What is the Right IP Strategy Based on Product Mix?
Patent is a highly technical type of intellectual property. Creation, use and maintenance of this type of asset requires skilled personnel with three different backgrounds: technology, business and legal. In this short article, we will shed some light on how a company’s management should take advantage of this legal right to safely expand their market reach, protect their market and use defensive or offensive strategies against competitors when needed.
Start-ups and small companies typically have a single product. They usually cannot afford working on several products concurrently. They will eventually hit and win, or miss and demise. However, the IP strategy is different for medium and large companies as they need and can afford to work on several products in order to insure their future success. As the Boston Consulting Group (BCG) Matrix illustrates, the best product mix for these companies is comprised of three groups of products: question marks (still in R&D
); stars (fastest growing products); and cash cows (low margin, big market and steady). Pet projects are not desirable as they usually indicate disasters down the road. Each of these products must be successful in their own business life cycle in order for the company to remain successful in the long term. Products will have a different profit margin and market share in each quadrant of the BCG matrix. The IP strategy, new filing, and patent acquisition pace must also align with the product cycle to further enable the company’s success in the future.
Each type of product moves along the traditional S-curve product cycle until it phases out. Depending on the spot on the S curve, there will be a different IP strategy that companies need to pursue. Deviation from the right strategy may endanger both future growth and market share for that product.
Question mark products are the ones that are still in the R&D phase. The future market, growth and all business factors are more speculation than facts. However, to guarantee future success, IP strategy and filing has to start here. In this phase, the company is either the pioneer or is trying to catch up with competition by researching and developing the same product. Patents can be obtained organically through in-house innovation, or non-organically by acquisition from others, or a combination of both. The filing pace is high, since the new product’s patents will likely have broad claims with good coverage of the product. It is important to keep a fast and steady filing pace at this stage.
If the question mark products succeed in the market, at some point they will climb up the S-curve and enjoy a fast adoption by market. Products will become the "star" products of the company with high growth and high margin. At this time, competition has noticed the importance of this emerging product so they will use all forces to catch up and compete. The right IP strategy is to continue filing at a high pace. At this point, patents will most likely have narrower claims (as long as the initial patent work has covered the most important aspects of the product) and mostly targeted towards specific applications. An IP portfolio has to be enforced in all possible ways which means in-house innovation as well as acquisition and in-licensing.
At the top of the S-curve, the product reaches maturity where it enjoys a big market while profit margins gradually decline and the product becomes a commodity. At this point, resources must be used and focused towards the next generation of the product rather than keeping the fast filing pace. Issued patents and existing applications most likely cover all important features of the product. Filing a new application is like stepping on a land mine as most likely the claims will get rejected or narrowed to a point that does not add any value. Although we still need to keep an eye on filing by selectively filing new applications where we see a weakness or gap in our portfolio, we should focus most of our resources towards other methods of marketing such as branding. Trademarks may bring more value in this phase. As profit margins are gradually declining, it may make more sense to out-license the technology which will result in relinquishing part of the market share to competitors in exchange for royalty income. This strategy will open up room in the company’s manufacturing capacity for higher margin products.
Usually, at the end of the maturity phase, a product may be phased out because newer or better replacement products have emerged, or because of a shift in consumer desires. At this stage, IP managers need to continuously review the portfolio and abandon patents that do not cover any existing or future products. New filing almost does not make any sense. However, smart licensing may still be valid if patents are broad enough to cover applications in other industries or segments.
Unfortunately these strategies often get neglected. Companies either do not file the right IP at the right time, or file with no attention to which phase in the product S-curve the product lies. In all cases, this defeats the purpose and does not generate the value in the portfolio as it should.