim protection is required, e.g. post
filing and pre granting of a patent application.
Trade secrets can
cover product formulae, patterns, software compilations, software
programs, manufacturing and/or business processes, market research
results, business pricing policies, and customer lists.

Mixandmatch approaches to suit business purpose 

Most
companies use a combination of IP instruments to capture and protect
their IP.  Software companies, for example, sometimes use a combination
of copyright, trade secret and patenting to meet their business
purpose. 

Offensive' or defensive' business tools?

IP
rights can be used as an offensive' business tool or a defensive'
business tool.  Consideration should be given to how the IP will
eventually be used.  Is the IP portfolio to enhance the prestige of the
business?  Will it be used to create some business advantage?
 
In
an offensive' strategy, the business attempts to control who uses its
innovation and what it will charge for it in the market place.  This
requires the business to have competitive edge in its innovation
product. 

Properly founded rights in a defensive' portfolio
help to insulate the business from competitor patent infringement,
provided the portfolio has all the technology IP necessary for its
business operation. 

A small business may not have sufficient
clout to control the market.  To develop its position in the market, it
can use its IP rights combined with marketing tools (advertising, sales
promotion activities to its target market) to differentiate its
products from the competition and to make its products more easily
recognisable; success here may be crucial to creating a market and a
clientele. 

The easiest option for a small business to
commercialise its innovation is to sell or license its IP.  It can
choose to sell its IP to its competitors, either for a fee or in
exchange for some competitor rights to access desired technology. 

Part II Practical strategies for developing an IP portfolio a two tier approach

To
gain a strong IP portfolio, it is best to collect IP on the core
technologies that will offer the greatest performance advantage over
rival companies and their products. 

An aggressive IP strategy
can block competitors and protect the company's present and future
potential.  Ideally, IP should also be captured around technology of
interest to both competing and noncompeting companies to allow the
company to develop an advantageous position (e.g. for bargaining
purposes later).

Because of limited resources, small companies can adopt a twotier approach to securing their IP rights:

1.    use freeofcharge protection rights trade secrets and copyright;

2.    patent when cost benefit analysis shows that trademark or patent protection is the best way forward.

Practical strategies first tier

Legal
advice should be sought early on the issues that exist around the
protection of your IP.  The most appropriate and best way to progress
matters important to the business needs to be decided before any
practical action is taken.

When R&D or commercialisation
requires input from different organisations, some consideration has to
be given to the rights of those involved.  In joint research or
development, there has to be sufficient clarity around who will own
what' in IP.  Table 1 gives a summary of some of the practical
considerations here. 
 

      Table 1.  Practical considerations IP ownership matters

Ownership considerations
•  
Have founders, employees, consultants and third parties signed
agreements to assign all current and future IP rights to the company?

Rights of universities
•  
If IP has been developed through a university research capability,
check the agreement to ensure who can exert what rights in the
company's IP.
•   If a university was involved in setting up the company, what rights might it have as an inventor or collaborator?

Rights of the government
•  
A company funded by government sponsorship may retain rights in a
patented or unpatented invention.  Check to see who is and who is not
allowed to practise the invention.  Are there compensation clauses? 
Are there unique reporting requirements that may compromise rights?

Rights of coinventors
•  
When no assignment agreements are in place, each coinventor retains the
right to practise the invention without compensating the other co
inventors. IP assignments, if not rigorously enforced, can result in an
inventor who has not assigned rights selling or assigning their rights
to another company, a risk that can be to the detriment of the company.

Additional
considerations may apply with particular modes of protection.  For
trade secrets, the considerations in Table 2 may become important. 
Similar considerations apply to confidential information at a prepatent
stage, or to the nonpatentable IP important to the business operation.

Table 2.  Trade secrecy some practical considerations

•   Mark all of the company's confidential documents and materials as such.
•  
Require employees and contractors to sign to restrictions on disclosure
of sensitive information (prohibit misappropriation, prevent
disclosure).
•   Have applicants sign a confirmation that they
will not bring in confidential information from previous jobs expect
the same from them when they exit.
•   Conduct exit interviews, reminding departing employees of their confidentiality obligations.

 

Practical strategies second tier

Security
is dependent upon having one's key technologies and core products
protected.  A defensive strategy can be considered if financial
resources are limited, and when competitors are seen as unlikely to
want to copy the company's products.  Future security may depend on
protecting improvements that prevent competitors from blocking the
company from using its own core technologies.

If a company owns
its IP in patents, then it may become unable to commercialise its
products if it infringes someone else's patent.  Freedom to operate
(FTO) opinions should be sought to ensure that one retains ability to
function in the market place in view of the patent rights of others.

An
offensive strategy should be considered if significant resources are
available to lock up new technology space, so as to create a wall of
patents to protect key and differentiating features that can be built
around a new product area.  Key methods and processes that are
essential to the building, marketing and selling of the product may
also need to be patented. 

Picket fences' can be developed to
protect commercially available improvements or small incremental
innovations around the core technology of a competitor.  This serves as
a barrier to the competitor's core technology.  The owner of the picket
fence can force a cross licence of patents to acquire the competitor's
core technology for its own use.
 
To protect against the picket
fence approach, it is important to be aware of the way in which
technology develops.  An ability to predict changes and their impacts
can ensure that viability and key IP continue to be protected for the
business.

Finally, it is important to be vigilant with respect
to competitors and what they are doing, to be aware of existing and new
IP and developing technologies, and to monitor the market place to
identify infringing products and services.

Structuring R&D to maximise IP capture

A
commercial strategy usually defines where the business has opportunity
for growth, what the market expectations are for the products it wants
to develop, and what actual opportunities exist in the market.  It
generally also provides an analysis of what the competitors are doing. 
The science and IP strategies derive from the business plan.

The
science strategy describes the new areas of science in which to work,
the processes for developing the capability, and the methods for
maximising success from that endeavour.  This requires proper scoping
of science projects in the planning phase, including development of an
IP strategy.

The IP strategy ensures that the science is able to
deliver a competitive advantage to the business operation, ensuring
that there is freedom to operate and security around the IP rights. 
Thus, it is important that the R&D plan supports the IP strategy.

It
is important to regularly review the progress of R&D work and to
evaluate the impact of this on the IP strategy, and, where necessary,
to limit or rechannel R&D effort such that its scope fits to the
commercial purpose.

Part III IP capture processes in LactoPharma

LactoPharma
is a government/industryfunded joint venture research consortium.  It
is funded by Fonterra as the New Zealand industry partner and by the
New Zealand Government through the Foundation for Research, Science and
Technology.  The rules of the consortium funding require that industry
and university work together to develop innovation to grow New
Zealand's biotechnology capability.  LactoPharma is currently 4 years
of age, and is funded to the tune of $4.5 million per annum for 7
years. 

LactoPharma's vision is to become a world leader in
the discovery and commercialisation of new bioactives from milk.  It
hopes to deliver new uses of milk bioactives in food, health and
wellness products, including Pharma applications. 

LactoPharma
focuses R&D in three major areas milk component discovery, bone
health applications and immune health applications.  It has access to
resources from AUL, Otago University and Fonterra.  This includes: (a)
state of the art biotechnology expertise for the discovery of milk
components, (b) medical expertise in bone and immune health, (c)
internationally reputable biomedical researchers based at university
medical schools, and (d) Fonterra's science, technology and market
knowledge.   

The strategy, processes and practices that
LactoPharma uses and the infrastructure that it has built for IP
capture will be presented.

Summary

IP capture secures
rights over innovations delivered from R&D; it protects the future
viability and competitiveness of the business. 

Most companies
use more than one tool to capture their IP, mixing and matching the
tools to suit their business purpose.  Understanding the purpose that
IP serves for the business is important: this can range from image
creation to securing core technology and securing future viability of
the company.  IP rights can be used as offensive' or defensive'
business tools.  Build awareness re risks (FTO, robustness of IP).

For
a small company undertaking R&D, it is important to understand on
which parts of the innovation-commercialisation' spectrum its
activities will focus.  Market knowledge and IP management are keys
that enable research to be commercialisable.  For commercialisation
success, IP capture and science strategy must be aligned to business
strategy.