We have an amazing and diverse customer base at IPfolio that ranges from Fortune 100s to dynamic technology startups in the Silicon Valley and the north island of New Zealand.
The vast majority have already established themselves across the globe or are certainly looking at markets beyond their home countries. Not surprisingly, creating a global patent strategy and evaluating foreign filing opportunities and options are part of the internal planning and budgeting activities inside many of their IP departments.
As foreign filing and patent protection is an expensive and resource-demanding process, we asked one of our customers for thoughts and tips on how he approaches foreign filing and prioritizes a finite IP budget. We agreed to cloak him or her in impenetrable anonymity.
Thank you for the time. Let’s start with the issue of timing: When do you go global? When is the right time?
Going global needs to be part of your discussion with the executive team. It must reflect and support your global business strategy and implementation roadmap, both in terms of geos and timeline. You need to tailor your foreign filing strategy to business goals to ensure freedom to operate, while maximizing return on investment.
Where do you specifically start? Start with why. Is there a business need? Ultimately, IP helps secure and ensure your company’s key financials. Freedom to operate connects to revenue, net income and profit. Where these metrics are dependant on specific countries or markets, what IP assets do you need to secure to protect them?
In my case, my company sells hardware components basically everywhere on the planet. My rule of thumb is if a particular product line in a given country doesn’t generate at least 3-to-5 million dollars in revenue, it’s probably not worth patenting in that country.
Are you considering cost when making this decision?
Not exactly, but in my experience the basic cost to get a simple patent family filed across five countries is probably about $150,000 over the 20-year life of the patents. This is a general estimate based on a very efficient prosecution practice, and a lot of money, particularly for young companies.
Although we all know that complex patents can cost substantially more than this number, I’m assuming prosecution without doing any appeals or anything like that.
What’s the sales strategy to pitch executives?
There are really two approaches to developing creating a global patent strategy and selling it:
The No-Plan or Faith-Based Approach is a very short, usually overly-enthusiastic exercise in guesswork. It may or may not work out, but “hey, this is going to be a great country, we should file in China now” isn’t a great foundation on which to build a successful career in IP.
The Strategic Plan is really the only way you’re going to tilt the odds in your favor. If you go ask for a foreign patent budget - particularly if you are a small and growing company - you won’t have infinite resources. Where do you spend your limited money? How do you get more money?
Create a good strategic plan built on a financial foundation and model that the CFO can understand. Start with the business unit, look at the cost benefit for the patents, and map how everything leads to enhancing the value of your business assets and your recurring net income.
Do you distinguish between offensive and defensive patents?
Absolutely. You can go global for defensive reasons. Let’s say that you need to secure manufacturing rights in a country. While you may not be selling in Taiwan, you may be contracting out manufacturing with someone there. If so, you better think about whether you have the protection needed to keep manufacturing in Taiwan. Where do you see your product or service revenue going in the future? This is an important evaluation of market evolution. Are there areas where you are likely to have IP wars in the future?
You can also go global as an attack strategy. For example, being strategic about licensing can be massively beneficial. Cross-jurisdictional arbitrage is a sophisticated strategy that I have used in the past and continue to use whenever possible. It starts by considering “where am I going to need to defensively cross-license or if I am in that mode to monetize?”
Can you give us a real world example of the kind of thinking needed?
Let’s begin with IP in China: In China, there are two kinds of patents, invention and design.
Design patents can only be hardware, you can get them in about six months, no damages and they can only be enforced for an injunction. There is only an examination of basic patentability and it’s not a complete exam. It’s kind of a half-patent, if you will, but you can get one in six months and get an injunction.
Here’s a specific real-life example. It began with company A facing an assertion from company B. Company A had no patents they could use to fight back with so A filed a design patent in China. Company A really didn't have any relevant business in China with this technology, but knew company Bdid all their product line manufacturing there.
As soon as A got the patent, A went back to B and said 'let’s talk about that a cross-license in the United States. If you want to keep manufacturing your other product in China, we need to reach an agreement.” The alternative for them was that A could have secured an injunction in China within six months.
Why did A file for a patent that wasn’t central to their core product lines? Because A needed a tool against company B that also had a similar business that they were making in China. It was just a way to arbitrage across borders to secure a reasonable global settlement.
Another reason, of course, to use such a strategy is licensing for money. Good luck getting a license if you have two or three weak patents in the United States. You can’t leverage weak patents in the United States to secure and enforce injunctions, and your ability to extract a license becomes substantially reduced as a result. However, if you have a nice German patent and your target company has business in Germany, then you have something to consider licensing in that family on a global basis.
In terms of licensing, this is very strategic, very big picture thinking and execution yes?
It really is. If you are going to do licensing, it is becoming vital to think about when creating a global strategy and who your likely competitors are. It’s only half of the battle, though. After you have identified where you might want to think about patenting, what are you going to patent? How much is it going to cost you? What’s the cost-benefit of doing it? These questions form the second half of the equation.
What’s the potential value of getting a patent? Even if you think “China is a place where we might want to be for some reason, or Germany is a place we might want to be,” can you get a patent that you can enforce there? If you do, what can you enforce it for? If you can only enforce it for injunction, and you are in the business of making licensing revenue, it’s not going to matter. In fact, if you are not in the business of making license revenue, but protecting your freedom to operate, injunction might be a good thing for you. How much does it cost? is it really worth the effort
Arriving at these answers, assessing foreign patent systems, and doing it in a way that you can sell it to your CFO and get money can be very hard
Any recommended methods to convince the CFO?
Something I’ve done in the past is to build detailed overviews by creating matrices of each country of interest that I identified. For each country, I create a color-coded matrix. I assess government policies and practices, and try to assess the patent office expertise, speed and transparency. I also try to assess whether the country patent bar has sufficient experience implying that we can actually get it done. Finally, I include costs and enforceability.
By doing this extensive research, I aggregate information and data that help me understand whether I can get a patent and enforce it, whether the enforcement actions will mean something and whether I can even afford to invest in a remedy. What are the current available remedies? What may change in five years when I actually have that patent in Germany, China or another country. Will I need it in a decade? Will my business even be there anymore?
What do you say to those that say it sounds speculative?
I understand. Some people reading this are probably saying “yikes, how in the world can I do all this work?” While nobody is an expert, I have found two companies that create reports that help me paint the big picture picture. I use them to fill in details for the people I need to convince. For me, they are helpful to answer questions from my boss such as “Why are we wasting time filing patents in China?' I use the data to discuss where China is today, and where experts and market research suggest it will be 5 and 10 years in specific areas.
When you have third-party information and research, you can say “Don’t take my word for it; here is data from experts based on market surveys and extensive local research. Let’s talk about the value of the patents we might have, their enforceability and where the Chinese patent system is going.”
It’s an imperfect methodology but it’s a way to look at the cost-benefit of going global. I really encourage IP professionals thinking about creating a global patenting strategy, and the intricacies of budgeting to access market reports as part of their tactical planning.
Thank you so much for your time and some fascinating wisdom on avoiding mistakes when creating a global patent strategy.
Everyone should understand that there is no infallibility in IP. Hindsight and looking backward will inevitably throw light on decisions that proved wrong. Although 100% success is 100% unlikely, extensive research and methodical planning will increase your odds.