American economist Milton Freeman was wrong when he said there’s no such thing as a free lunch. Innovation is, economically, a "free lunch". For example, a factory making widgets may double its output by doubling it’s staff or by doubling it’s capital. If the factory, through innovation, produces a better process or a better machine for making those widgets, it may double its output without doubling input. In this case the factory will increase its profit per widget through innovation. This is what economists call a "free lunch’.
The intellectual property system, and in particular the patent system, is extremely worthwhile because it encourages people and businesses to innovate and to add value to what they are doing. Without a patent system the innovator will be swamped by imitators. It could be argued that this is economic rationalism at work, however I would suggest that innovative ability is a relatively rare commodity, most of us go through life accepting things as they are. Society benefits if those in the community who are innovative are supported and encouraged. They are then able to make further innovations. The benefit of their creativity is thus multiplied by the intellectual property system.
In establishing an intellectual property strategy one must start off by considering whether other people will by the service or product that you are proposing to protect and produce. The most important requirement for commercial success is that the new product or service has a clear market niche. No matter how clever the idea, or how brilliantly marketed, if it doesn’t find a fit in the market it will add nothing to your bottom line.
If you cannot see a clear profit to your business from doing so, there is no point in investing in the registration of intellectual property. You need to constantly ask yourself ‘will the next dollar spent on intellectual property yield a satisfactory return on investment?’. This is an aspect of intellectual property which should be the focus of the intellectual property strategy of all clients, particularly those with small and medium sized businesses. They should be asking ‘what will it add to my bottom line?’. You should expect your patent attorney to share this focus with you!
You also need to plan carefully how you’ll use intellectual property to grow the business. It can be commercialised in a number of ways. These include licensing, franchising, sub-contract manufacture, self manufacture and sale or distribution. How you commercialise your intellectual property will, to some extent, dictate how you protect it.
In the case of licensing, for instance, the role of intellectual property is critical because without it, there may be nothing to licence. Trade secrets may be more important if the business is self manufacturing because it is possible to keep at least some manufacturing information secret.
Australia has an excellent intellectual property protection system and the electronic systems we have today make it fairly easy to search the various patent databases that are available on the internet (check out www.womplex.ibm.com for instance). Patent searching is necessary, to find out firstly whether or not your product or process is new, and secondly whether it infringes on a third party’s intellectual property. Later on, when you’ve begun commercialising your invention, the patent database is very useful for revealing what your competitors are up to and how they are tackling the market sector you’re in. It will also alert you to possible infringement of your own intellectual property rights.
It’s also important, when assessing your chance of commercial success, to look not just for the existence of patents, or even the number of patents held. Look, rather, at the quality of the patents. Will they give the business a competitive edge? Are they effective in preventing your competitors from competing directly with you?
A patent has to be broad enough in its scope to be effective in keeping competitors or potential competitors out of your niche. A good illustration of this is Monsanto’s herbicide ‘Round-up.’ Monsanto had a patent on a group of compounds including sodium glyphosate, the active ingredient in ‘Round-up’. While this basic patent was in force Monsanto made huge profits from the sale of ‘Round-up’. During the life of the basic patent they obtained a bunch of patents covering every synthesis method they could think of for making the compound - presumably in an effort to extend the life of their patent monopoly. As soon as their product patent expired, however, a competitive product was on the market, made by a method which managed to weave its way between Monsanto’s process patents.
This example shows that finding a patent which blocks your own development does not necessarily mean the end of your venture. That patent may soon expire or there may be countries where it doesn’t exist. Also, you may be able to design around the patent or take out a licence under it.
The organisations which succeed in the commercialisation of new technology are those which are constantly looking for better ways of doing things. There is not only technical innovation but also innovation in all the other areas of the business such as finance, marketing and production.
Also, it’s wise not to assume that because you had the right approach to commercialising your intellectual property last year that it will be right this year. Similarly, the intellectual property you registered last year may no longer have any value to the business today. It’s necessary to constantly review your business plan and your intellectual property portfolio to ensure they remain viable.
March 1998