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A Blueprint For Competitive IP Strategies - Of War

Competitive strategies comprise the following:

•   "Design around" strategies create a number of IP rights around a major IP of the com­petition, in order to weaken the competition's ability to use the IP as a competitive weapon. Also used to strengthen the organization's bargaining power in cross-licensing or other IP-based transactions.

•   "Build a fortress" strategies acquire a number of IP rights around one's own IP to create a strong competitive position and build a fortress that is hard for the competition to pen­etrate, hence preempting the competition's use of "design around" strategies. These strategies always involve the aggressive use of litigation to deter competition from com­ing close to the "fortress."

•   "Mapping " strategies map all IP activity in a certain market segment or field to map a road for developing new IP in a new area to secure market leadership. These strategies involve heavy reliance on competitive intelligence and overlap to a certain extent with the organization's innovation strategies.

As shown in Exhibit 8.1, while "design around" and "build a fortress" strategies are used in heav­ily protected areas and market segments, "mapping" strategies are used to find undiscovered ter­ritories where market leadership can be established. Below is a detailed account of how this blueprint can be used with patenting, branding, and copyright strategies. In addition, there is a competitive strategy that applies to all forms of IP:

• "Value Transference" strategies are used to augment the competitive position or market
share of the primary form of IP through the use of secondary forms of IP. This strategy leverages the competitive power of the various forms where value of the primary form is transferred to another secondary form to lengthen the business life cycle of the product.

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Mapping

A - Organization B - Competition

O IP of others

Build a Fortress EXHIBIT 8.1    Blueprint of IP Competitive Strategies

 

Patent Strategies—Of Technological Wars

If patents are the "smart bombs" of tomorrow's business wars, then companies that fail to develop offensive and defensive strategies for their use will do so only at their peril.

- Kevin Rivette and David Kline22

Technological wars turned organizational patenting into a frenzy, with the most successful filing up to 5,000 patent applications23 and receiving over 3,000 a year.24 In 2001, the U.S. Patent and Trademark Office (USPTO) received a record 344,717 patent applications, a 21.4 percent increase over applications filed in 2000.25 A war it is, where patents are the most powerful com­petitive weapons. "What to patent" forms the core of the organization's competitive strategy since it determines not only the areas in which the organization competes, but "how." In the "how" lies the key to using patenting as a war strategy by deciding whether to design around, to build a fortress, or to map a technological road.

Under "design around" strategies, patents are used to barricade the technological field covered by another. The key to these strategies is to spot the competition's domineering patents and file for patents on improvements to it. The competition will soon discover that though it owns the domineering patent it cannot introduce desired improvements that are already patented by another. The competitive force of this strategy is that the owner of the improvement patents enhances its bargaining power and can force its entry into the market by forging an IP-based transaction with the market leader for a cross-license or a joint venture. Japanese companies used "design around" strategies in the 1970s to catch up with U.S. companies in certain technological areas, with demonstrable success.26

"Build a fortress" strategies can be used defensively to disarm the competition's design around strategy by feverishly patenting around one's own domineering patents. Offensively, these strategies are used to force competition out of the area by keeping ahead of the competi­tion in patenting improvement to one's own domineering patents. Under this strategy an organ­ization should patent very heavily in the targeted technological area, making it nearly impossible for the competition to infiltrate the fortress. This not only secures its competitive position but also opens gates of opportunity where the IP can be leveraged to enhance a com­petitive position even further. An example is Dell Company, which obtained 42 patents to cover its business method of providing custom-built computers while keeping its inventory at a mini­mum. Dell leveraged this strong position in cross-licenses with IBM, giving IBM access to its method, while freeing itself from paying tens of millions in royalties for using IBM's compo­nents27 - a move that would have been impossible if Dell did not own every patent that can be owned to cover the business method.

"Mapping" strategies are used in searching for the "largest" patent territory in an existing or new technological field away from all the patent empires and territories. This strategy is used when the organization wants to create another battleground (platform innovations) where it sets the rules of the game and defines standards. The use of patent intelligence tools are essential here as well as future scenario planning to enable the organization to anticipate future needs and trends. But beware of vanity - any technological position no matter how superior can be defeated if the owner does not succeed in making it a market standard. While ahead, the organization should license the technology widely to establish it as a market standard. Indeed, licensing to a network of suppliers and distributors should be part of the investment plan, under this strategy. An example is Sun Micro Systems' offer of Java script for free, despite the hefty development cost, to establish a network of users. A lucid demonstration of this also is the case of VHS and Betamax. While Betamax had a more superior technology for videotapes, it had a strict policy against broad licensing. VHS licensed its technology widely to manufacturers and had a wider market presence, which later facilitated the market's adoption of VHS technology as the market standard.

Savvy IP organizations use the three mentioned strategies in various combinations to create a set of defensive and offensive competitive tools. An outstanding example are the patent strategies developed by Ronald Myrick, General Electric Chief IP Counsel, as a guide for the patent depart­ments and attorneys at GE to strategize the use of patents both defensively and offensively. Myrick defined four patenting strategies29 for GE where patenting strategies are utilized as business strategies for patent-intensive businesses. These four strategies are

1.       Benign neglect

2.       Live and Let Live

3.       Freedom of action

4.       Exclusion

Benign neglect strategies are based on an assumption that the technology can be licensed in, if and when needed. They are used in cases where the prospective invention is of no strategic importance for the concerned business. Under these strategies, however, patents may be filed for such inventions to avoid a turn of luck, lest unexpected market changes give the invention added significance. Live and let live are largely defensive strategies where patents are "secured to be placed on the shelf just in case they are needed. They can be used defensively whenever the competition poses a threat to the business's competitive position, by threatening one of its patents or products.

Freedom of action strategies, in contrast, involve broad patenting activity in many technolog­ical areas, in order to license them out or use them to leverage the position of the business in cross-licensing or joint venture transactions. As such these strategies use patents as competitive tools to force entry into new markets. The use of these strategies requires strong competitive intelligence to assess the direction of the competition. Exclusion strategies are purely offensive and are used to secure strong competitive positions in defined market segments. Under these strategies, licensing the technology out is discouraged, at least until a strong competitive position is established in the market. The main motivation for this strict exclusion is to provide price sup­port to the products of the business, or at least add cost to competitors.

Myrick explains that patents should be managed as a business, and hence the patent strategy chosen should both support and be aligned with the competitive strategy of each business unit. Thus, variations and combinations of the four and other strategies are to be used in devising the competitive strategy according to business needs.

Now let's see how the competitive IP strategies blueprint translates into branding strategies.

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