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Maximize Return on Investment by Patenting What Counts


Posted by mddiadmin on December 1, 1998

Medical Device & Diagnostic Industry
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An MD&DI December 1998 Column



BOTTOM LINE

Strategies for patent filing help companies get the most for their money and prevent competitor access.


Many companies struggle with how much they should spend on patents and what return they should expect on their investment. Somehow, patents always take too long to obtain and seem too expensive, and companies often are not quite sure what they have received for their money.


Unless the patent application had the proper focus, they may not have gotten very much. Too often, patents are filed based on which employee bothers to fill out an invention disclosure form, which inventor or company department has the most political pull, or what aspect of the company's product line constitutes a technological improvement.


Unfortunately, these approaches are not likely to maximize the return per dollar invested. To do so, a company must focus its patent investment on its competitors and base its strategy on how it wishes to influence their behavior, not its own. A patent is the right to exclude others from making, using, or selling the claimed invention. Since a patent is the right to exclude, a company's tactics should focus on precisely what to exclude its competitors from doing.


To be most effective, a patent program should:


  • Be implemented by a team of individuals within the company who have the necessary expertise, access to information, and political clout.


  • Identify and focus on the profit component.

  • Begin prior to development of the product.

  • Target resources at the patent office.

  • Leverage products through sales and marketing.

  • Incorporate technological developments and market feedback through periodic review.

  • THE PATENT TEAM


    A successful patent team should include members from marketing, research and development, patent counsel, and management.


    Marketing personnel must define and provide the team with detailed information on what products the market wants and what it will accept as substitutes, while the representatives from R&D develop options for satisfying the identified market opportunities.


    The patent attorney should evaluate the various marketing and development options, advising the team about how its decisions affect the company's right to exclude competitors from manufacturing competing products. This coordinated effort allows the team to focus on its most promising opportunities.


    Management participation emphasizes the importance of the process to the corporation's future and ensures that decisions are consistent with the company's strategic goals.


    THE PROFIT COMPONENT


    Once the market opportunity is defined, the next step is to determine the profit component, which is the aspect of the product or service that will generate most of the company's profits.


    The majority of a company's patent resources should focus on protecting the market for the profit component. For example, a company may sell expensive lasers at a nominal profit margin for use with a disposable laser catheter, which brings in most of the profits. In this situation, the low-cost catheter, not the high-cost laser, is the profit component.


    Accordingly, the majority of the company's patent resources should focus on preventing competitors from selling products that are identical to, or acceptable substitutes for, the catheter. Unless the patent strategy prevents competitors from selling acceptable substitutes for the company's product, return on patent investment will be nominal.


    EARLY IMPLEMENTATION


    An invention is patentable if it is nonobvious in view of prior art. The component need not work better, be cheaper to manufacture, or have a more pleasing appearance to be patentable. If patentability is identified as a goal early in the design process, it is almost always possible to design a product to meet the standards for patentability. When more than one technical direction is viable, development decisions should consider the impact on patentability.


    If the profit component is to be sold in conjunction with another device, the other device should be designed so that it will only function with the company's profit component. For example, the high-cost laser could be designed with a safety shutoff switch that can only be actuated by a patented mating connector forming part of the company's disposable catheter. It would also be important to design the laser's connector so it cannot be economically modified to avoid using the company's separately patented catheter connector.


    FOCUS EFFORTS AT THE PATENT OFFICE


    Securing patent protection can require substantial resources. The key to maximizing investment return is to concentrate on securing meaningful protection for the profit component. Again, the focus should be on what a company wishes to exclude its competition from making, using, or selling.


    A company should secure patents on profit-component variations that it never intends to sell, but which, if not excluded, competitors could use for their own products. Because each patent is entitled to its own presumption of validity, a company should secure families of patents covering different aspects of the profit component.


    The patent portfolio should thus include broad claims, providing maximum deterrence and potential licensing revenue, as well as narrower claims, which will be easier to secure and harder to invalidate. The claims should cover the profit component alone, as well as in conjunction with the overall system, along with the method of making or using it. The company selling the laser and catheter, for example, should have patent claims covering its catheter, the combination of the laser and catheter, and the method of using the catheter. Each category should have both broad and narrow claims.


    In order to derive the most benefit from its patent strategy, a company should identify and review the purpose of each patent. Properly conceived patents can be valuable tools for achieving a number of business objectives, such as:


    • Stopping competitors from selling a like product, thereby protecting the company's market share.


  • Securing royalties.

  • Gaining access to additional distribution channels.

  • Acquiring a license under a competitor's patent.

  • Deterring third-party infringement suits.

  • Providing a bargaining chip to settle potential controversies.

  • Securing financing.

  • Efforts at the patent office should be directed toward obtaining claims for a particular purpose. For example, if the desire is to secure a royalty from a competitor, the patent claims can be tailored to more clearly cover the competitor's product, rather than defining the broadest possible scope of protection.


    LEVERAGING THE PRODUCT


    Marketing personnel should always be kept informed of a product's patent-protection status. The company's advertising should stress the desirability of the patented or soon-to-be-patented features so as to leverage the impact of the patent protection. For example, if a catheter's safety connection is about to be patented, the specific aspects and advantages of the connector that will be protected should be emphasized in company advertising.


    Patent protection can also be leveraged through a careful tailoring of sales contracts and use notices. For example, case law suggests that the effective scope of patent protection may be expanded by licensing rather than selling a device, selling the profit component separately, giving notice of restrictions at the time of sale to avoid an implied license, having the buyer affirmatively acknowledge restrictions, and limiting the buyer's right to repair through a single-use restriction.


    PERIODIC REVIEW


    As with anything based on assumptions about future events, patent strategies should be reviewed regularly in the event that they need to be modified to reflect changing conditions. The review process should ensure that the appropriate parties are still members of the patent committee, that the definition of the profit component and its substitutes is still accurate, that improvements to the profit component have been designed so they can be protected by new or existing patents, and that products are being marketed in a manner that maximizes the value of existing or anticipated patent protection.


    CONCLUSION


    The amount a company should spend for patents will vary depending on its individual circumstances. The goal, however, should be the same for every company--to derive the utmost benefit from the time and money expended in the patent process. Following the steps detailed in this article can help companies achieve this end. This approach demystifies patent investment and establishes clear goals for the patent program, a strategy for focused implementation, and a framework for evaluating results.


    By continually applying this process to develop and refine a coherent patent strategy, a company can successfully maximize return on its patent investment.


    Edward A. Schlatter is a registered patent lawyer and a partner of the firm Knobbe, Martens, Olson & Bear, LLP (Newport Beach, CA).


    Illustration by Ken Corral




    Copyright ©1998 Medical Device & Diagnostic Industry


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