Chronicle Editor
Aleck Ncube
BUSINESSES develop and execute IP management strategies in pursuit of four key objectives. First and foremost, all firms need to ‘appropriate’, or capture the value of, their ideas and their investments in developing and bringing them to market.
Second, firms must protect their interests when engaging in collaborations with other companies and institutions.
They must ensure that the intellectual property that results from joint projects is fairly distributed and managed among the participants.
Third, firms need to ensure freedom to operate (FTO) and to avoid infringement of third-party IP rights (IPRs), notably patents, or violations of trade secret protections, so as to minimise the risk of unnecessary licensing costs and litigation.
Fourth, firms can use IPRs to signal their value to investors, potential partners, competitors, and customers.
These last three objectives are of particular relevance for SMEs, given their more limited resources and the extent to which they tend to collaborate with external partners.
A range of external factors, including competitive conditions, industry sector, and market location and legislation, influence an innovative SME’s IP management strategy (OECD 2010).
At the same time, the strategy largely depends on the firm’s capabilities. Because SMEs rarely have significant in-house resources to monitor competitors or to participate in enforcement and litigation, they must manage their intellectual assets in the most resource-effective way possible.
In addition, an SME’s approach to IP management often depends on the awareness and vision of its senior management.
In fact, rather than focusing only on immediate concerns such as short-term commercial advantage, a company’s leadership must understand the correlation between IP management and commercial success in order to formulate a sound strategy earlyon.
Failure to develop an effective IP management strategy, including a sound appropriation strategy, can create problems down the road, foreclosing partnership opportunities, preventing an innovative SME from securing investment, and exposing an SME to litigation risks.
IP management may represent a particular challenge for smaller firms that are active in several markets, as global activities require a more sophisticated approach that can be harder to develop.
To secure the firm’s competitive position and manage IP-related risks, an SME’s leadership needs to know whether the company’s inventions are properly protected in each strategic jurisdiction — for instance, whether a patent claim has been appropriately drafted so as to protect the most valuable features of aninvention — and whether it has FTO in relation to its most important products or processes.
Training programmes to inform managers of innovative SMEs about the importance of IP management while coaching them on the practical aspects are useful in this regard.
a) Use of formal, registered IPRs : patents
Formal IPRs include, patents, industrial designs, and trademarks, and are granted by specialised government agencies.
Being statutory rights, they are enforceable in courts and enforce ability varies considerably across countries.
Patents are exclusive rights that governments confer to inventors or their assignees for a limited period of time, in exchange for disclosure of the invention.
A patent prevents others from practising the invention claimed in the patent without authorisation.
Innovative SMEs file patents for a range of strategic motivations, such as trade with other technology firms via cross-licensing, and the use of patents as bargaining chips in negotiations with other firms.
Also, patents play a key role in partnerships.
A strong patent portfolio can help an innovative SME to attract the right partners, enabling it to obtain the funds and expertise, especially manufacturing and marketing capabilities that it needs to bring a product to market.
Patents also enable collaborating entities to identify what each brings to the table, and to manage the results of their collaboration.
Patents are important tools for indicating the value of an R&D project to investors, thereby mitigating the problem of information asymmetry between new firms and investors, which can undermine access to financing.
Overall, the quality of an innovative SME’s patent portfolio is positively correlated with the willingness of investors to support it. SMEs resort frequently to licensing in order to generate revenue.
The usefulness of a patent depends on several factors, including the strength of the enforcement regime and the complexity of the object to be protected.
They are particularly important in highly regulated sectors, in the context of long product life cycles, and in relation to products that are highly susceptible to reverse engineering.
Innovative SMEs may prefer secrecy to patenting, since the latter requires disclosure and also because infringement of a proprietary process is generally hard to spot.
Patents have the benefit of enabling an innovative SME to appropriate the value of an invention without necessarily engaging in manufacturing, which may be beyond the capabilities of some entities.
When deciding whether to patent, innovative SMEs must undertake a cost-benefit analysis. In certain situations, the costs associated with obtaining and maintaining a patent, including the cost of enforcement, may outweigh the perceived value of that IPR as a means to retain competitive advantage, influence competitors’ behaviour, or derive licensing or other revenues.
A key risk is litigation.
SMEs are less financially able to withstand expensive legal challenges.
b) Complementary strategies
Complementary, or alternative, strategies employed by innovative SMEs include a number of approaches such as: secrecy; capitalising on first mover advantages and innovating faster than competitors; building complexity into products and processes, making them difficult to imitate; defensive publishing; focusing on achieving a large market share in niche markets; building strong brand recognition; and creating strong commercial channels.
Some innovative SMEs may choose to emphasise a defensive strategy to protect their niche and ensure FTO, relying, for instance, on the strategy of defensive publication.
Through the disclosure of an enabling description of the invention, defensive publication destroys novelty and hence prevents competitors from patenting it.
Secrecy is relatively more important for innovative SMEs than for larger firms.
A strategy emphasising secrecy is reliant upon a type of unregistered intellectual property right, ‘trade secret’, which can be used in many jurisdictions to protect any valuable, confidential information.
Depending on the jurisdiction, trade secrets are often less expensive to use than IPRs that require registration or other formalities.
The firm must invest in efforts to keep the confidential information secret, for instance by executing non-disclosure agreements with employees and vendors, and investing in the security of systems.
derick.khumalo