Protect Your Cleantech - IP May Play A Role In Determining Who Leads The Pack

With Vancouver named one of the top 10, "New Silicon Valleys" of the clean tech industry, worldwide that is, the role of innovation and the associated pitfalls is on my mind these days. Burnaby based, Ballard Power Systems may be said to have pioneered the fuel cell industry and ex employees are busily creating new companies and uses for the technology.

In the midst of all of this activity certain essential tasks associated with successful innovation can be overlooked. In any rapidly evolving industry, inevitably innovation will overlap and application of existing technologies will tend to be "discovered" by several, if not many different companies. So, it is in cleantech.

That activity that will play such an important role in the ultimate success of a clean technology product turns out to be protection of intellectual capital.

I've written before about the importance of intellectual property protection. A post Mass High Tech.com, Energy, Clean Tech and IP: Protecting Innovation, speaks specifically to the challenges firms in the cleantech industry face.

While an important component to any technology-based company's success, intellectual property is especially important for "clean tech" ventures encompassing energy or environmentally related technologies.

For clean tech companies, it's important to note that investors consider strong IP essential for both first to market companies and those that follow (to protect a key technology for later market entry or licensing/acquisition.)

Cleantech is, of course, an umbrella term that encompasses a wide variety of technologies and spans a variety of different industries. The rationale for application of intellectual property protection therefore varies by industry. Does it promote investor confidence? Is it important as a defensive strategy? Can it be used to encourage licensing down the road?

Clearly, whether or not the reason is immediately obvious, innovators in the space need to take steps early on to protect technological innovation and continue to revisit the applicability of those technologies as the company grows and the discovers new uses for existing patented processes.

Similarly, don't dismiss patent protection for clean tech ventures with a long time-frame to market or long technology lifespan. Strategic patent filing approaches may be available in some jurisdictions, increasing patent enforcement life, for example, until the effort reaches a certain state of commercial viability. It's also possible to file initial applications relating to core aspects of the technology, then stagger subsequent filings for incremental changes.

Like the early days of the dotcom boom, intellectual property protection will play a big role in who turns out to be the winners and the losers in cleantech. Those companies which use forethought and innovative thinking, in every aspect of their business, including legal protection, will be much better positioned to be on the winning end. As new uses for the current technology, as well as, new applications for technologies currently in development arise, appropriate intellectual property protection will be key.

I know I sound like an advertisement for the legal profession, but in an industry highly dependent on break through innovation, the appropriate IP may be the deciding point between leadership and second place.

Insights from Honeywell's IP Expert in India

We were delighted to recently become engaged in a dialogue with an engineer and intellectual property expert, Suddha Basu, from the Honeywell Technology Solution Labs in India. He is nothing short of an IP junkie, having responsibilities at HTSL that include: intellectual property research analytics, patent mapping, IP mining, technology clustering, IP licensing analysis, IP led business growth, planning and strategic innovation counseling.

Honeywell is a large and diverse manufacturing company that is primarily the 1999 merger product of US defense giant AlliedSignal and the well branded consumer products manufacturer that made products like home heating thermostats. Wikipedia describes the company as "a major American multinational conglomerate company that produces a variety of consumer products, engineering services, and aerospace systems for a wide variety of customers, from private consumers to major corporations."

Before joining HTSL last year, Suddha worked for Wipro, serving multiple Fortune 500 clients as an IT OEM specialist. He also hosted a radio show at Entertainment Network India which isn't something common to most engineers and IP experts.

Suddha was quite willing to share some things about himself, some trends to be mindful of, current examples of innovation successes in India, how to measure innovation success and avoid a common pitfall. Here are his responses to these questions.

Who were your early role models and what were the main things you learned from them?

When I was younger I thought that conceptualizing a scientific principle or manufacturing novel products with great lot of complex math behind them, are the most critical factors in determining the success or failure of that invention, little did I think about the usefulness of inventions which were never commercialized or inventions which never became an innovation, ( i.e. a new stuff which did not become popular to its end users en masse) In my high school days, my school teachers, various discovery channel science shows and the Indian IT boom of the 1990s, made me realize that consumer needs and /or wants when get satisfied in a product or service, creates an innovation. And that is not always necessarily related to difficult mathematical equations. As we all know great things are always simple in their concept.

What key trends do we need to be aware of?

When a highly experienced researcher or a veteran marketer who is an expert in his / her area or market, working for a big university or a multi billion dollar corporation, suddenly quits his/her job and creates or joins an obscure startup company; is an example when you should expect a trend to emerge in a small and niche technology / market gap. Mere patent numbers, financial or market research data don't give you any real trend. It's the people behind all those numbers who can show you the future of science, society and money!

What is an example of an innovative company in India that people have never heard of?

Till date human civilization has showed us a model with industrial production, human migration for economic prosperity and proprietary knowledge owned by the wealth creators.

However, in the coming years a more socially committed innovative business model (but also with great profits after tax!) might be showcased by India or any country with an emerging economy. I believe where there are more problems with fewer resources but with more creative heads to think about such problems, then innovation flourishes there. Nimbhkar Agricultual Research Institute (NARI) is a non profit research organization developing very low tech but promising bio-fuel technologies of the near future! http://nariphaltan.virtualave.net/

How do you measure innovation success?

This could be measured if we notice, high market share with high profits, growing and varied product line and very less engineering or technology input costs. For Example; Google and Coca Cola, these two companies have the lowest budget for their global intellectual property protection needs. And as I previously mentioned innovations are not always inventions and thus are not necessarily measured by patent strength, patent activity or trade mark portfolio.

What is a biggest pitfall that impedes successful innovation?

For a knowledge intensive business, to impede a successful innovation, a lack of either or both the factors of, Organizational culture and individual mindset of each and every of all the employees, (and not only the VPs and the chairman,) matter the most. In such a situation, everyone stops thinking as being the primary beneficiary from an innovative product or service launched into the market by their company. This employee isolation is not good for innovation. All R&D employees should think of themselves as a scientist and also as a marketer, all at the same time. A less rigid job role / hierarchy help in achieving this impediment.

What advantages does Honeywell gain from having a major global R&D lab now based in India?

Indian engineers, scientists and managers who had previously lived in foreign countries for their jobs or education are usually happy to work from the Indian soil, while still being associated with an R&D giant like Honeywell.

Thank you Suddha for sharing these insights with us.

Why not spend money on a Patent?

Success rates for new products, including patented ones, are shockingly low. For even the world's largest and most sophisticated companies, the numbers are about 25% - certainly below what most managers and owners would like.

There are several references that give the failure rates for new product introductions. The normal range is typically from 70 to 80%. These sources include:

1. Various studies cited by Advertising Age,[i]
2. A study[ii] by Linton, Matysiak & Wilkes, Inc. of the top 20 food companies reviewing 1935 new products,
3. A Booz Allen Hamilton study[iii] on new product management that claims one out of seven product ideas yields a successful product,
4. Boston Consulting Group vice presidents and directors James Andrew and Kermit King claiming 60 to 85% in an article[iv] titled 'Boosting Innovation Productivity',
5. Some college textbooks[v] claim 80%.

A study[vi] by the Product Development and Management Association titled 'The PDMA Foundation's 2004 Comparative Performance Assessment Study (CPAS)' shows 40% rather than the higher 70-80%. The PDMA figure appears to be based just on the post-commercialization or post-launch failure rate. It does not include all products that go into the development pipeline, rather just those that make it to the launch pad. Including all the steps from idea generation, the PDMA study failure rate is over 80%.

Companies stay alfloat because the products they sell, including new products, rarely rely on patented subject matter. Companies derive about a quarter of their sales and profits from new products, only some of which are patented. The other three quarters of a company's sales and profits come from yesterday's breadwinners that still have years left in their product life cycles.

So what happens if a company stops innovating? In most cases, it will slowly die. Companies operating in a competitive marketplace need to continually introduce new products or products that are better, faster, or cheaper in order to stay in business. They don't need to overdo it with innovations, but there is a need to have something in the works. Companies that are leaders in innovation become the pacesetters for the rest of the industry. The other players are forced to keep up or get knocked out of the never-ending race.

Another factor that stimulates the corporate innovation process is the tantalizing prospect of huge profits from world-beater innovations. For the few innovations that become blockbuster commercial hits, the rewards can be great. Companies that come up with such innovations and exploit them well can end up dominating their industry categories and raking in huge profits.

Does this mean small businesses need to come up with ideas and file patents on them? Let's look a little closer at the numbers as they apply to small businesses rather than Fortune 500 companies.

Only about one quarter (1/4) of the products that go into the development process end up being successful. This is a deplorably low figure that applies across a wide range of industries. The data comes mainly from well-established companies, typically the top ones in the various industries. In other words, one in four successes is currently accepted as the best that can be done in terms of converting ideas introduced to the development process into successful products.

What happens in the case of start-up companies? For these companies which are usually quite small, there is a whole other set of failure rate data involved. U.S. and Canadian statistics reveal that only about one third (1/3) to one half (1/2) of new companies remain in business for at least 3 to 5 years.[vii]^,[viii]. About a third of them make a profit during that time, another third break even and the remaining third lose money. Many of the companies that close their doors within the first few years do so because of business failures. Running a profitable business is obviously not easy.

Let's multiply the survival probability for a start-up company with the new product success probability. This makes the overall likelihood of success for a start-up company successfully developing and commercializing an invention or new product small. The math looks like (1/3 to 1/2) x 1/4 = 1/12 to 1/8 overall likelihood of success. Since the probabilities are not entirely mutually exclusive, the more forgiving 1/8 figure will be used. Determining what influence one of these variables might have over the other is beyond the scope of this article. In any event, a 1 in 8 or 12.5% chance of success seems somewhat risky which is why venture capitalists and finance people generally have a hard time dealing with start-up companies based on a new product idea. However, a well managed start-up company with a highly successful product can generate a phenomenal return.

From these numbers, it appears that the vast majority of patents are not worth the paper they are printed on. Here are five reasons a small business should look twice before calling a patent agent:

1. It usually costs between $5,000 and $20,000 to obtain a patent. These costs include the fees paid to the patent offices in one or more countries and those fees paid to the patent agents, many of whom are attorneys. These do not include the internal costs for having your key people sitting in the patent agent's office or working on the patenting aspects.

2. It normally takes about two or three years to obtain the patent and can take much longer if there are problems. Some innovations become worthless in three years, much less than the 15 to 20 years covered by a typical patent.

3. A patent gives a complete disclosure as part of the requirement for obtaining it. In other words, your competitors know exactly what you are doing and how you are doing it. This is especially so with recent changes to the U.S. patent rules that publicly disclose the entire contents of the applications 18 months after application, regardless of how long it takes for the application to get processed.

4. Most patents don't offer any real protection since they are often narrowly defined and easily circumvented.

5. The patents become extremely expensive when they become litigated. Usually the patent owner is the one who initiates the litigation. This is because, in practice, a patent is little more than a right for the patent holder to sue an infringing competitor. These costs can run into the hundreds of thousands or millions of dollars. After years of expensive and complex litigation, the infringer often does not end up paying much, if anything, to the patent owner.

Spending the same time, money and effort on your up front marketing would be a much better approach for most small businesses. Up front marketing does not include promotional and sales expenses but does include going out to determine what the real market is for the proposed or actual product. It includes focus group testing, trial selling, surveys, tradeshows, etc.

Look before you leap when you have an idea that might be patentable. At least you should do the math first.

Peter Paul Roosen has an engineering background and is co-founder of Atomica Creative Group , a specialized strategic product marketing firm. He has co-authored Overcoming Inventoritis: The Silent Killer of Innovation now available.

---

[i] Brock, D. (1997). Getting the most out of your new product introductions. Partners in Excellence. http://www.excellenc.com/articles.htm

[ii] Linton, D.B. (1997, July 1). Market study results released: new product introduction success, failure rates analyzed. Frozen Food Digest 12(5), 76.

[iii] Dean, B. (2005, March 28). Case study: Incorporating focus group research into the product development process. DM News, Article 32310. www.dmnews.com/cms/dm-news/e-commerce/32310.html

[iv] Andrew, J.P. & King, K. (2003, April). Boosting innovation productivity. BCG opportunities for action, April 2003. http://www.bcg.com/publications/publication_view.jsp?pubid=847

[v] Friedman, H.H. (2000). Product policy; new product development. http://academic.brooklyn.cuny.edu/economic/friedman/mmproductpolicy.htm

[vi] Adams, M. & Boike, D. (2004, July). PDMA foundation CPAS study reveals new trends. Visions, XXVIII:3, 26-29; and: The PDMA Foundation’s 2004 comparative performance assessment study (CPAS). PDMA Foundation. www.pdma.org/cpas.php

[vii] Knaup, A.E. (2005, May 1). Survival and longevity in the business employment dynamics data. Monthly Labour Review 128:5, 50-57.

[viii] Baldwin, J., Bian, L., Dupuy, R., Gellatly, G., Statistics Canada (2000, February). Failure rates for new Canadian firms: New perspectives on entry and exit. Minister of Industry / Statistics Canada Catalog no. 61-526-XIE. www.statcan.ca/cgi-bin/downpub/freepub.cgi

The Role Of Intellectual Property in Innovation

A colleague of mine recently had a conversation with Nancy Edwards Cronin of ipCapital Group, a consultancy focused on developing effective intellectual property strategies. Since patents can play such a big role in whether or not many innovations succeed, or just provide a springboard for competitors, Nancy had a lot to say in the area of innovation.

With her background in engineering, Nancy speaks easily to techies and notes that communication is one of the areas in which the innovation process can get bogged down. One trend that she is seeing, particularly in the technical products arena, is this lack of communication between sales and marketing and engineering has led to a greater emphasis on the look, feel and branding of the product rather than what goes in the bottle.

We too are seeing this trend in the marketplace. Product marketing, often left until last, should be conducted at the front end of innovation. A focus on providing customer value in the early stages of product development results in a product that meets consumer needs not just a marketing campaign that tries to do so.

This focus on the marketplace, an unbalanced approach, can cause companies to neglect proper intellectual property protection and, particularly for young companies can be devastating. On the other hand, investing time and effort into IP protection can be useless for smaller companies without the financial wherewithal to defend it. Edwards Cronin advises that often incremental innovation, capitalizing on existing distribution channels and technologies will often yield greater results than "blue sky" technologies, but this too has its drawbacks.

... companies that have historically operated on incremental improvements now find that they struggle to come up with the next "brand new thing. Further, the new ideas they develop may already be claimed in the marketplace or in the patent literature. They may also overlook the need to protect their innovations early and lose valuable ownership of their investment. Worst of all, they may determine that even their best innovations aren't aligned to the direction of the business, thus becoming a wasted expenditure of valuable development time and money.

On the flip side, many entrepreneurs start out with a technical idea and develop products but have little idea of how to sell them or even understand the marketability of these products

With her firm's emphasis on patent protection, Edwards Cronin had a lot to say in this area. She advises making protection of intellectual property a key part of any innovation strategy. Proper patent search and competitive analysis should take a front seat in the process.

As executives lead their organizations to be more innovative and expand their collaboration efforts, they are recognizing the unmistakable connection between innovation and IP. When developed and employed strategically, IP may be used to protect their innovation investment and maximize the success of the collaboration.

ipCapital Group has developed an "invention session" that they use with their clients to ensure that technological innovation is on the right track. These sessions, based on a team approach, bring managers from multiple disciplines into the innovation process from the start and address key issues that are often forgotten in the rush to market. Understanding the marketability of the idea is key before starting any patent process. This is especially important for new companies that have limited resources.

By ensuring that technology in development meets the needs of the marketplace, valuable time is not wasted pursuing unmarketable ideas. By considering the importance of intellectual property rights to the success of the project early on, appropriate patents can be applied for and protected, of considerable importance in highly technical fields.

We at Atomica consider this multi-disciplinary approach indispensable to any innovation process. As the role that technology plays in a wide variety of fields grows and matures, remembering to protect intellectual property and ensure that it is a good fit with the organization and with consumers is critical.