How to leverage IP to protect against tech disruption

8 minute read
30 July 2019

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Intellectual property provides opportunities and defences against technological disruption, so why isn’t it higher up the agenda?

We are living in an unprecedented era of innovation. Previous technological leaps have transformed several industries, whereas the creep of today's most exciting inventions, such as artificial intelligence (AI), connectivity - including the Internet of Things (IoT) - and blockchain, are either already upturning old products and services or promising to do so.

When combined with now mainstream tech like cloud computing, all the ingredients are there for a new entrant wielding a laptop to cleave open established markets.

This spells danger for market leaders camped-out behind increasingly redundant barriers to entry.

The tech and the companies using it are shaking things up, armed with a trident of tech, a high appetite for risk, and a determination to change the status quo.

But there is a way to keep your head and even thrive when all those around you are losing theirs.

How should businesses differentiate themselves in the future?

"Technology and IP are the twin forces that will keep your business going into the future," predicts Alexandra Brodie, Partner and Co-Chair of the Global Tech practice at Gowling WLG.

"It's how you're going to make your money and keep your market edge in a world where it becomes ever-easier to bring products and services to market.

The question, says Alexandra, is this: 'If it's easier to make a bigger impact with less infrastructure, then how do you keep your brand value? How do you keep your product at premium pricing? The answer is to create differentiation in the market, and the answer to that is IP."

The proportion to which IP makes up a company's value has been increasing for decades and is now generally accepted to be around the 80% mark.

Internationally, the system of patents, trademarks, copyright and design rights is being adopted and embedded in economies in more regions every year. With China relentlessly pursuing a change to an innovation economy that includes IP at its centre, the direction of travel is more IP, not less, in years to come.

Says Nigel Swycher, CEO of Aistemos, the developer of patent analytics software Cipher, "It's currency. The people who need it don't have it. And the people who have it will use it.

"The way you level the playing field is to take IP very seriously and make it part of your strategic decisions. Where exclusivity is the objective and innovation needs to be protected, IP is the only avenue."

How is IP being viewed at board level?

With this in mind, it is curious to note that our survey and brand new report involving hundreds of CEOs, IP heads and general counsel, found that in some sectors IP remains an esoteric pursuit.

While 93% of all respondents think IP is either very important or important to their business, under half discuss it at board level.

In light of the ways tech disruptors may change what, how and why consumers purchase products and services, a worrying conclusion is that corporations consider IP as vital but often do not include it in decision making.

Some industries, such as pharma or high tech, are more reliant on IP than others. For them, a drug patent or trade secret can be fundamental to their value and so they operate sophisticated IP programmes commensurate with IP's importance to the bottom line.

The issue is sectors facing disruption will need similar IP strategies but they are way behind the curve.

"Technology companies like Google, Microsoft, Apple and Facebook understand IP and are using it as currency in negotiations, transactions, and as leverage in their supply chain," Swycher says.

"The industries that are being disrupted have a very different mentality. Automotive, financial services or industrial automation, for example, are often dominated by incumbents who haven't had to take things like IP, especially patents, that seriously. They typically regard them as a 'nice-to-have', a tick in the box.

"That's going to change. The balance in power in relation to these new technologies, whether it be AI, robotics or crypto currency, are in the hands of 'the others' - often emerging companies in Asia such as China and Japan."

He adds, "The organisations who acquire IP, who raise its importance, who understand its strategic value, will be well placed to trade."

How should a business approach an IP strategy?

Assuming you do not own the IP behind the core tech that drives a new product or service powered by disruptive tech, then you will likely become a licensee to the company that does.

Or you will not and face litigation (an expensive but nevertheless strategic decision for some).

Knowing who owns the IP behind the tech and how the IP market works is valuable information. Alexandra points to connectivity patents as an example of how knowledge of IP and its nuances can give companies the edge in a disrupted market.

A company looking to launch an IoT product may treat it like any other and miss the point. IoT is based on connectivity tech that is protected by a system of standard-essential patents. The companies that own these patents will protect them through licencing deals or the courts.

Understanding the IP situation means understanding the roots underpinning the entire market.

"Businesses will be used to a certain way of conducting themselves and it just doesn't necessarily translate. You need to lift your head up from your proven methods and success and think, this is a different culture, this a different area. I need to get some advice, I need to understand how this culture works."

When entering a new technology space, a company should be thinking about IP from the start. Find people within that space, talk to them about the IP culture: Who are the players? Where is the balance of power? What kind of licence do you need and how do you negotiate?

"If you're used to being in an industry where there are very few patents, you might be used to taking a licence for one or two patents and you know there are perhaps only 20 patents that you need to really be worried about within your industry area.

"With standard-essential patents, there's thousands. You need to have notions like, the royalty stack, the share of the royalty stack, how many other people might engage you and how can you most effectively leverage your position."

"You need to have a whole strategy thought through, you can't just enter each negotiation wide-eyed and ready to listen."

The message is: those who realise that innovation, IP and growth are symbiotic will be best placed to capitalise when their market position is challenged.

Download our full report, Multiplicity: Smart Choices in Disruptive Times as we begin a new phase of the economy where IP is central to the ecosystem.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.
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Multiplicity: Smart choices in disruptive times

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