It's just common sense that intellectual property protection should be an integral component of any company's emerging-markets strategy. The threats to IP in places such as China and, to a lesser degree, India, after all, are well known.
Still, IP protection remains an afterthought for many companies marching into developing countries. In "iProperty: Profiting from ideas in an age of global innovation," patent attorney William Barret, LAAMScience Inc. CEO Christopher Price and Thomas Hunt, director of IP for Markem Corp., offer a blueprint for developing a strategy that keeps IP secure even in high-threat markets. Excerpt:
China still hosts the world's largest concentration of iProperty pirates. But enforcement in China is not what it was five years ago, and we expect to see dramatic improvements in the next five years.
China's efforts to improve its system have been validated by a rising number of companies willing to invest in obtaining Chinese patents. From 2001 to 2006, the number of Chinese patent applications filed per year more than doubled, from 203,506 to 476,264. Chinese companies filed the vast majority of these applications, but the number of Chinese patent applications filed by foreign companies is also rapidly increasing, more than doubling from 37,800 in 2001 to 93,107 in 2005.
As in China, improvements in the Indian patent system have stimulated a growing number of patent applications. About 30,000 applications were filed in 2006, as compared with 23,000 patent applications filed in 2005 and 6,000 patent applications in 2001. Seventy percent of the Indian patent filings are by foreign companies, attesting to, among other things, the value of Indian markets, expanded opportunities for obtaining patents afforded by the 2005 Patent Act, and an expectation by outsiders that patents filed in India are likely to be enforced.
A global landscape crowded with patents will fuel more intellectual property litigation, but it will also spur more intellectual property deals. For example, Color Kinetics Inc., a U.S. company that designs and sells lighting systems, recently announced a global licensing agreement with Neo-Neon International Ltd. -- a Chinese company.
Under the agreement, Color Kinetics granted Neo-Neon access to its complete patent global portfolio, with hundreds of patents and patent applications pending in countries around the world. Color Kinetics' press release indicated that the license is "allowing the continuing development and sale of [Neo-Neon's] LED lighting products worldwide," suggesting that this was not a regular outlicensing deal, but the settlement of a dispute between the companies.
The deal illustrates the growing value of building a global patent portfolio, as well as the risk of being hijacked by a patent portfolio in unexpected regions of the world. In all likelihood, the revenues Color Kinetics earns on the deal do not require any significant investment in infrastructure. In effect, Color Kinetics is legitimately exploiting an opportunity to benefit from the earnings of its Chinese competitor, without substantial further investment.
As China, India, and other developing countries improve their patent systems, and more companies patent their inventions there, outsiders doing business there will face greater risks of patent infringement. This much is obvious, but what may not be as apparent is that increased numbers of patent filings in China, India, and elsewhere will also lead through Patent Cooperation Treaty patent applications to patents back in the United States, Europe, Japan, and other countries with traditionally strong patent protection. U.S. companies, for example, are accustomed to Japanese and European companies using U.S. courts to enforce their U.S. patents against U.S. companies. However, they are not accustomed to infringement suits based on patents originating from China and India.
Chinese companies, for example, are beginning to enforce their patent rights aggressively against U.S. companies. Apple is currently fending off a patent infringement suit alleging that the iPod product infringes a patent filed by a solo inventor in Taiwan. Netac, a Chinese flash memory maker, recently sued a New Jersey rival in a federal court in Texas. The number of companies from developing countries suing companies in developed countries will increase dramatically in coming years.
International patent applications originating from China have increased sevenfold in the past 10 years. Many of these international patent applications will eventually become legally enforceable patents in the United States, Europe, and elsewhere. No company whose position in the market is defined by its innovative technology can afford to ignore this growing source of risk.
Many companies realize that they are not achieving their full iProperty potential but are not sure where to turn for help. Companies are often susceptible to the "patent-attorney-as-guru syndrome." According to Steve Menton, managing consultant at IP&AM, a U.K. intellectual asset management company, while most business leaders argue that their success depends on the strength of their iProperty, "Intellectual property management is invariably treated as 'someone else's problem,' a specialty that should be dealt with by a central function with minimal input from the rest of the organization."
Markus Reitzig of the Copenhagen Business School in Denmark echoes this sentiment in MIT Sloan Management Review, arguing that IP management must be a matter of concern for functional and business-unit leaders as well as a corporation's most senior officers.
Patent attorneys and agents are usually highly skilled at obtaining legal protection for intellectual property, but rarely are they focused on tightly integrating the company's business strategy and its iProperty strategy. From the company perspective, information about potentially novel ideas is fed into an intellectual property black box with a foggy expectation that what emerges from the box will provide adequate coverage. The result is often an inefficient use of resources, a misaligned intellectual property portfolio that does not adequately support the company's business or product strategy, a misaligned business strategy that does not account for the reality of the company's intellectual property position, and a never-ending series of surprises as competitive patents randomly float to the surface.
Not surprisingly, the combination of black box patent practices, management misunderstandings, and bad timing can have devastating results. The iProperty portfolio that grows out of such circumstances can range from slightly malformed to totally inadequate for the company's strategic needs. The solution is a documented iProperty strategy and an effective team for executing the strategy. Starting with business strategy and proceeding to iProperty strategy, all players on the field must be proactively tied into, and their decisions must be guided by a rational strategy that is soundly based in current realities and a sense of future trends.
One way to ensure a shared vision and effective execution is a working iProperty team that is responsible for developing and implementing the company's iProperty strategy. Developing and executing an iProperty strategy requires a multidisciplinary approach involving technical, business, and legal expertise. Team members collaborate on decisions affecting the iProperty portfolio and make these decisions in a manner that comports with the company's vision, mission, and goals.
The multidisciplinary approach can seem like a large investment of time and personnel resources. However, in the long run, a fully functioning, forward-thinking iProperty team guided by a well-constructed iProperty strategy actually saves time and money and is a requirement for any company that desires to overthrow the old norms and re-imagine the use of iProperty in its business.
Simply stated, for any company whose revenue stream is based on technological innovation, a documented iProperty strategy is essential for weaving iProperty into the fabric of the business strategy. Among other things, this strategy must detail how the company will obtain and deploy iProperty to create, sustain, and/or enhance the competitive position of its products or services.
The iProperty strategy must also establish how the company will avoid being shut down or even slowed down in its business pursuits by the iProperty of others. And in a global economy, the iProperty strategy must account for opportunities and threats on a global basis. CD
It's just common sense that intellectual property protection should be an integral component of any company's emerging-markets strategy. The threats to IP in places such as China and, to a lesser degree, India, after all, are well known.
Juergen Lasowski
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