management of technology & innovation mktg5603 & … · 2016-07-15 · creating an ip...

©Mazzarol 2015 all rights reserved

Management of Technology & Innovation MKTG5603 &

Biotechnology Commercialisation MKTG5604

Workshop 4 Part B: IP Rights &

Creating an IP Portfolio Professor Tim Mazzarol – UWA Business School

UWA Business School MBA Program

M Biotech Program

[email protected] MOTI MKTG5603

BC MKTG5604



The four most common types of Intellectual Property rights that are important in the world

of R&D are patents, trade secrets, copyrights and trademarks.

Type of IP right General description Conditions Duration of rights

Patents Official right granted by sovereign state to

patent owner for exclusive title, use, sale of a

device, substance, method or process.

Patent must be:

1. New

2. Involve an inventive step

3. Have industrial use

20 years.

Trademarks

A letter, number, word, phrase, smell, shape,

logo, picture, aspect of packaging or

combination of these to distinguish one

supplier from another.

Cannot be generic name, does not

need formal registration but

ownership could be contested.

Cannot look like existing

trademarks.

10 years but can be

extended.

Can be lost if not used.

Registered

Designs

The visual aspects of a logo or product

resulting from the features of, in particular, the

lines, contours, colours, shape, texture or

materials of the product or its ornamentation.

Must be new and distinctive for

certified registration.

Protects the specific look of the

article.

10 years but can be

renewed.

Copyrights Is granted automatically upon creation of the

work and covers artistic work, music, literary

work, broadcast media and software. It

prohibits unauthorised copying or reproduction

of the works.

Formal registration is not needed

but authors should place copyright

notices on all works.

Offered under Universal Copyright

Convention.

Lifetime of the author plus

70 years from date of

publication.

Trade Secrets

Firms make use of confidentiality and non-

disclosure agreements for all employees, sub-

contractors and suppliers.

No official registration needed but it

must be clear that something is

being protected.

Last for as long as secret is

kept e.g. Coke’s Formula X.

Sources: Ambrozy (2013); IP Australia (2010)

Common Types of IP Rights Protection


Source: Ambrozy (2013)

Key issues with IP rights

Patents

• Australia and USA standardised

IP rights laws in 2005 following

the free trade agreement of 2001.

• Patents must be registered in

each country where they might be

required.

• Patents often build on existing

patented inventions and these

might need to be considered in

any future use or sale of the

patent.




Trade Secrets

• Typically covers a formula, pattern

or device or process but not things

like customer lists.

• Only apply if the idea is not know to

others outside the firm, cannot be

easily found out and firm has taken

appropriate steps to protect it.

• Cannot protect against a rival firm

also discovering the idea or even

reverse engineering it from your

product.

• Varies from country to country.

• May offer a cheaper alternative to

patents at least in the early

development stage.




Copyright & Trademarks

• Copyright should be applied to

software, plus manuals for

owners and operators.

• Also any relevant

documentation or marketing

materials including websites.

• Trademarks should be used on

a continuous basis.

• You will need to police the use

of trademarks to ensure that

they are not eroded by

“generic” use. – E.g. “Aspirin” lost its trademark due to lack of policing.



How IP Rights Impact NPD using

StageGate®

Will the IP be

patented or will

trademarks be

developed?

If so can you

secure licence

agreements? If licence agreements

cannot be secured can

the product be

redesigned? Are there

existing patents

or trademarks?

If product redesign is

needed this will move

the NPD process

backwards

Invention Screening Committee

Conducts initial IP review at

Gate 1 and IP Business Case

Assessment at Gate 2

Invention

Disclosure to

Patent Attorney

IP

Clearance

Review

Patent or

Trade Secret?



Boundaries of IP Rights

Your Competitor’s IP Rights

Your Company’s New

Product IP Rights

Your Company’s New

Product IP Rights

Your Competitor’s IP Rights

Unfavourable situation as competitor can

potentially block use of your own IP due

to excessive overlap of patents or other

factors.

Favourable situation as competitor’s IP

rights only overlap you company’s rights

and you can avoid excessive conflicts or

need to negotiate IP rights permissions.

May require

licencing

agreements

May require

product

redesign



Moving the NPD process to product launch via StageGate®

Key issues to consider

• Once IP clearance review has been completed (Stages 1-4) the NPD process moves to Stage 5 “Product Launch”.

• However, unless all legal reviews are fully addressed conflicting IP rights claimants may block the invention’s release.

• A judge may order your firm to stop selling the product.

• This can be very expensive and even crippling to a new product and a small firm.



Ownership of IP Rights and Joint

Ventures

Key issues to consider

• Ensure that employment and

consultant contracts: – Specify that all inventions or copyrightable works

made by the employee or consultant (undertaken on

company time) are the property of the company.

– Require that the employee assign all IP rights flowing

from inventions to the employer and cooperate with the

employer during any IP rights prosecution.

• In any Joint Ventures involving the

joint development of IP prepare

agreements that clarify: – What the background IP rights contributions for each

partner will be.

– Agreement over the right to use any IP developed during

the JV.

– Agreement over the right to own any IP developed during

the JV.

– Agreement over which party will be responsible for

seeking IP rights protection.

– Whether either party can license the IP rights to a third

party without permission from the other parties.


Building an IP Strategy


Developing an IP Strategy

• Using IP to its best advantage to

help the commercialisation and

business model development.

• Allows for enhanced:

– Innovation

– Invention

– IP rights protection

– Management of resources

– Commercialisation

– Leveraging of resources

– Financial returns to R&D

– Risk management

– Investor confidence


IP Strategy in the Commercialisation

Process

Seed

Develop Product

Market Entry

Growth Stability

•Staff have assigned IP and signed NDAs

•Management has working knowledge of IP

•Key IP identified

•IP protection in place

•Standard NDA

•IP addressed in customer & JV

agreements

•Management aware of core IP

•IP policies and processes in place (e.g. staff

induction and exit processes)

•Formal NDA processes and reviews

•Formal IP policies in place re contractors,

suppliers, customers

•Establish and review rights to use third party IP

•Management aware of core company IP and

established IP strategy

•IP in staff lifecycle - recruitment, commencement,

departure

•Annual IP reviews to assess against best practice

policies

•Assess portfolio against current business

objectives

•Annual reviews of third party agreements and

compliance with permitted uses


IP Strategy

Visionary

Objectives Use IP to stake a claim to future opportunities & embed IP into the corporate culture

Action Strategic partnering plus measurement and reporting.

Integrated

Objectives Views IP as a business asset, uses IP across the business in strategic manner integrated into company.

Action Align company and IP strategies managing IP across all areas focused on value creation.

Profit Centre

Objectives Seeks to monetize IP as a business asset, tactical non-core, not strategic, low hanging fruit.

Action Seek management buy-in, with pro-active licencing of low hanging fruit, consider IP donations and Royalty Audits using IP screening criteria.

Cost Control

Objectives IP viewed as legal asset within a portfolio, with aim to reduce IP costs.

Action Relate IP portfolio to business use, Establish IP committee and screening criteria plus IP filing and renewal guidelines. Prune IP portfolio regularly.

Defensive

Objectives Views IP as a legal asset and seeks to create a defensive position and capability, with plan to secure access to third-party technologies.

Action Make stock take of IP ownership within the firm, secure and maintain IP rights but also respect IP rights of third parties and enforce your own IP rights.

IP Strategy Options

Source: QPSX (2005)


IP Strategy Development Process

Source: QPSX (2005)

1. Initial Pass

• What IP is there?

• Who is creating it?

• What systems are in place?

2. Status report

• Report from “initial pass”

• What issues does it reveal?

IP principles

• What IP is relevant?

• What are the audit guidelines?

3. Goals and drivers

• Set goals and drivers

• Determine time frame for successful completion

4. Define scope

• How wide will the IP audit be?

• Internal only or industry wide?

5. IP audit

• Locate IP assets

• Identify critical gaps

• Map IP protections

• List urgent actions

6. IP Asset Register

• Central record of all IP assets

7. Report and recommendation

• What does the audit reveal and what action is needed?

8. Define strategy

• What gaps need to be filled?

• What processes are required?

• What IP rights exist?

• Protection strategies.

• Leverage options.

9. Implement and review

• Implement strategy

• Review effectiveness

• Staff have assigned IP and signed NDAs

• Management has working knowledge of IP

• Key IP identified

• IP protection in place

• Standard NDA agreements used

• IP addressed in customer & JV agreements


IP Management Checklist

• Identify all IP associated with your business and itemize them in your business plan.

• Check that you really do own all IP used in your business or that you have the right to use it.

• List registered IP and place a dollar value on identified assets.

• List unregistered IP and give it a dollar value.

• List other valuable assets such as client lists and corporate knowledge.

• Identify key staff involved in developing, maintaining and protecting your IP and get them to sign agreements relating to confidentiality and competition.

• Educate staff on the nature of IP, how to protect it and their responsibilities.

• Consider ways you can use the IP system in your overall business strategy. Decide which markets (including overseas ones) you wish to pursue before going public.

• Develop an infringement strategy. Consider insuring your IP against infringement and against your infringement of someone else's IP.

• Search the patent, trade mark and design databases, as well as other literature and the Internet to ensure your ideas are new and to avoid infringing the rights of others. You can also search for new business opportunities and keep a tab on what your competition is doing.

• Maintain secrecy and be first to market.

• Make effective trade marks the core of your brand and image building strategy.

Source: IP Australia (2005)


Licensing IP Rights


Why Licensing?

Source: QPSX (2005)

What does a licence do?

• License prevents others from

exploiting your inventions.

• It can involve patents, copyright,

trade marks and trade secrets.

• Typical license offers an exclusive

or non-exclusive right to use and

sell the IP in a given territory or

“field of use”.

• Key objectives: – Licensor: leverage the invention, generate

income.

– Government & non-profits: disseminate

knowledge.

– Early stage biotech: fund future R&D, proof

of concept.

– Licensee: access to technology.

– Large firms: diversify technology pipeline.


Some Licensing Considerations

Source: QPSX (2005)

Key issues: • There are no “standard royalties”

• Negotiation is the key with

attention given to: – The technology – scope, strengths and

weaknesses, can it be “designed around”?

– The Competition – what other options exist

and how much threat?

– Mutual Benefits – what do the two parties

want from the deal?

• Royalties are allocations of future

profits.

• Royalties are NOT: – Payment for inherent value of Licensor’s IP.

– Means of recovering IP owner’s sunk costs.

– A “standard” percentage of net sales.


Valuing IP Assets

• Cost Based Valuations – Includes cost of R&D, prototype development, patent registration

and legal fees plus any marketing costs

– Useful where a clear trading history exists

– Assumes buyer would need to spend the same amount of money to replicate the IP assets

– Requires careful record keeping of development costs

• Market Based Valuations – Follows similar logic to how real estate is valued

– Requires market equivalent asset for comparison

• Income Based Valuations – Uses NPV analysis

– Requires ability to forecast future earnings stream from IP assets

– Not suitable for early stage innovations

Source: Tenebaum (2002)


Considerations in IP Asset valuation

• What is the economic life of the IP asset?

• What is the lifecycle of the technology in which the IP asset resides?

• Is there legal protection of the IP asset (e.g. patents)?

• How transferable is the IP asset from one owner to the next?

• Are there any restrictions on the exploitation of the IP asset?

• What is the level of R&D required to maintain the IP asset?

• What is the nature of the competitive environment?

• What is the normal financial return associated with the development of such an IP asset?

• What is the extent of functional and/or technological obsolescence?

• What are the forecasts for economic and technological trends in the industry?

• What is the likely cost of developing competing IP assets?

Source: Bertolotti (1995)


Three Steps for Valuation of IP

Source: QPSX (2005)

• Cost of manufacture & sale of product

• Price of competing products

• Resulting profit margin

• Market size & growth

• Market share

• Competitors

• Consumer trends

• Technology lifecycle

• IP owner’s track record

• Asset contribution of licensee

• Economic outlook

Step 1: Quantify the Total Possible Profit

• Relative contributions of parties for royalty split

• Rule of thumb – 75/25

• 25% Licensor

• 75% Licensee

• Only “starting point”

• 25% split of pre-tax profit

Step 2: Fair Allocation of Profits

• Lump sum

• Periodic royalties

• Minimum royalties

• Prepaid royalties (credit)

Step 3: Method of payment


The 25% Rule

Source: QPSX (2005)

Scenario 1: Licensing the patent enhances or improves product revenue

No Patent

Available

Revenue

Enhancing Patent

25% Rule

Revenue $200,000 $210,000

Cost of Sales $80,000 $80,000

Gross Margin $120,000 $130,000

Operating Expenses $60,000 $60,000

Operating Profits $60,000 $70,000 ($70.000*25%)

/$210.000 = 8.3%

Applying the 25% rule to the expected operating profits results in a royalty rate of 8.3%


The 25% Rule

Source: QPSX (2005)

Scenario 2: Licensing the patent reduces the product costs

No Patent

Available

Revenue

Enhancing Patent

25% Rule

Revenue $200,000 $200,000

Cost of Sales $80,000 $70,000

Gross Margin $120,000 $130,000

Operating Expenses $60,000 $60,000

Operating Profits $60,000 $70,000 ($70.000*25%)

/$200.000 = 8.75%

Applying the 25% rule results in a royalty rate of 8.75%


IP Valuation for Licensing

Source: QPSX (2005)

Pros & Cons of Net Sales-Based Allocation of the Expected Profits

• Licensees like this because they

don’t have to disclose profits.

• Licensors like but Licensees dislike

the need to pay royalties

immediately, even if no profit yet.

• Can restrict licensee’s flexibility in

setting prices to compete with key

competitors and can erode their

profit margin.

• Due to the uncertainty over future

profits this will lower the amount of

royalty %.


Factors Favouring Licensing Parties

Source: QPSX (2005)

Factors that favour the Licensor

• Broad, valid, assignable patents.

• Related know-how and trade

secrets.

• Marketing contacts & potential

customers.

• Existing brand names

• Company reputation in the market

• Well funded and resourced

• Productive R&D pipeline for NPD

• History of successful licensing

Factors that favour the Licensee

• Substantial NPD and product

commercialisation work required.

• Substantial investment in plant &

personnel required.

• Existing strong competition in both

market and product segment.

• Existing plant and capacity.

• Existing skilled workforce.

• Existing sales and distribution

channels.


Group Discussion

Working in teams

• Complete the IP questionnaire

for the project.

• How strong or weak are the IP

rights associated with the

project’s technologies and

related innovation?

• Is there an IP Assets Register?

• Is there an IP valuation strategy

in case of the need to license

or sell the technology?

• Develop an IP strategy

End of Presentation

management of technology & innovation mktg5603 & … · 2016-07-15 · creating an ip...

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