Strategy

The Dreamliner and the Risks of Transformative Innovation

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In October of 2011 Boeing launched a new plane, said to be the most innovative new aircraft in the commercial space in decades.  Airlines were lining up to order their own, with Japanese airline ANA waiting over 3 years for its first craft to be delivered. Customers paid up to $30,000 per seat to take a ride in the new plane that had the entire industry and traveling world abuzz. The plane offered huge improvements in energy efficiency, was made from a variety of high tech composite materials, and included a wide-spectrum of high-end consumer features like increased space, reduced noise, modular bathrooms, and even a LED light show during preparation for take-off. It seemed like a huge leap for Boeing and the aircraft industry.

The Dreamliner 787 was meant to herald a new age of commercial aviation. Instead it has Boeing scrambling.
The Dreamliner 787 was meant to herald a new age of commercial aviation. Instead it has Boeing scrambling.

However in the time since, Boeing has been dogged with problems: Cockpit windows have cracked multiple times, now three active Dreamliners have had overheating problems related to their lithium ion batteries, and two planes have had fuel leak problems. Given that only 50 Dreamliners are in service (with hundreds more on delayed order) these are potentially scary indications that the entire plane design may need to be reconsidered. The issue has even led US investment bank Goldman to downgrade Boeing stock from “conviction buy” to “buy” while the issues are reviewed by the FAA.

The question that has to be on the mind of many Boeing executives is whether the Dreamliner was too big of a risk – to big of a redesign and innovation – to have been taken in the first place; particularly in an industry with such high regulatory and consumer scrutiny.

But has the Dreamliner really failed? Or is it simply experiencing the rocky beginning that many transformational innovations go through? What does this case say about the relative merits of the first-mover advantage versus being a fast-follower? Let’s consider the details and the impact the Dreamliner has had on its:

–         Industry/competitors: the airline manufacturing industry is particularly competitive, with high levels of capital required. In fact, two major western companies now dominate the consumer and military industry, with Boeing and Airbus fighting for market share. Airbus is set to launch their own next generation craft next year – it too relies on the same type of batteries found to cause issues for Boeing. Boeing has the first-mover advantage in that they’ve defined the next stage of technical development and can capture the early market – whatever features Airbus shows in the A350 will almost certainly have been inspired by the 787. Airbus however has the fast-follower advantage: the chance to quickly adapt its competitor’s technology while making necessary improvements to have an even better product at launch.

–         Market: the airline industry is intensely competitive, with any opportunity to gain consumer share coveted. The Dreamliner captured the imagination of the commercial airline industry, with airlines queued up to place orders to not only gain an edge against their competition but also to keep up. The Dreamliner has been a success, but it is vulnerable to being displaced by its competition based on the difficulties relating to safety. Unfortunately, in the airline industry almost any issue quickly escalates to a safety concern. No amount of internal testing can replace use in the field, so these ‘teething’ problems are almost inevitable in such an innovation. Only time will tell if these are early indications of incomplete qualification of designs and innovation or just minor bugs that needed to be worked out.

–         Consumers: the Dreamliner did something no plane has done for decades – it captured the enthusiasm and interest of the flying public. Boeing was able to become synonymous with innovation in the industry. This interest almost certainly contributed to the early success in selling the plane within the airline market. Boeing now has the challenge of resolving safety issues in a way that assures the consumer of the concern for safety. This means solving the quickly and completely. Another instance of having the plane grounded might be permanently disastrous for the Dreamliner and Boeing brand in the eyes of consumers, especially related to new innovations.

Transformative Implications BoxThat the launch of a transformative new airliner design will meet with some growing pains should have been no surprise to Boeing executives. With any innovation there is a level of risk involved in introducing it to the market – whether that be market acceptance, technical success, or speed of adoption (among other factors). The bigger question is whether Boeing understood the risks before launch and fully evaluated the upside versus the potential downside of making such a transformational leap. The Poole College of Management provides a great discussion on ‘Managing Levels of Innovation Risk’ on its Enterprise Risk Management page. For the executive or innovation leader it is very important to understand the organizational needs – for real breakthrough growth or to capture a new market segment transformation innovation can be a necessity. However, it may be enough to make more sustainable, low risk incremental innovations in order to obtain the same gains.

To the Osmotic Innovator, the warning is to be certain of the organizational goals in relation to an innovation initiative. While transformational innovations are exciting and capture the imagination both internally and externally they also carry a very high risk profile and can do long term damage to a brand and a company that undertakes them. There is a case to be made that in some cases incremental or core innovations can represent a more easily digestible risk profile.

So where does Boeing net-out? Boeing, hopefully, made the evaluation that its position required or allowed it to take a gamble on a transformational innovation. Rather than suffering the innovators dilemma and being outpaced by other firms it would disrupt its own business and take the risk necessary to do so. While being first-mover allowed them to capture a potentially huge share of the market for the Dreamliners benefits (high efficiency longer-range medium sized planes with enhanced consumer experience) and set the industry standard, technical and supply problems have given its competitor a chance to both learn and catch-up, potentially offering a better comparable product when they do launch. Boeings willingness to work with regulators to make its system safe speaks well to regulatory agencies, airlines, and travelers; but it is inherent that these changes are made quickly to repair the damage to the brand and fend off otherwise equivalent competitor offerings.

The future success of the Dreamliner and its place in history (as either a transformational innovation or a failed early stage technical innovation bested by the fast-followers) will rest on Boeings willingness to dedicate resources to solving its problems quickly and efficiently and on the ability of its competitors to leverage these first-mover difficulties to their advantage.

Observing the Innovators Dilemma

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In 1997 Clayton Christensen published The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.  The book (which we highly recommend) proposed an intriguing explanation as to why large companies with seemingly unlimited resources can fail to see their own demise in the emergence of disruptive technologies.  One oft cited example of this phenomenon is the demise of Kodak who not only failed to see the importance of digital photography on their core film business but in fact were the ones who invented digital photography in the first place.  The purpose of this post is not to discuss Christensen’s work however but instead to cast our eyes over some industries and see if we can spot companies who might well be in the midst of an innovators dilemma as we type.

In order to identify where an innovators dilemma might lie we need to quickly describe the required conditions for its occurrence.  A very common approach, and one used by Christensen, is to describe the situation using innovation S-curves as below.

A:  A new technology in its infancy.  Performance improvements are hard to generate as the innovation is becoming understood.  Generally, innovations at this point are only used by very early adopters and the value of the product offering may be limited.  B:  Rates of performance advances are peaking, rapidly catching up to incumbent technology. The technology becomes commonplace and even the industry standard.  New competitor technologies look hobbyist or misaligned.  C:  The technology matures, performance advances are harder to generate as the limitations of the technology are found.  Most people who might use the technology are doing so.  New competitor technologies seem to have higher potential and are gaining acceptance.  D:  The technology fades.  People stop using the technology and choose others.  A new technology becomes the industry standard.  The Dilemma Zone:  Technology A is well understood, the industry standard and an integral part of the business model of those employing it.  The profitability of the technology is peaking.  Technology B looks very promising even to the point where it is the odds on favorite to be the future of the industry; the only question is exactly when.

So, with this set of conditions in mind we will go hunting for some modern dilemmas in the businesses of today.  Kodak followed the red S curve to their well-publicized regret, who might be next?

Dilemma #1, HBO:  HBO are having a great run at the moment, their internally created content such as Game of Thrones and Boardwalk Empire have generated huge returns for their parent company Time Warner.  HBO is one of the most well known and entrenched premium cable channels in the world and its exclusive offerings are an important part of the business model of cable providers such as Verizon and DirecTV.  So where is the dilemma? Well, Game of Thrones Season II has been downloaded illegally about 25 million times over the year1 and HBO know why; there is no other way to get it apart from subscribing to a full cable service.  HBO could provide downloads through their own site or through iTunes or another vendor but (at least for season 2) chose to take the money i.e. maintained the high premiums from the cable providers at the expense of the pirated copies.  Financially this makes sense today but long term HBO may not always have such a gem as Game of Thrones with which to negotiate (or even define) the process of streaming its content on demand.

Dilemma #2, Big Pharma:  Big Pharma is REALLY big and is based primarily on a model that is around as old as your granny.  Two pillars, small molecule chemistry and blockbuster “one size fits all” treatments are what has driven the growth of this industry since the early 20th century but that is coming to an end.  Biotechnology in its many forms is most definitely the future of medicine in the 21st century.  A scan of where the breakthrough patents are being generated in the field and you can see the majority are coming out of small Biotechs and Universities not the massive health laboratories of the S&P 500.  The problem is that small molecule chemistry (what Big Pharma is great at) is not Biotechnology any more than plumbing is interpretive dance.  The initiative needed to transition the capabilities of say, a Pfizer (100,000+ employees2), to a new science is immense, perhaps too immense.  Coupled with this is a reality that Biotechnology tends to make very targeted drugs, limiting the opportunity for another “everyone gets a pill” Lipitor or Prosac, a model that Big Pharma now relies on.  So the dilemma is set, Big Pharma must re-skill, and possibly re-size, but to do it now or to hold on for just one more blockbuster?

Dilemma #3, Microsoft Office:  Microsoft itself is arguably in the middle of an innovators dilemma but I thought I would pose the case for one of its most profitable jewels, Office being very much in the middle of a technology revolution itself.  Office is everywhere, you can’t do business without the ability to open and edit Word, Excel and PowerPoint documents and this has ensured that the Office suite has remained the standard install for companies worldwide for many years.  The knock-on effect of Office being the choice of your company is that you are far more likely to install it on your home PC as well, and why learn two different systems?  So where is the dilemma?  Well, Microsoft knows that it won’t be long before the idea of having to boot up a desktop or notebook to balance the household budget or write your resume will be gone.  People will expect to run their households from their tablets and phones while sitting on their sofa not hiding away in the home office.  So, Office for tablets?  Where is it?  The problem is that fully functioning office products are complex, far more complex that we are used to dealing with on tablets and phones.  Microsoft’s choices seem to be a) cut back on the functionality (losing their technical advantage), b) teach us a new way of interacting (losing the synergy with the company office) or c) lose the home space all together.  You might be thinking that you would still be tied into the Office suite simply because even if you change your home tablet away from Office, other people will still send you Word documents. The simple fact however, is that file type is almost irrelevant these days. Download a free service like Open Office and you will see it is quite capable of opening Word docs and even saving them in Word format so on Monday morning your company PC will be compatible with your weekends endeavor.

1         http://www.forbes.com/sites/andygreenberg/2012/05/09/hbos-game-of-thrones-on-track-to-be-crowned-most-pirated-show-of-2012/

2         www.morningstar.com

Is IP Stopping Innovation

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Are we poised to enter the post-IP age? Has the concept of the patent or trademark as we know it today been so muddled by modern corporate strategy and greed that it no longer serves the purpose it was originally conceived to support? In reading about the upcoming Apple vs. Samsung patent trial one has to wonder how the consumer or public good is served as these two giants of the tablet and smart phone industry prepare to battle it out over the right to own the market. Rather than focusing on how to make their product substantially better than the competitors they prefer to fight over how to block them from competing. The question is – does this hurt innovation?

Patents have been used to support invention since at least 1474 when they were formalized by a Venetian Statute. Even prior to this they existed as ‘letters patent’ issued by the king or queen to inventors in England or even further back in ancient Greece where inventors of new ‘refinements’ were afforded 1 year of profits. In the US the Congress passed the first patent act in 1790 to ‘promote the progress of useful Arts.’ Over the two subsequent centuries patent law has been refined and altered to more appropriately suit the now global marketplace and economy but many aspects of these legal grants have stayed the same.

Do the same rules make sense in the new, constantly evolving digital economy? After all, the original intent of providing patents was to incentivize disclosure of invention for the public good. Is that still happening? Let’s break down some key characteristics of patent law today to review how this helps or hurts innovation.

 

–         Filing Process: the process of applying for a global patent is a byzantine one, involving multiple organizations and sets of laws. For any company hoping to commercialize and protect a new invention the process can be daunting. Not only does this add cost and time to commercialization (often lots of both) of a new innovation, the differences in the examination and discovery process mean that what is novel in one state could be found ‘not inventive’ in another. By the time the examiners and lawyers are finished amending and shifting the filings what is protected in one region might be unprotected or infringing in another! Additionally, this expensive and time consuming process tilts the scales against individuals and small firms, leaving them essentially out of the process. The very people meant to be protected by the patent system – individuals with great ideas – are excluded unless they can muster significant resources to go through the filing process. The patent system then becomes a game that is played by large firms with the resources to engage in de facto patent war with their competitors!

–         Lifetime: patents last for about 20 years – great news if you can get one, bad news if you come up with a substantial but infringing product improvement 5 years later (or even 15 years later!). In the world of telecom and digital this is several lifetimes but in pharmaceuticals this is just the start for a successful product. The differences in these industries mean that a one-size-fits-all approach is not necessarily the best one. As well, the speed of knowledge improvement has so substantially shifted in the digital era that one has to wonder why any law written to support innovation in the age of the horse and carriage is still being used in the age of the Dreamliner!

–         Infringement Liability: the substantial rewards that might be expected from winning a patent lawsuit have led to the rise of an entirely new industry, patent trolls. These companies or firms buy up patents and use them as leverage to extort payment from other companies. It also encourages opposing firms to face off in court rather than work together. All this time litigating drains firm resources and limits real innovation, while providing a disincentive to making new and innovative products without obtaining firm IP protection. Too often companies look at the ability to create a sustainable IP position as a major factor in developing a new product, rather than looking for the best products. We’ve progressed from twenty patents in a year to thousands – shouldn’t the legal system have changed to allow speedy resolution of these cases in a fair and equitable fashion as well?

It’s obvious the current system isn’t doing much to drive innovation in most industries. Perhaps its time that governments and innovators came together to reform the patent system in a way that lets both companies and consumers win. Imagine if Apple and Samsung were to focus the resources currently tied up in lawyers and patents with creating new products – the consumers and companies might never look back!

In the meantime what does this mean for you, the osmotic innovator? Avoid falling into the trap of worrying about maintaining a defendable position at the expense of the consumer experience of your product. Don’t infringe on others IP but wasting resources unnecessarily protecting short term innovations won’t pay off in the end! And if this post interests you take a look at some previous posts on this blog regarding Enlightened IP Strategy – hopefully you’ll start to see a light at the end of the dark IP tunnel.

Does Mathematics Enhance Creativity? (Part I)

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I would like to take a moment and discuss a topic that is probably not a favourite among the majority of the population: Mathematics. I will now give you a moment to compose yourself and allow the nauseous feelings to subside. You may now be wondering why in a blog about corporate innovation and promoting an innovative environment I choose to talk about such a dreadful topic. My reasoning is rather simple: in reading about innovation and how to get people to be creative, the benefits of Mathematics are never mentioned and yet it is in everything from Art to Music. We focus so much on allowing free thinking and encouraging others to look beyond and outside the box. What about Math?

Unfortunately, many assume that thinking about Math will place a person in an analytical rather than creative frame of mind and may inhibit innovation. Is this true? If you’ve struggled with Math in the past you’re probably hoping that it is! Sorry…I am going to prove otherwise and hopefully convert you to a Math lover. No, I am not intending to turn you into the next famous Mathematician, but rather to develop in you an appreciation of this complex subject and show you how something perceived as “structured” can actually promote abstract and boundless thinking. Weird, huh?

When we think of Math in a general term, it includes complex subtopics like Calculus, Multi-variable Calculus, Geometry, Algebra, Differential Equations, and so on. Yes, these are very complicated in application, but one need only look at a picture or painting or listen to a symphony or rock song to appreciate them in real life. In addition, there are more advanced topics like Logic, Abstract Algebra, and Linear Algebra but these are for enhancing logic, reasoning, and visualization and their benefits will be addressed in another post.

To see the complex but paradoxically simple beauty of Math, you can look at almost any masterpiece of painting or sculpture. What is the best part about this? Knowing how to solve complex differential equations and triple integrals is not even necessary. In fact, most of the beauty we see is more from applying simple geometric patterns over and over in some sequence. When done this way, it gives rise to what Mathematicians term Fractals – a detailed repeating pattern that makes itself obvious when zooming in on the picture. One person in particular, Benoit Mandelbrot, has become known as the father of fractal geometry. As stated in a Wikipedia article about him, Mandelbrot “emphasized the use of fractals as realistic and useful models of many “rough” phenomena in the real world. Natural fractals include the shape of mountains, coastlines and river basins, the structures of plants, blood vessels and lungs, the clustering of galaxies; and Brownian motion. Fractals are found in human pursuits, such as music, painting, architecture, and stock market prices.”[1] I encourage the reader to type into a search engine the term ‘fractal’ and enjoy all the interesting pictures that result.

Besides fractals, another interesting common mathematical wonder (for lack of a better term) is the Fibonacci sequence – a sequence of numbers defined by the linear recurrence equation Fn = Fn+1 + Fn-2. Although it looks really complex, it basically means you get specific numbers: 1,1,2,3,5,8,13,21…(to infinity). So why is this interesting? Well, if you are a fan of Dan Brown’s novel The Da Vinci Code or the TV show NUMB3RS, then you may already have some familiarity with this. Fibonacci numbers are found in the structure of crystals, the spiral of galaxies, and in the design of a nautilus shell. A rather new innovative application is found in the song “Lateralus” performed by the progressive metal band Tool. Maynard James Keenan, the lead singer of the band, not only sings of spirals but the syllables of the lyrics follows the first few Fibonacci numbers. It is worth sharing, as it is rather cool to see:

(1) black

(1) then

(2) white are

(3) all I see

(5) in my in-fan-cy

(8) red and yel-low then came to be

(5) reach-ing out to me

(3) lets me see

(2) there is

(1) so

(1) much

This is just part of the song, but you can already see him following the Fibonacci sequence 1,1,2,3,5,8..and then reversing back…5,3,2,1,1 etc. Watch the video below to hear mathematics in action:

So what does all this mean to the osmotic innovator? Many times we are faced with what seems like an insurmountable challenge. We attack it head on and think that with enough critical thinking and brainstorming we can somehow solve it. We may even go so far as to call in specialists and technical experts for their point of view. Does this really help us approach the problem differently, or are we just getting lost in the proverbial complex landscape? Instead; take a problem, break it down into its constituent parts and handle each one of those separately. Mathematics teaches us to take a step back – don’t get lost in the extreme complexity, for even in something as complex as the nautilus shell there is a simple structure to be found. We don’t all need to be a mathematical genius to solve something that seems rather complicated. Remember, the lead singer of Tool, James Maynard Keenan, used the Fibonacci sequence in a song. He took something difficult, simplified it, and turned it into music. Now think of the possibilities available to you as osmotic innovators…they’re infinite!

The Trap of the Knowledge Economy

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We take it for granted that we live in a world of data. Google and Facebook both rely on user data to drive their innovation and products while constantly creating new ways to collect and use that data. Facebook is a great example: “[it] has some 750 million users, half of whom log in every day. The average user has 130 friends and spends about 60 minutes a day tinkering on the network.”[1] Thanks to programs that allow them to monitor your every click the company is able to understand its consumer to an extent never before seen. In fact, it is now sometimes said that ‘Every second of every day, more data is being created than our minds can possibly process.’[2]

This new paradigm, what some term the ‘knowledge economy’, has spread into every industry and has quickly become a standard factor in internal product and innovation evaluations. We now have a wealth of information about our consumers that we can use for good . . . or bad. As well, consumers now know far more than they ever have before. For the Osmotic Innovator, it is important to understand how this happened and how it has impacted the way we should go about innovation.

In reviewing the impact of the knowledge economy on product development and innovation we don’t need to go to far into the past to find a time when data was not so easily obtained yet product development was undergoing a renaissance. At the turn of the century, after the industrial revolution had changed both the way consumers lived and companies grew, people like Ford and Edison made fortunes inventing new products that have since become iconic. But for every Ford and Edison success there were many failures – like Edisons’ automatic vote-tally system for Congress[3] – or a failed inventor whose radical ideas never were embraced in their time (think about Tesla). The number of failed innovations during this time period was enormous, just as some of the successes (the Model T and the Light bulb) were equally enormous. Without access to data, companies and inventors trusted their gut, valuing passion for a product as the driving force in creating and launching into the market.

Moving forward to the 1950’s & 1960’s one enters another golden age in product development in Western economies – the age of marketing. If you’ve ever watched an episode of Mad Men you know the stereotypes: bold marketers using data (and their intuition) to make new products successful by attempting to actually understand and meet new consumer needs. With a market already satiated by 50 years of new products and innovation, companies saw segmentation of markets and use of data to identify the best and safest product launches as one way to obtain a competitive advantage. Data was available and used, but it wasn’t the primary driving factor in innovation. Did this increase the number of product successes or the ratio of product success versus failure? We know that product launch success was actually higher in the 1950’s than now, but don’t have the data to understand how this stacks up against earlier periods.[4]

Fast forward 50 more years to present day – the era of the ‘knowledge economy’. Vast improvements in computing have allowed equivalent improvements in analysis and theory. No product is launched by a large company without extensive vetting through any number of market research toolkits and analytical systems. Consumers are split into segments and dissected in every way possible as companies in mature and developed industries look for any possible unmet need. Disruptive products that don’t fit the models are scrapped while incremental innovations are launched because they are able to fit into the segments that have been so carefully developed. In many ways, the innovator in a large firm is now crushed by the weight of the data available to them instead of empowered. With all of this data in hand guiding decisions for large firms we must have achieved a new high in new product launch success, right? Actually, current measures show that only 1/3 of NPD launches are ‘successful’[5] – and the consensus is that this number that has actually decreased since the 1950’s. Obviously, the exponential increases in data and advances in market research tools are not returning an equivalent value in NPD success.

One might argue that only companies ignoring the market research ‘facts’ are launching disruptive new products – the ones that actually capture real substantial value and create new markets. Take it from Steve Jobs, praised universally for being a disruptive thinker and innovator: “When asked what market research went into the iPad, Jobs replied: “None. It’s not the consumers’ job to know what they want…we figure out what we want. And I think we’re pretty good at having the right discipline think through whether a lot of other people are going to want it, too.”[6]

The figure below shows the growth of the ‘knowledge economy’, the corresponding drop in the capacity of a large company to launch disruptive or truly innovative products, and relative product launch success rates. Unless your company is willing to ignore conventional market research and analytical tools – which some might call wilfully ignoring your consumer – delivering true innovation to the market is nearly impossible. That is why disruptive innovation seems to come from smaller companies and start-ups; without a business to protect and with few resources, market research is an unnecessary luxury.

Looking at the discussion graphically – the question to ask is why are companies so reliant on data and market research when using it encourages incremental innovation without improving new product launch success? This is the trap of the knowledge economy: it promises to remove risk from new product development yet prevents the innovator from truly exploring disruptive innovation that could create new markets.

How can the Osmotic Innovator avoid falling into the trap of the knowledge economy?

  • don’t make every product fit the models currently used by your company
  • be willing to trust your organizations understanding of what the consumer will want (just like Steve Jobs)
  • be bold in launching risky products in the face of failure – most ‘safe’ products fail anyways

Are these prescription alone enough to solve the problem of low NPD launch success rates or change the reliance of mature companies on data? No. But they should give the Osmotic Innovator something to consider the next time you are working through the portfolio.

Telling the Company Secrets – Defensive Publishing Pt. 2.

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Over the past few decades many corporations have seen exponential increases in costs associated with their IP portfolio and an increased drain on technical resource to support a “patent everything we invent” approach.  Increasingly defensive publishing is being accepted by more industries and is becoming commonplace in companies where IP and the costs associated with it were once of little concern.  In the first post of this two part series we examined routes for defensive publication, here we will discuss how defensive publishing can replace several common patenting strategies: cost limitation, picket fencing, freedom to practice, trade secrets, and patent races.

Cost limitation

Perhaps the most common reason for companies to choose defensive publishing strategies over blanket patent tactics is to limit the cost of maintaining the portfolio. By simply defining inventions into either core patents and supporting IP many companies can offset their legal costs significantly while at the same time having limited if any effect on the overall strength of their patent portfolio.  For a company utilizing a defensive publishing strategy the supporting or fringe IP could be published in trade journals or commercial publications to protect against competitor ownership while limiting cost of maintaining the real patent portfolio.

Picket fence

Picket fencing or mine-fielding is the process of filing variant patents around a central patent core. When executed properly, the picket fence creates a high barrier to entry for competitors and greatly restricts their ability to practice in spaces adjacent to the core inventions.  In most cases the picket fence patents are of much weaker quality and, if the central patent is well-executed, have limited value unless there is the intent to produce the invention described in the patent or if the picket patent can be delivered independent of the central patent claims.

Defensive publishing alternatives to picket fencing practices follow the same systems as cost limitation strategies where possible inventions are described as either core or peripheral.  Peripheral inventions are then published into the public domain, preferably in an easily searchable database and even more preferably in a publication likely to be discovered within a patent office examiners search report.  The point of picket fencing is primarily as a deterrent and so public domain disclosure in hidden or obscure publication routes is of limited use within a defensive framework.

Freedom to practice

Often corporations will make their profit, not by inventing something new, but by taking a fringe or known products mainstream.  But what happens when that fringe product is really really fringe?  Consider this scenario; Company A discovers an unpatented widget on sale in Korea they believe it has the potential to be a blockbuster product in the USA.  They begin developing the product for a US launch, modifying the designs, building manufacturing capability and planning the marketing strategy.  An IP screen late in the process identifies a recently published patent from Competitor B which describes the popular widget and claims ownership of the invention.  How can this be?  The product has been on sale in Korea FOR YEARS!  Over the next few months Company A rallies their legal department to plan their defense.  A supply director delays approving a production line until “after the legal issues have been resolved” and the feeling from the business as a whole is frustration.

Fundamentally the patent system isn’t broken, Competitor B’s claim over the invention is void and eventually will be rescinded but the time and cost to Company A is significant and real.  In this case had Company A employed a defensive publishing strategy known as prior art elucidation they could have avoided the frustrating scenario outlined above. Given the emergence of ‘patent trolls’ and likely presence of an aggressively patenting competitor in any industry using defensive publishing to ensure freedom to practice can be very important.

The cause of (and solution to) this scenario lies within the patent office who cannot possibly be aware of all prior art and so often will grant patents on inventions that are within the public domain.  Ensuring freedom to practice by disclosing the prior art into easily found and searched publications is one way of improving the chance of any future competitor filings being rejected and thus limiting the potential defensive cost.  The most suitable although not the most common approach is to utilize commercial publications for the prior art elucidation.  Companies such as ResearchDisclosure.com are very well suited to prior art elucidation due to their agreements with IPO member states which improve the chance of the information being found during the search process.

Patent races

The use of defensive publishing within the context of a patent race is an interesting strategy.  Basically the approach allows a company to decide how it wishes to compete, on first to patent terms or on first to market terms.  The scenario of a patent race between corporations occurs when a common technology goal is defined and the experimental path to the goal is well-defined.  In this instance the companies developing the technology are making an all in bet.  Only one company is likely to succeed and the loser is likely to face significant setbacks to its development capacity.  By applying a defensive publishing strategy that pushes non-core inventions into the public domain rather than building a patent case the company can get a better return on its research investment and give itself a better chance at winning its all-in bet.  Taken to the logical conclusion a company may even choose to publish everything it discovers, as is discovers it, in an attempt to remove any chance of a competitor ultimately owning a strong patent in the field.  In this case the company is banking on a level playing field being a better competitive option than the chance of winning the all-in bet.

Unenforceable trade secrets

The use of patents to protect IP that was traditionally kept as trade secrets has increased over the past few decades.  This is possibly due to the mobile nature of the modern workforce and internet publishing making trade secrets almost impossible to keep.  This trend however has given rise to the problem of the unenforceable trade secret patent.  Usually this situation arises when a novel process is patented by a company but the patented process produces an indistinguishable product from the prior art.  In this case the patent is close to useless and in the worst case gives away any competitive advantage that the technology advance had generated.  The system for defending trade secrets however results in one piece of litigation risk that can be avoided through the use of defensive publishing demonstrated by the following scenario; Engineers at Company A develop a novel processing technique to make their widget at half the cost of the old process.  The process leaves no fingerprint other than on the accounts department i.e. the new widget is indistinguishable from the old widget.  The lawyers at Company A rationalize that to patent the new process would be of less value to the company than to keep it a trade secret and steps are put in place to maintain this.  Five years later a patent on a widget making process is published from Competitor B.  The lawyers advise that Company B’s process is substantially the same as Company A’s and that they should prepare some sort of legal defense to ensure that production can continue if a legal challenge were to come about.

Fundamentally, the trade secret process is not flawed, Competitor B’s claim over a process that has been used by Company A for years is void, but the cost of defending a process they have always used is real and annoying.  In this case the use of a defensive publishing strategy known as hidden disclosure may have advantages.

Methods for creating hidden disclosure are quite varied but essentially the approach is to place the trade secret into the public domain in a manner that, while being entered into the record as a matter of fact, does not create enough interest or is not accessible to enough people to fully surrender the invention.  Methods that achieve this include using the procedures of the patent system itself (withdrawn patents etc) and the use of non industry publications.  Maybe even the local classifieds could be a sufficient enough publication to cause a competitor to drop a costly lawsuit?

An Enlightened IP Strategy for the Osmotic Innovator

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In the last week we’ve discussed using Defensive Publications as a strategy to reduce the overhead associated with patent filings. However, we’ve never really given a detailed explanation of how this concept fits in an over-all intellectual property (IP) strategy for an innovating organization.

Often, in the excitement of creating new products from an innovation or invention the tendency is to rush directly from idea / proof of principle to the lawyers’ office to begin drafting patents. Why is it so ingrained in a corporation to patent any new idea or process? Perhaps for some it is because patents can be used as a measure of R&D productivity, effort, or inventiveness. Patents also offer a chance for recognition for inventors and the company amongst their peers. Finally, those responsible can find comfort in the fact that the organizations interests are protected from competition. However, as expressed in the prior posts patents can be an expensive way to protect intellectual property – besides the obvious cost of filing the documents across the globe the organization must also consider the financial cost over time to maintain the portfolio, the value of the time the legal department will spend managing the portfolio, and the impact on R&D productivity as resources are directed to fulfil the data and testing requirements (often outside of the focus of any related project). The filing fees for a patent can pale in comparison to the loss in productivity and resources that might be incurred by a simple patent filing. For resource constrained companies a better process is needed.

The figure above shows the process that might be used by enlightened organizations to manage the intellectual property strategy process. Rather than rushing from idea to patent, as often occurs, the identification of a new idea or innovation should lead to a strategic discussion. During that discussion a number of criteria might be used to evaluate the idea, leading to several possible outcomes.

The primary criteria that would be best utilized to direct the decision include:

  • Competitive Intensity (CI): the position of the organization in the market and in relation to its competitors, as well as market pressure, can dictate to a large extent the need to protect or the possibility of using a less resource intensive mechanism. In highly competitive spaces patenting may well be the best path forward, in spaces where a company has market leadership with few threats, disclosure (keeping the playing field level) may well be sufficient.
  • Disruptive Potential (DisPot): the likelihood of the innovation to transform the market or industry should also be taken into account. Disruptions creating new consumer benefits should be viewed differently than innovations that benefit only the company. For example, for a company that has a market leading position due to brand or scale an innovation allowing cheaper product manufacture may not require patent protection. Only if competitors had exclusive access to the IP would a real threat be created. In this case a level playing field may not hurt the market leader – the real competition is occurring on other fronts.
  • Strategic Importance (SI): for innovations in non-core areas the best IP strategy can vary depending on whether those areas may later become important or if protecting them from competition is a strategic necessity. This may also include whether technical innovations should be fully and comprehensively exploited or given a more cursory exploration to understand potential and obtain minimal protection or establish minimal freedom-to-operate.
  • Reverse Engineering Potential (REPot): For process, manufacturing, or chemical innovations where the consumer or competitor will see little difference in the product, the question of whether the innovation could be externally discovered through practice of the innovation must be considered.
  • Commercialization Viability (CV): The likelihood of commercialization of the innovation should also be considered. Also, if the innovation is likely only to enable another innovation or invention the resource dedicated toward protecting it may not need to be as highly prioritized.
  • Resource Intensity (RI): In organizations that are already very lean this discussion likely already occurs, however when determining the strategy to pursue the potential costs for creation of the IP as well as to maintain it (and possibly even to circumvent it if protection or FTO is not established) should be discussed. Resource intensity can include cost of creating, manpower needed to support, cost to maintain the IP

All of these considerations can be taken together to determine the best course of action. This will determine a Return-on-Investment (ROI) potential for the IP being considered. In fact, the entire strategic discussion could be reduced to an equation that allows further discussion on how the appropriate IP strategy is determined:

How can these criteria be used then to determine a path forward?

For situations where a very low IPROI is determined, simply doing nothing may be an option. If the innovation is not in a competitive arena, is not on-strategy, or is not enforceable, then the best use of resource could be to let the idea go.

For instances with a moderate IPROI the decision to patent, hold as a trade secret, or defensively publish can be determined according to the relative weight of the factors. An innovation found to have high strategic value and commercialization viability but low competitive intensity might be best protected through defensive publication, while in the opposite instance (high competitive intensity with high commercialization viability and low strategic importance) the value of a patent may be recognized. For projects with very low reverse engineering, potential trade secret protection could be the best route.

For scenarios with a very high IPROI going forward with a patent would almost always be advisable, though of course a number of instances where this is not the case can be imagined.

Obviously the area of IP strategy is a high importance to many organizations, however much of the focus in recent years has been on creating and managing large IP portfolios. For the osmotic innovator a better strategy is needed; one that balances resource scarcity with the need to create value for the company.