is not having IP more expensive than having IP?

I think about technology, patents and businesses every day.  Some of the businesses are large and some are small.  Their approach to IP is all over the map.  Large corporations may be more sophisticated, but that is not a given. Small corporations may have fewer financial resources, but that is not a given.

Obtaining patent protection costs money and takes time.  That is a given.  Many small companies say the process is too costly.  If a corporation has to decide between possibly keeping the lights on or filing for a patent, the decision is often keeping the lights on.  But, when does this decision become a corporate liability?

Let’s conduct a thought experiment.

the scenario

Corporation “A” was formed around an exclusive license to twenty patents that relate to and protect aspects of a method of fabricating a novel material.  The most basic patents to this material, which is not naturally occurring, have long since expired.  A originally wanted to use the material for a particular high revenue application.  However, the lead times are very long, delaying first revenue beyond their cash runway.  As an interim measure, it was determined the material could be used in application “X”, which has shorter lead times.  In fact, there was already market interest.

early days

Initial revenues came along, but they were insufficient for positive cash flow.  At the same time, problems were encountered in the material’s use in X.  These were solved by modifying its chemistry and structure.  In turn the solution improved the material’s properties for the original application.  The solutions were not made public and patent applications were not filed to maintain a low cash burn. 

In time, the marketing efforts began to pay off and revenues steadily rose.  A became cash flow positive.  However, patents were still never pursued because the executives did not see the need after making it this far.  The licensed patents began to expire and A’s IP position deteriorated.

someone is watching

A large corporation, “B”, became interested in A’s markets, material and methods of manufacture.  B did not enter the space at the outset.  Rather, they waited until A validated the market.  B was however investing in R&D and knew A’s IP position.

Shortly after A went cash flow positive the revenues began to take off as awareness hit a critical mass and customers were reassured by their improving finances.  By now A’s licensed patents had all expired and B decides to enter the market. 

A has a whole host of problems.  First, they have a well funded competitor.  Second, they do not have any IP to defend their market position.  Third, the problems that A encountered along the way were also encountered by B.  Unlike A, B filed patent applications around their solutions.  The solutions are not identical, but they are close enough that the Claims in B’s newly issued patents “cover” A’s solutions i.e. product.  B launches a patent lawsuit against A to corner the market.  The presence of B in the market has impacted A’s revenue sufficiently that the lawsuit causes them to talk to B.  They are bought for a fraction of the valuation only a few years ago.

The above may seem far fetched, but is isn’t.  A well funded corporation with a sophisticated IP strategy can present a serious obstacle to a revenue stream.  It has been said that all decisions are business decisions.  However, a short-term business decision can lead to a longer term IP problem.  A company needs to decide what is absolutely critical for survival and when they can invest in longer term prosperity.