Top 10 IP mistakes

Think every entrepreneur would be on top of what their intellectual property is, and what it’s worth to their business? Think again. JARMAL RICHARD uncovers just 10 of the most common mistakes companies make over IP.

By Jarmal Richard

Think every entrepreneur would be on top of what their intellectual property is, and what it’s worth to their business? Think again. Here are just 10 of the most common mistakes companies make over IP.

Every entrepreneur will tell you that intellectual property is crucial to their business strategy and success. Yet many entrepreneurs wouldn’t be able to indentify exactly what their IP is, and fewer still have formal processes and strategies around control, protection and management of the IP.

To help you determine the weak points in your IP strategy – or to help you start formulating one – we have examined the top 10 IP mistakes that companies make.

Confronting this issue now will save you a lot of grief down the track.

1. Wasting money on IP registration before understanding your IP commercialisation strategy

The most significant IP mistake an emerging company can make is spending too much vital start up capital on IP registration before they know what direction to take on IP commercialisation.

The decision to register IP is core to any commercialisation strategy, but it is not the only significant issue you need to consider.

p>A company’s ability to capture and retain profitable market share may be more significant than any IP registration process and may require your company to forego a lengthy IP registration process and go with an open source or collaborative strategy.

But, more times than not, a company needs to have an overall IP commercialisation strategy for defining and implementing key decisions (against a defined timeline of actions), which may or may not involve the actual registration of IP.

The incremental progress of an IP commercialisation strategy should be delivered and measured on a rolling monthly/quarterly basis against a long-term timeline that will include things such as 12 to 18 business development plans, profitability goals and market share targets.

2. Believing the hype

Companies that believe that they are the greatest, tend to be right – in their own minds at least.

Companies that believe that they are the greatest, and then act like they are going to be relegated to the minor leagues if they lose, tend to compete and grow aggressively and win consistently against their competitors.

Hype and attention can be a double edge sword for a company. Winning an industry award or appearing in a news article can lull you into believing you can now take your foot off the accelerator. It is easy to confuse welcomed third party endorsement/attention as a mandate for automatic revenue.

If you do this, chances are you will take your eye off your competitors as well as listen just a little bit less to customers and target customers’ needs and wants, which presents opportunities for them to go elsewhere for a competing product or service.

How many unique pieces of IP have been touted as the next best thing, only to disappear (or lose chunks of market share) because they stopped innovating their IP, stopped engaging in third-party collaboration and stopped listening to and adapting products and services for customers’ changing needs and wants?

3. Having a ‘Me! You! Parking lot!’ approach to IP enforcement with staff

Although it is critically important that your company minimise any risk of its IP being infringed by ex-employees, disputes may happen.

If disputes occur, then you might need more than a heavy handed, aggressive approach to IP enforcement with staff.

I often see this approach in the way companies hire (and fire) executives, going out of their way to ensure that they will nurture an army of enemies for the business in the years to come, rather than cultivating a network of useful downstream contacts that could potentially lead to other business opportunities.

So the next time you set up (and ask a new hire to sign) a one-sided executive compensation plan containing a restraint of trade, confidentiality deed and IP management policies and procedures, ask yourself are your processes and procedures helping you to turn a short-term friend (an employee who is with you for three or more years on average) into an arch enemy.

These enemies may well spend three or more years understanding your business, customers, supply chain, motivations and strategy and then be motivated to spend 20 years in various ventures and companies competing against you.

4. Not understanding the core attitudes, habits and decisions of your team members

If you have the wrong attitudes, habits and/or decisions around IP protection and commercialisation, it won’t matter what is in your contracts – you will not be moving the business in the right, profitable direction.

Don’t confuse wanting to have an innovative, relaxed environment with having no capability of assessing the attitudes, habits and decisions within your business that have significant impact on your company’s success.

As a test, ask yourself: “What are the three core, strategic things you need to do to keep your business growing profitably?” Things like “contain costs”, “continually grow market share” and “continually grow margin” come up.

Assuming these are the only three concerns you need to consider, now ask yourself: “What are the attitudes, habits and decisions that have been made in the last 30 days (within your business and within your customers’ businesses) that will have a noteworthy impact on your profitability and growth over the next 90 days?”

Many companies stop at answering the question “What does success look like?” and fail to practically consider what attitudes, habits and decisions they need in order to get to “success”.

5. Going it alone in a crowded market

The decision to run a closed IP shop by saying “we will only develop products and services based on our own R&D insights and existing in-house knowledge and offering, without any input, information, involvement or reliance from third parties” seems like a reasonable approach for a company to adopt.

However, it is also a very expensive approach to stay on this course long term, particularly when competitors exist at multiple levels, such as large players or collaborative offerings (consisting of multiple third parties).

The decision to “go it alone” really depends on how much you can afford in terms of R&D and protection of IP, customer service delivery and business development.

In some circumstances, in order to stay competitive in your market it may make sense to include strategic business partners and more efficient and cost-sensitive processes/approaches to IP creation and management that include third parties, rather than exclude them. When you are the only one in the room, you own 100% of the headache.

6. Failure to strategically manage contracts and IP, after the contracts are signed

Most contractual negotiations (and aggressive lawyers) are so painful, costly and time consuming that as soon as a contract is signed, it goes straight into a filing cabinet, never to be seen (or understood) again – until there is a dispute relating to IP.

Contractual and IP obligations that you have signed up to (whether you like them or not) are there to be managed from the moment the contractual relationship starts.

Remember, day one of a contractual relationship is the day you start delivering your product or service to your customer – it could be the day after you sign a written contract or months before you ever see a written contract.

7. Failure to use escrow strategically

At some stage in the life of your intellectual property, it will need to be accessed by those who have not created it, whether it is a potential investor, joint venture partner, contractor, project staff and employees.

Despite popular belief, most intellectual property disputes do not occur between complete strangers.

Most disputes related to intellectual property are between entities that know each other, such as a customer, supplier, joint venture or employee.

One of the key issues in any IP dispute is determining the point of origin.

Using the escrow process – that is, giving your IP to a third party IP custodian for purposes of controlling, managing and documenting disclosures to customers, suppliers, employees etc – can help a company determine the sequence of iterative development of IP and when and why IP was disclosed to a particular person or company.

8. Failure to shift commercial risk to final pricing

Commercialising intellectual property is about making money by leveraging your unique and proprietary know-how. The last thing you want to do as a company is sign unprofitable deals and/or deals that unduly expose your core intellectual property to third parties.

Although this would appear to be an obvious point, many companies are too eager to agree to pricing for a deal before they really settle the commercial terms of the deal through detailed legal negotiations and corporate procurement processes.

Often, customers (after settling the final pricing) will ask a service provider to take on the following risks: (a) indemnifying the customer for indirect and consequential losses; (b) providing significant insurance cover above industry average; (c) access to the service provider’s source code and core IP for “evaluation” and “testing” purposes by third parties or subsidiary companies; and (d) the costs of delivering unclear service and support to the customer after a solution is implemented.

At the very least, on each deal you should reserve final pricing until you understand your commercial risk and procurement profile for that deal.

9. Confuse “authority” with “autonomy”

Many companies may not have the operational structure in place to capture know-how as it is being created and used.

Rather, the individuals that are in the trenches have either complete autonomy and control over data and IP creation, access, storage, utilisation, copying, destruction, archiving etc.

The next time someone leaves your company or finishes a contract, ask someone else on your team to map the logic behind their key decisions and IP creation and utilisation.

That person will probably scratch their head and say “what decisions?” and “what IP”?

10. Adopt a “She’ll be right!” contract and IP management style

Too many companies take the attitude that having no compelling IP problems – such as a breach of contract, IP theft by employees and contractors, or a competitor’s product that might be infringe our unique approach – means IP can be put in the too hard basket, and dealt with when the time comes.

Under this approach, the right disciplines around contract, data and IP creation, utilisation and cross pollination rarely (if ever) get identified, built and taught to existing and new staff. The risk is that inconsistent and ad-hoc contract and IP management become a permanent part of your company’s DNA as it grows.