Patents as signals

by Andrew Watson on 29 October 2008

When might you need to patent to show off to others but not as part of your core commercial or IP strategy?

In my continuing quest to learn IP strategy from the ground up, I’ve been thinking quite a bit about having patents solely as a signal to others about your IP, but for no other key commercial reasons. For some people, having a patent says: “We know about the IP system, we use it, and we are protected.” Conversely, if these same people expect to see patents and don’t (or don’t see “enough”), then they may feel that the company is not doing enough in the IP area with connected negative connotations.

Admittedly, simply counting patents and equating that with sensible (IP) protection is an unsophisticated analysis. But given the specialist nature of IP, I don’t think that this perspective lacks adherents, even among (otherwise very savvy) investors. I’m wondering about when businesses may run into a need to cater to this point of view and how best to address it.

As a concrete example, Widget Company A (WCA) decides that the best way to protect their widget making process is through trade secrets with patenting only the parts that they believe competitors can easily reverse engineer. This IP strategy makes sense for them but means that they patent fewer inventions than they could. A potential investor (very sophisticated generally about investments but with little knowledge about IP) looks at WCA and compares them with other potential widget producing company investments and notes that WCA has a low patent filing rate. They see this and downgrade their analysis of WCA as a potential investment because they think WCA must not be doing something they should on the IP side of things (or maybe they think WCA is less innovative).

The problem would then be that WCA has lost an investment opportunity or has to fight that much harder to prove its worth as an investment because of an initial (negative) snap judgement on patent filings.

(Can you tell I’ve just finished Blink and have been thinking about Timothy Leary, RAW, and reality tunnels?)

Potential solutions could be:

  • Educate potential investors (and other communities) about IP in a way that changes their perception about patent filing rates (doesn’t address the immediate issue, not all that practical, and a long term strategy at best);
  • Find a way to present to the investor and explain why the rate is “low” and why you actually have a better strategy in place (assumes you have access to the investor and can change their mind); or
  • File patents so that your rate matches the perception of what a widget company “should” patent.

So what about the last option? One immediate drawback to patenting when not needed is cost — though you could simply not renew or not pursue an aggressive international strategy in order to reduce costs. This wouldn’t reduce costs in terms of staff time in getting the patent through however.

Another drawback: you could have to change to a sub-optimal IP strategy in order to increase your filing rate. This would mean an accommodation to the commercial decision on the patents vs. trade secrets trade off for some innovations. You could however patent in areas outside of the core bit you are looking to protect (for commercial reasons) with trade secrets as a way to compensate.

What about the times when the benefits of the perception of protection outweighs the costs?

I realize that the above is a bit theoretical and there are other practical considerations, but I also think that there are times when it makes sense to try to address the perception of IP protection. In this case, patents can be a key way to signal competence in intellectual property rights to certain groups of people. Afterall, as recently highlighted over at IP Think Tank, perception is a driver of value.

Any thoughts?

{ 2 trackbacks }

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11.05.08 at 2:19 pm
Patents as the wrong kind of signal | Tangible IP
05.08.09 at 3:10 pm

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