Startups and small-to-medium-sized enterprises typically launch and grow their intellectual property rights organically. As with organic food, these rights end up being more expensive. Unfortunately, unlike food, organically grown IP rights likely won’t be sustainable or better for the company’s bottom line.
When created outside a strategic plan, IP rights are more likely to have lives of their own, draining the company’s time and financial resources. They are also likely to be poorly designed and frustrate rather than advance the company’s business interests. To avoid this, drive your IP strategy, don’t let it drive you.
IP as a Roadblock
IP is a government granted right to exclude others from using your inventions, brands and works of authorship. If your competitors can find an inexpensive way to get the same utility from a different product or method, or a valuable way to benefit from your branding efforts, spending $15k or more to file a patent designed to cover your use of your invention may not survive a cost-benefit analysis.
Likewise, IP does not give you the right to use your inventions or your brands. Spending millions of dollars and years of your life developing a new product and bringing it to market may be of little economic value if your competitor obtained its own IP that excludes you from using a critical component. Worse yet, your competitor may have a claim to your profits.
Think of IP rights as roadblocks that you and your competitors are placing in front of each other’s business plans—at high cost and with low visibility as to the future—to obtain and retain competitive business advantages. How and where you place your roadblocks depends on your available inputs, such as the inventiveness of your employees and your financial resources, and on the locations of your likely markets and the markets of your suppliers, your manufacturers, and your customers. It also depends equally on similar considerations of your competitors.
How to Get Useful IP
You cannot get a utility or design patent without someone who invents it, but that isn’t enough to get the IP granted or to end up with roadworthy IP rights. You also need someone to describe the exclusionary right so that the legal systems in each geographic region give you the greatest competitive advantage for that right.
In the world of IP, you get this from having the broadest scope of exclusion, the most durable scope of exclusion, and the greatest number and variation of relevant rights to exclude. A broad scope of exclusion helps to deter the broadest range of future competitors and products. A durable scope of exclusion is more likely to survive substantive challenges to your rights based on legal and technical requirements like novelty and nonobviousness, which usually means narrowly drafted and targeted IP. Increasing the number of your IP rights and the variations across your IP rights decreases your competitor’s certainty that it will be able to avoid your IP roadblocks. It also increases your competitor’s cost to invalidate your IP rights through expensive court challenges.
You rarely get the broadest and most durable IP rights by accepting the path of least resistance. For example, you shouldn’t automatically accept the patent or trademark office’s suggestions to overcome its own rejections. Likewise, you shouldn’t rest with granted IP rights, but rather “work” your patent claims and trademark rights over time to address how competitors are likely to use your inventions and co-opt your brand’s goodwill.
If your company’s most important markets are foreign markets, you are also less likely to get the broadest and most durable legal rights by using an IP attorney who does not regularly draft, file, and litigate IP rights for those key markets. As a general rule, you get useful IP rights by drafting them for the markets where you may most need to drive them.
How to Hire the Right Legal Expertise
Referrals. Get referrals for IP lawyers currently developing IP rights with the types of companies you want to become. That way you get talent that brings you to the quality and level of service where they are currently working, rather than just talent that may grow with you and sometimes at your expense.
Education. Look for an IP lawyer who will teach you, not just do your work. This education makes you a better client and frees the lawyer to do higher-end more valuable work, so the education should come easily and largely without cost to you. Also look for a law firm that can triage your work across its legal staff. IP has become highly specialized work with many areas of expertise where small changes in successful strategies could have disproportionally large consequences on your bottom line.
A well-run legal practice will seek to provide you with experts across all IP tasks and with a wide range of relevant experience. How much expertise and at what costs? An experienced lawyer is often your best bet for devising the overall IP strategy but does not need to be the one drafting all applications. You should look for a law firm that can provide you with staffing options, and which is open to evaluating the options with you.
Estimating costs. Be wary of choosing a law firm based on modest differences between initial estimates. Initial estimates are typically based on two things: government filing “costs” and initial legal service “fees” to draft and file your application. Government costs to file applications with patent or trademark offices around the world such as the USPTO are fixed and published in long, complicated charts useful only to people who know how to read them. What varies are the legal service fees firms charge initially to draft and file the application for your exclusionary rights—filing fees—and later the ongoing fees to advocate for the grant of the application with the patent and trademark office—prosecution fees. Different firms charge different attorney filing fees and prosecution fees for these services, based on all kinds of different legitimate business considerations.
It is easier for lawyers to estimate attorney filing fees to draft your application than to predict prosecution fees for all the back and forth that may be needed with the patent or trademark office to get an allowance or past an opposition filed by your competitor. For this reason, some firms can offer fixed or capped fees for this initial drafting and filing stage, but it is rare than they can do so for total prosecution fees, which in many cases can be far larger than the government costs and attorney filing fees. Thus, be wary of choosing counsel based on the modest differences between these combined initial prosecution costs and filing fees.
In the rare case there will be no push-back from the patent or trademark office and your IP right will progress to publication, through a public opposition period, and then to registration. In that instance, you may not have obtained the broadest rights available.
In the more typical case, the patent or trademark office will raise objections based on both form and substance, which require legal time and thus attorney prosecution fees for the response. These additional prosecution fees are typically charged hourly, especially if the complexity of the objections that will be raised by the patent or trademark office cannot be predicted. Some firms will quote fixed fees for preparing responses with the caveat that, if the response is more complicated than expected, the lawyer may ask for an increase in the quoted amount. In either billing arrangement, it is safe to assume that these follow-on prosecution fees can easily match or exceed the government costs together with the initial firm filing fees.
Quality of advice. Given the above, you are almost always better off making choices based on the likely quality of the advice and the amount of relevant legal and technical experience of the IP lawyer than you are on what amounts to relatively minor differences between firms as to initial government cost and filing fee estimates.
For example, an experienced IP lawyer may be able to advise you on the use and timing of initial clearance or patentability searches to help you determine how difficult and how costly it will be to obtain allowance of your IP rights. This can help you better apportion risks and costs to times when your business would prefer to confront them. When seeking rights in more than one country, similar strategic advice is crucial before making use of the Madrid Protocol filing system for registering trademarks, the Patent Cooperation Treaty (PCT) for filing patents, or the new unitary patent system for registering or enforcing patents in Europe.
The goal should be obtaining effective, timely, and useful IP, not just obtaining IP rights. Consider this:
- IP rights are often ineffective and thus rarely used—read by others, evaluated for licensing by others, or contested in litigation—often because they were obtained quickly or cheaply, without strategic purpose
- IP rights evaluated for licensing or litigation are often disregarded by owners as registered in the wrong countries, likely not valid, likely not infringed by the opponent, too easy to design around, too difficult or too expensive to assert, too easy to lock up in litigation or invalidity challenges, too early in the product lifecycle to make litigation return-on-investment (ROI) worthwhile, or too slow a process to represent a credible business negotiating tool
- Roughly half of the IP rights that make it through the above evaluations and that are asserted in expensive litigation are not upheld in the litigation (1.5-3 years later), or on appeal (another 1-2 years later)
This means that time and money spent early on strategic IP considerations with an eye towards how and where the IP rights may be used is more likely to add value and accelerate your business opportunities than reacting later, when it is often too late to adapt.
How to Talk IP Strategy
Use your initial interviews with potential IP lawyers to obtain a general education about IP relevant to your business and look for a good working relationship. It is worth repeating that you want to look for an IP lawyer that can add value to the type of company you want to be, not just the type of company you are now.
Look for a firm that can accommodate growth in your relationship over time as your company and its IP needs grow, rather than a firm that can grow its capabilities alongside your own. Don’t fear IP lawyers relying on the skills and expertise of their co-workers. You would rather have someone who appreciates the value of deep expertise and a long-term relationship more than an attorney who values billing a few additional hours of time.
When you’ve identified your preferred IP lawyer, set up a meeting to discuss strategy, even before you decide which applications to file. Resist the temptation to oversimplify matters by matching your innovations and your brands to available types of IP rights (e.g., utility or design patents, trademarks, copyrights, or trade secrets). Instead, bring with you a list addressing each of the following:
- Your goods and services and some sense of their relative importance to you
- Your brands and your strategy for building customer goodwill
- Your geographic markets, current and expected, by quantity and value
- Your innovations and likely future areas of innovation
- Your competitors and any sense of their IP rights if you know them
- Your likely available resources, including people and budgets
- Your desired timeframes for having and asserting rights to exclude
- Your corporate structure and possible tax issues
A skilled IP strategist will be able to use this information to recommend a cost-efficient strategy that matches your business goals—whether that is obtaining IP rights to exclude others or building a sustainable IP portfolio for possible acquisition.
Working with your IP lawyer isn’t like buying a car. If you fear discussing how much you are willing to spend, find a different lawyer with whom you will feel more comfortable. Except for the highest ROI companies that rely largely on their IP rights to exclude competitors, most companies shape their IP strategy based on considerations of cost and timing.
A good IP strategy includes not just a focused list of IP rights, but also a significant amount of relevant client education. A good IP lawyer will want to partner with you to grow your business in the most efficient way, providing you with skilled legal guidance when needed or training your administrative staff to attend to more routine quasi-legal needs, such as repeated copyright applications and registration of IP on sales platforms.
Likewise, a good IP lawyer will want to train you and your staff to identify legal risks, to avoid missing deadlines, and to seek legal advice when considering significant business transitions, e.g., introduction of new products, entering new markets, M&A activity, funding and sales events, and IPOs. Spotting inflection points when IP rights may bring you a strategic advantage or reduce your risks isn’t just good for your business, it’s great for theirs, especially if you and your team can identify IP risks on your own.
So, you hired your choice of IP lawyer, you’ve had your first meeting, you’ve narrowed in on an IP prosecution strategy, and you have the necessary understanding of your likely budget. What comes next? You have a good IP lawyer, why not take him or her out for a spin around your business? You are investing in your IP lawyer as a business partner who understands the needs of your business. Why not drive other business goals by asking the lawyer to work with:
- Your legal department to set up processes for encouraging and disclosing inventions, to preserve confidentiality of company documents and trade secrets, to enter into non-disclosure agreements, to send and respond to cease and desist letters, to help license your IP rights alongside your products, to license IP rights from others, and to oppose the registration or seek to invalidate the IP rights of others
- Your engineering and product development teams to identify and help design around third-party IP rights
- Your PR and marketing teams to use trademark rights to grow your brand and build customer goodwill, and to communicate your exclusionary rights to competitors and customers by marking products and websites with patent and trademark markings
- Your HR department to secure or assign IP rights from founders, executives, and employees, and to protect IP rights when employees leave the company
- Your finance team to communicate your IP strategy to investors and to better understand your budgeting and reporting needs
- Your executives and directors to provide information about the importance of IP and how it is used in proper corporate governance
The more strategic and less organic you can be about creating and placing IP rights in your markets, the more likely you are to see a valuable return on your investment down the road. Driving timely strategies with the right IP lawyer can also lead to value-added benefits that may easily surpass your spend on roadworthy IP.
This post was originally published by Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.