When people talk about intellectual property strategy, most of the time people focus on putting together their intellectual property portfolio with patents and trademarks. The idea behind this is you put together your portfolio, you get investors, build a business, and someday sell the company at a profit because you have these intellectual property assets.
That is not how intellectual property strategy really works. Intellectual property strategy, or IP strategy for short, is not solely about patents and trademarks.
Strategy—no matter what kind of strategy you employ—is, and always will be, centered around your business; not around the mere accumulation of assets in your business.
Also, importantly for many startups, a well-executed IP strategy can give your business greater access to equity funding, debt financing, or even millions of dollars in additional enterprise valuation.
Intellectual property—including patents, trademarks, copyrights, trade secrets, and accompanying contractual rights—are fundamental strategic assets for any business.
Let’s look at what makes strategic assets in your business. How do you create or develop or obtain or maybe just control certain things that bring value to your business? We call those strategic assets.
A simple way to understand whether assets are strategic is to use the VRIO framework. Each letter in VRIO stands for a certain characteristic of assets that helps you determine whether an asset is strategically valuable to your business.
It is how you operate your business to deliver products services and anything else experienced by your customers and the value they receive from you and will pay to you for those products services and experiences.
IP strategy is not about just the certificates, the registrations, the patents, and the grants in your business. Those are all secondary to how you create value for your customers and deliver it to them.
IP strategy is about how you use your technology, how you use your branding, and how you operate your business to create a competitive advantage in your market.
In order to address IP strategy, it is essential to understand the fundamentals of business strategy. There are three important factors when thinking about your business strategy.
Business Strategy requires an understanding of your:
Each of these factors is critical in understanding what goes into business strategy. Only then can we understand how intellectual property strategy relates to your business strategy.
Every business must understand its Customer Value Hypothesis. A Customer Value Hypothesis is all about how your customers receive value from you. It's not about how you get value from them—how they pay you is just a result.
Your Customer Value Hypothesis focuses on WHY your customer pays you. What do they get by interacting with you? Your hypothesis is your best guess as to why your customers feel like they get value from you in the products, services, or experiences that you offer, and they're willing to give you money for that.
Focus on how your customers receive that value. What is it they are getting? Maybe it’s a product, a service, information, or a connection to a particular transaction. That might or might not be the same as the value they get? The value relates more to the underlying reason they interact with you, rather than the thing they receive from you. What is the value you think your customer is getting from you?
Every business has a profile of characteristics that are unique to that business, its owners, its culture, and the way it thinks about business. Your combination of factors is unique compared to your competition. This is your Business Strategy Profile.
Your Business Strategy Profile is all about your unique business characteristics and where your business fits within your market. There are several factors you can look at to assess how you compare with your competitors, or how you are positioned relative to your competitors. Once a company understands the factors that contribute to its positioning, the company can purposefully and proactively create a leadership position for itself within its industry.
For example, if you want your customers to come to you because they realize cost savings by buying from you, then you might position yourself as a cost leader. In another example, if you want them to come to you because your product is different or better than all the other products out there, that type of leadership is called product differentiation. You have to understand your current positioning if you want to develop a defensible leadership position within your industry.
You can now build your own Core Strategy Framework from your Customer Value Hypothesis and your Business Strategy Profile.
Your Core Strategy Framework is the perspective—for your specific business—to make decisions about how you operate your business. How you're going to interact with customers. Which product you're going to bring on. How you develop those products. How you market those products. It all comes down to your core strategy framework.
This is the framework that you establish so that you and your employees can all make decisions that are consistently aligned with how you have chosen to operate your business.
Your Core Strategy Framework provides the vision and constraints for your business based on your unique assets and your specific leadership objectives. That is business strategy.
You’ll notice that business strategy does not necessarily require anything about patents, trademarks, trade dress, or copyrights. It doesn’t require any intellectual property at all.
However, once you know your business strategy, it's vital that you figure out how to create an IP strategy that aligns with and supports your business strategy.
Implementing an IP strategy that supports your business objectives can be the difference between a business that just survives or a business that thrives. It can also be the difference between working with premier customers instead of commodity customers (if that’s your strategic business objective).
Does that asset allow your company to extract value from it? If you have a product in demand and profitable, that is a valuable asset. If you have a piece of land, but nobody wants it because it's in the middle of the desert, then you have an asset that is not valuable. In general, you must understand how an asset fits into the overall business or industry framework in order to determine whether an asset might be valuable.
Rarity is about whether you have possession and exclusive control of that asset. If you have exclusive control, that means nobody else has control. You're the only one who gets to have or control that thing. That makes it rare. Patents and trademarks are inherently rare. The government has granted you exclusivity legally over those things and while that might not have inherent value, that does provide inherent rarity.
This means that your product cannot be imitated, or it is difficult to imitate. This goes hand-in-hand with rarity. Something that's rare might also be difficult to imitate, but there are different reasons why something might be rare than why they might not be able to be imitated.
Let’s use the example of building a nuclear power plant. How many of us have the resources and the knowledge to go build a nuclear power plant? Not very many of us, right? If we did, we could go do it as often as we wanted, assuming we met all the regulations of course, but it wouldn't be rare anymore. It’s rare because it's hard to get through the regulations, it's super expensive, and takes an extremely high level of knowledge and coordination. This also means that it is difficult to imitate.
Difficult to imitate doesn't have to inherently be rare. It becomes rare because the difficulty involved in imitating it.
Operational exploitation is the ability for your organization to exploit assets in your business.
Let’s say you own logging rights to a forest high up in the mountains. Do you have the skills and abilities to retrieve that lumber? Logging requires skilled laborers to cut down the trees, specialized equipment, trucks to carry the timber down the mountain, and a location to process the trees and turn them into usable materials. Without those things, you would not have the operational ability to use, or exploit, that type of asset.
You must have the ability to use your assets, to exploit them in order to better your business.
Here is a summary of the VRIO framework:
A common misconception about intellectual property is that all IP assets are fundamentally strategic assets. That is not necessarily true.
IP assets are rare and inimitable through legal mandates during the life of the patent, trademark, or other IP rights. However, being rare and inimitable is not enough to ensure value to the business. Even though an IP asset may be rare and inimitable, there's not an inherent connection between patents/trademarks and value to the business.
This is why operational exploitation is so important. It is the difference between owning a car and knowing how to drive it. Similarly, it is the difference between owning a manufacturing facility and having the operational expertise to competitively make products using that facility. In regard to intellectual property assets, operational exploitation is the ability of the business to go out and make use of the patent or trademark (through direct monetization) or make use of the technology or the brand that's protected by the patent or trademark.
Be careful not to mischaracterize all intellectual property as strategic assets, because many of them are merely speculative, not strategic. They don't inherently meet the criteria to become strategic assets, even if they're rare and inimitable. They're not always valuable and operationally exploitable.
This is why you often hear people assert, for example, that about 97% of patents are worthless—the patent owners are missing the other factors from the VRIO framework.
With this general background on business strategy and strategic assets, IP strategy is merely a perspective, or a viewpoint, on your business strategy. If you have an IP strategy that exists separate from your business strategy, then you're building something that's not supporting the actual competitive advantage of your business. It would not be strategic.
There are three ways to do this from an intellectual property and legal standpoint that can benefit any business. You might not have all three of these types of assets in your business. But every business has the ability to look at their business and see whether or not you have these types of assets and can protect them with the corresponding types of intellectual property.
Every business has the ability to create, obtain, or control some type of technology.
When you create technology, you can protect that technology. If it meets all the criteria, you can protect it with patents and make it exclusive to you. That's rare, inimitable, and hopefully valuable and operationally exploitable by your business. Separately, some technology is protected as a formal trade secret or even copyrights, rather than using patents.
Every company can create a brand around their products, services, or business.
The brand of your business is all about how your customers perceive you, how they trust you. It is the reason they come back to you and buy from you. Your brand can be protected by trademarks and, in some cases, by trade dress and copyrights.
Every business has a unique approach to its operations.
This relates to how you run your business: where you get your inventory from, how you distribute your inventory, how what type of business model you use to generate revenue for your business, and how you do your marketing.
To protect your intellectual property in your other business operations, you're going to use a variety of things, depending on what's applicable: contracts or legal agreements; licensing agreements where you agree to use somebody else’s technology exclusively, or you agree to grant somebody the ability to use your technology or your brand; trade secrets are a way to say that you've established a program to protect the secrets of your business, the things that bring you value that maybe are protected by patents and trademarks, but they are protected as secrets; copyrights could be used as part of your branding, but could be any type of original work of authorship or artwork that protects your creative abilities in your business.
All these things fall into this third category, which is that all your other business operations can be, and should, be legally protected.
Your IP strategy is only valuable when it aligns with your business strategy. The types of things that you implement in your business strategy—like technology, branding, and other business operations—can be protected by the corresponding types of intellectual property.
The next time your team has a discussion around the competitive advantage of your business, make sure you approach the topic from an IP strategy perspective, instead of blindly seeking to “get a patent” or “register a trademark” for your business.
Even better, next time your team talks about their strategy, don’t miss the opportunity to identify and build the strategic value of your own intellectual property portfolio.
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