Tse appropriability overview-2014

Overview: Appropriability

The Smart Entrepreneur

What is ‘Appropriability’?

• ‘Appropriability’ refers to the framework of legal and economic conditions affecting

• your venture’s ability to do business

• Appropriability includes two interrelated components:

1. Protectability – the degree to which you can prevent competitors from copying and exploiting your idea themselves, to protect your revenues and market share

2. Freedom to operate – the degree to which you can execute your idea without copying or infringing the rights of other inventors or businesses, and ideally without giving away value (such as paying royalties)

• Appropriability conditions thus contribute to (or may hinder) a venture’s competitive advantage, defensibility and sustainability.

Copyright of Bart Clarysse and Sabrina KieferThe Smart Entrepreneur

Appropriability

1. Protectability


Types of ‘Protectability’

1. Legal types: Intellectual property rights (IPR)

a. Copyrights

» The right to prohibit copying of text, code, or pictures

b. Trademarks

» The right to prohibit others copying/using distinctive signs or features that are associated with your business (such as logos)

c. Design rights

» The right to prohibit others copying the appearance of your product

d. Patents

» The right to prohibit others producing the same product

e. Secrecy

» Trade secrets & non-compete clauses – contractual agreements not to disclose or appropriate your idea

2. Economic/environmental types:

a. Complexity and “tacit” knowledge

b. Speed to market/ first-mover advantage (usually very difficult for start-ups to pull off– beware!)


What is ‘Intellectual Property’?

• Products of the mind – the result of intellectual endeavour

• Product of research and/or experimentation

• As with all other forms of property, IP has value and needs protection from imitators

• Protection may be provided by law or contractual agreements


The importance of IP

• Historically, ‘assets’ were in the forms of land, energy and raw materials

• Recently ‘ideas’ and ‘innovations’ have become the most important resources to companies

• As much as ¾ of the value of publicly traded companies in America comes from ‘intangible assets’

‘The economic product of the United States has become predominantly conceptual’ Alan Greenspan


Types of intellectual property protection

Types of IPR Examples: what is protected

Copyright Text, graphics, software, art, musical compositions e.g.: Picasso’s Guernica, Microsoft code, ‘Lord of the Rings’, Product Manuals

Trade Marks Brands, images, sounds, etc. e.g.: Nokia brand, ‘Intel inside’ tune, Chanel No.5’s smell, David Beckham’s image

Design Rights Shape, appearance & decoration of products

e.g.: Nokia handset

Patents New technical concepts, inventions e.g.: Dyson’s vacuum cleaner, a drug compound, a phone, possibly software effects

Secrecy/Confidential Information ‘Trade secrets’, non-compete and non-disclosure agreements

e.g.: The “Coca-Cola recipe”


What do IPRs provide?

• Exclusive rights to exploit an idea or creation – enables you to control your market

• Exclusion of competitors/raises entry barriers

• If you have a patent you may be able to generate income by licensing rather than producing yourself

– $100bn p.a. generated globally – IBM alone generates over $1bn annually from licensing

• However, If someone else has a dominant patent, they can stop you from entering a market, or ask you to take a licence and pay a royalty (i.e. lack or restriction of your ‘Freedom to operate’)


• Investors like IP strategies; they love patents• If you don’t protect your ideas, others can benefit at your cost; you could lose market

share or even your whole business• But note:

– Costs are certain and can be large– Revenue is not certain and can be small (only 2% of patents are valuable)– IPRs are not an iron-clad guarantee of protection or profit– others may still reap

greater benefit on the back of your idea:» Often products may be imitated by ‘reverse engineering’ them, then

introducing a minor change to the imitation which sidesteps your patent» For radically innovative products in a new emerging industry, a patent does

not guarantee that the product will achieve market acceptance or dominance compared to competing solutions and designs

» Other players in the value chain who control ‘Complementary Assets1,’ such as specialised marketing and distribution channels, may still exert control over your access to the market and your share of the rewards

Pros and Cons of IPR

(1 Source: David Teece, 1986)


Protectability Summary: strengths and weaknesses of different types of protection

Intellectual property rights

*Legal right*Can be traded*Buys time to build complementary assets*Provides temporary monopoly*Slows competitors down

*Disclosure requirements*Costly to enforce*Can be invented around (‘Reverse Engineering’)*Could be too short*Not everything can be patented

Secrecy *No public disclosure *Difficult to maintain*Non-compete clauses are costly to enforce*Good technical people do not want their work to be shrouded in secrecy

Complexity and Tacit Knowledge

*No public disclosure*Good head start on competitors*Difficulty of copying is already built into product/service*Doesn’t cost money

*Risk of key people who hold the knowledge going elsewhere*May be difficult to scale up business if product highly tailored and standardisation difficult*Not enforceable if a competitor does manage to ‘crack’ it

Speed *Competitors cannot catch up*Costly to imitate*Quick profits

*Effect over soon*Diminishing returns over time*Can be difficult for start-ups with limited resources*Difficult to sustain


Appropriability

2. Freedom to Operate(the other side of the coin)


Freedom to operate

Appropriability is a two-way street:

• Before starting your business, you must also check that you have ‘freedom to operate’ – that no one else already holds rights to any aspect of your idea

» Check if anyone is using the name/signs you want: check the Trade Marks Register

» For an invention, do a patent search» You can also do quick initial research using the Internet» Consult a legal expert if you are unsure

• Why? » Because infringement can lead to expensive damages and loss of time


Freedom to operate: consequences of infringement

Google failed to do a proper trade mark search before launching its Gmail service in 2004.

• In Germany, the ‘Gmail’ trademark was already owned by a hybrid mail service founded by a local entrepreneur» Google unsuccessfully offered to buy the trademark

• In UK, trademark owned by London-based research firm IIIR and used in one of their software packages» Google’s attempt to buy trademark from IIIR failed after a dispute over its

value• After a protracted legal battle, Google was forced to change the name of the

service and domain to ‘googlemail.com’ in the UK and Germany, and subsequently also lost a battle to register a European trademark for ‘Gmail’

• This demonstrates the importance of carrying out trademark and other IP research before announcing or launching a product


Why do this exercise?

Put simply, if you do not do this analysis now, you run the risk of running into

unforeseen appropriability problems

• You may discover late in the day that you do not have freedom to operate in some aspect of your business, and it will be expensive to undo the work you have done and rethink everything – best to do it now!

• Competitors with easier access to markets may copy/steal your idea if you have not considered how you will protect it and devised an appropriate business model in line with your appropriability regime


Analyse your firm’s Appropriability regime

1. Determine your Freedom to operate and find solutions to any impediments:• What parts of your product/service can you protect?• What is already in the public domain? • Do you infringe anybody’s legal rights?

• Other people’s patents? » Can you work around them?» Can you pay royalties without being squeezed?» Can you just operate in the left-over business space that is not

yet protected?• Other Copyrights? Design Rights?

» Is expression in another form possible? Reverse-engineer software?

» Re-design?• Other companies’ commercial names, trademarks?

» Be creative, find something else!• Other? If unsure about any of the above, consult a legal expert


• Have you identified the Intellectual Property that you think you own?• Can you establish its creation and ownership if required? Who did what, when and on

what terms?• Is it protected automatically by copyright or do you need to take steps to protect it by

registering a patent, trade mark or design?• What is the best business strategy to exploit your idea? Set up a company, sell the idea,

license it or find a partner? • What is your consequent IP strategy?

» What to protect? Benefit of ‘open source’?

» Where to protect?» When to protect?

• What are the costs and benefits of each strategy or type of protection, with respect to both money and time delays?

• If you are unsure about any aspect, have you consulted an expert?

Determine your Appropriability strategy


Appropriability decision path

INNOVATIVE CREATIONS

What about secrecy? Who decides?

Secrecy wanted

TRADE SECRET

May / will become public

COPYRIGHT

TRADE NAME

DESIGN/MODELPATENT

Protection wanted ? Who decides?

Costs vs Benefits Who decides?


Information Resources

• Patent Searching» European Patent Office database: www.espacenet.com» US Patent Office: www.uspto.gov/patft/index.html» Delphion: www.delphion.com ($125/month)

• General IP Information» UK Patent Office: www.patent.gov.uk

Enquiries: 0845 9 500 505 » World IP Organisation: www.wipo.int» Chartered Institute of Patent Attorneys: www.cipa.org.uk» Institute of Trade Mark Attorneys: www.itma.org.uk


http://www.espacenet.com/

http://www.uspto.gov/patft/index.html

http://www.patent.gov.uk/

http://www.wipo.int/

http://www.cipa.org.uk/

http://www.itma.org.uk/

IPR databases

The main public databases are:

• U.S. PTO (http://www.uspto.gov): US Patent Office • WIPO (http://www.wipo.int): World Intellectual Property Organization • EPO (http://www.espacenet.com): European Patent Office• JPO (http://www.jpo.go.jp): Japanese Patent Office• CIPO (http://patents1.ic.gc.ca/): Canadian Intellectual Patent Office


http://www.uspto.gov/

http://www.wipo.int/

http://www.espacenet.com/

http://www.jpo.go.jp/

http://www.espacenet.com


Espacenet keyword search


Search result information

Classification

Company

Description

Full text


04/15/23 23

Advanced search & classification


Example: Different forms of IP for one product

• Product: NESCAFE® GOLD BLEND®

• Launched in 1965

• Around 7 million cups are now drunk daily in the UK

• Relaunched in 2000 with aroma capture technology.

Source: IP21 Ltd. www.ip21.co.uk and www.nestle.com


Nestlé Copyright Protection

• Label artwork

• Label wording

• Advertising

Source: IP21 Ltd. www.ip21.co.uk and www.nestle.com


Nestlé Registered Trade Marks

NESTLE®

NESCAFE®

GOLD BLEND®

Source: IP21 Ltd. www.ip21.co.uk and UKIPO


Nestlé Registered Design

Source: UKIPO


Nestlé Confidential Information

• Some know-how may be kept secret• BUT if the secret gets out all protection

is lost• Nestlé Secrets?

» Processing methods?» Selection of beans?» Sources of supply?

Source: IP21 Ltd. www.ip21.co.uk


Nestlé Patent Application – Process innovation

• A process for the recovery of aroma components from fresh coffee grounds, the process comprising:

• wetting the coffee grounds,• heating the coffee grounds,• exposing the coffee grounds to

decreased pressure for providing aroma containing gas, and

• capturing the aroma containing gas.



Nestlé Patent Application – Product innovation

• An aromatised, spray-dried soluble coffee powder which

• when reconstituted in water to a solid content of 3.3% by weight of the reconstituted beverage comprises a concentration of aroma volatile of

• at least 50 ppm for the sum of aroma compounds having a retention index < 1130, and

• at least 4 ppm for the sum of aroma compounds having a retention index of between 1130 and 1430.



Nestlé Patent Application - Coverage

• International patent application provisionally covers over 120 countries

• Nestle have nationalised in at least Australia, Brazil, Canada, China, Czech Republic, European Patent Office, Hungary, Israel, Japan, Mexico, Norway, New Zealand, Poland, Slovakia, Turkey, USA and South Africa



Conclusion

When developing a case for your venture, you need to:

• Ascertain that you have freedom to operate;• Ascertain what type(s) of protection is/are available for your specific business• Analyse the costs and likely benefits of each type of protection: which will be

the most effective and worth the expense and waiting time? What might be the costs or benefits of not protecting?

When in doubt, consult an IP expert, such as a patent attorney.


References and further reading

• Clarysse, B. and Kiefer, S., 2011. The Smart Entrepreneur. London: Elliot & Thompson, Ch. 6.

• Schilling, M. A., 2005. Strategic Management of Technological Innovation. New York: McGraw-Hill/Irwin, Ch 9, p. 165-185.

• The Inventor’s Handbook, MIT. http://web.mit.edu/invent/h-main.html

• Garud, R. and Kumaraswamy, G., 1993. Changing competitive dynamics in network industries: An exploration of Sun Microsystems’ Open Systems Strategy. Strategic Management Journal, Vol. 14, p. 351-369.


Tse appropriability overview-2014

Business

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