We should talk about intellectual property
While companies usually focus on managing their tangible assets, Intellectual Property (IP) sometimes gets ignored.
There are several developments and trends in the market that will continue to have an impact on the IP environment. In this article we shed light on some of them.
Some exemplary drivers for the change are the following:
- The pace of innovation has become much faster, and this requires companies to bet on which innovations are short-term improvements, and which are true long-term competitive advantages
- Digitalisation is disrupting most businesses and few companies are immune to this trend
- New business models, including data-driven businesses, requires an understanding of how ecosystems work and how ‘control points’ get created in an ecosystem
- Control of data may be the most important source of competitive advantage
- Partnerships, which may require the sharing of IP have become more frequent, and sometimes a partner can also be a competitor at the same time
These highlighted drivers of change call for a more careful and thoughtful navigation of the IP environment. A clear majority of companies’ asset value is immaterial in nature and companies need to make an educated decision as to how to manage this asset class. The following graph, which is frequently referred to, illustrates the increasing importance of IP.
Tangible vs Intangible value for S&P 500 companies, 2021
Many changes on the horizon
The EU’s Trade Secret Directive, which has been implemented in national laws, sets out basic requirements for actions necessary to claim something as a trade secret. Companies need to review their internal processes to ensure that their ‘crown jewels’, which are assumed to be trade secrets, truly fulfil the legal requirements.
The Unified Patent Court (UPC), a proposed EU-wide court for managing patent matters, has been debated for decades now. There have been some encouraging developments recently, and the UPC may be formally opened at some point in the near future. Companies need to evaluate how this changes their risk and opportunity map. For example, an EU-wide court system could enable so called non-practicing entities to enforce patents more cost-effectively than before.
Companies are becoming more focused on patent quality, as opposed to quantity. In the past, there was a great deal of focus on volume and the filing of statistics was frequently quoted. These days, successful companies take a proactive view on the true defensive and offensive usage scenarios for each patent asset.
The IP market has become more collaborative in nature, and this has been driven by collaborative business models. Companies need to be open minded and understand that IP rights also need to be shared amongst market actors if a new ecosystem is being developed.
We encourage companies to think more broadly than just patents when considering IP protection.
The availability of IPR-related data and Artificial Intelligence (AI) becoming mainstream is offering plenty of possibilities for companies to more cost-effectively gain insights into competitor activities. This opens new doors in terms of competitor intelligence. AI is also offering new models to manage the prosecution process for patenting more effectively.
On a very specific note, there is also an ongoing debate as to whether a computer using AI can be an inventor of a patent or if a human can only be officially recognised as an inventor. The first court rulings are already out, and nations are taking different views on the matter. This debate will likely continue for many years, if not decades, to come.
The financial market is showing an increasing interest in IPR as an asset class (the US in particular) and new service models are constantly being introduced. Currently, there are plenty of alternatives to leverage a solid IPR position to create shareholder value. For example, using IPR as collateral against a loan is a quite normal practice these days.
Investors are also paying more attention to IP. The days have now gone when an investor was satisfied with a company owning a patent. It is becoming more usual that a company now needs to articulate how IP is creating shareholder value when engaged in due diligence, or funding discussions.
So what, I have a patent
Patents, like all assets, have their pros and cons. A patent (or patent portfolio) can be very useful when the ‘stars align’. However, some of the observations we have made over the years indicate that the following considerations often get ignored:
- By patenting, companies publish their innovation, and theft is unfortunately quite common. Enforcing a claim against an infringer can be very expensive, involves uncertainties, and it also creates unnecessary management distraction.
- A patent can be effective only if it covers competitor(s) products / solutions (or plans thereof) and not only that of the companies’ own product / solution. This is often ignored when considering what patent claims to draft.
We also encourage companies to think more broadly than just patents when considering IP protection. Scandinavian countries continue to score highly in various research publications regarding innovation (e.g. World Intellectual Property Organisation, Global Innovation Index 2021). It is clear that there is a considerable amount of solid R&D happening in the Nordic region. It is also of great importance that companies protect their innovation with adequate IP tools so that the investment made in R&D isn’t lost.
Networks are increasingly important
In our experience, it is important for companies to approach IP holistically. Firstly, one needs to understand what makes the company succeed and how it differentiates itself from the competition. And secondly, one needs to consider the environment and the evolution of this environment, including ecosystem actors, value chain, competitors, and market strategy, for example.
Once you have this basic picture, and potential scenarios of how the world might evolve, one can more clearly understand what the right form of protection is. That said, this map will continue to be a moving target and subject to constant change. Therefore, every company should consider its network of partners that assist it in navigating the ever-changing IP environment.
At If Insurance, we aim to help our clients to grow and succeed in their international ambitions. Thoughtful management of IP risks and opportunities is an important and timely commitment to help achieve this.
In Finland, for example, If Insurance and Condico work in cooperation to help our clients manage IP risks and get the most out of their IP to create value and secure their intellectual property,” says Kari Koljonen, Head of Casualty Underwriting, Finland.