Robert and I had been working on a new project for barely a month when I received a frantic phone call from him.
“We’ve been sued for patent infringement by Acme!”
Acme was a large corporation with very deep pockets. This was Robert’s worst nightmare – a potentially deadly lawsuit right after starting his new job with the company.
Note: Obviously the company names and product names have been changed to protect the actual parties involved in the litigation.
I started working with Robert’s company (Awesome Corporation) a month before that phone call. Awesome was growing quickly and getting rave reviews of its new line of flux capacitors. Many satisfied customers were enjoying excellent results using the capacitors.
Awesome had a great team of creative people who were regularly developing innovative ideas that created a “buzz” in the industry. These ideas set the Awesome’s flux capacitors apart from the competitors and saved its customers time and money.
Based on the company’s growth trajectory, they were expanding and capturing more market share each quarter. Their innovative capacitors offered features that the older, well-established competitors did not offer. Things were going great.
Identifying, Developing, and Protecting Innovative Ideas
Robert was the VP of Product Development. He contacted me to help build an intellectual property portfolio and develop a system for identifying, developing, and protecting innovative ideas.
An intellectual property portfolio is a collection of business assets, such as patents, trademarks, copyrights, and trade secrets. These business assets are intangible, but provide significant value and protection to the owner. A well-crafted patent can protect a company’s core technologies and key product features, which provides a barrier to competitors who want to copy those technologies or features.
Robert’s voice was trembling when he called me.
But, the nightmare was even worse because Awesome had no patents. That meant they had virtually no intellectual property and no negotiating power to try to settle the lawsuit by cross-licensing intellectual property assets. Acme likely targeted them because of their lack of intellectual property assets.
Awesome had recently gone public with a successful Initial Public Offering. Robert was terrified…
“How are we going to explain this huge liability to all of the shareholders?”
It didn’t take long for Awesome to start receiving calls from its customers, “What’s this lawsuit about. Acme called us and said we may have to stop using the flux capacitors we purchased because they infringe Acme’s patents.”
“What are you doing to fix this?”
Robert also had to handle questions from the sales team and prospective customers who were justifiably concerned about buying Awesome’s capacitors with the dark cloud hanging over the company. With the pending lawsuit, it was next to impossible to sell capacitors.
“Call us after the litigation is settled,” was the usual response to sales inquiries.
Surviving the Litigation
In an effort to save the company, its leaders hired a litigation firm and got to work preparing a strategy to deal with the lawsuit. Awesome’s leaders set aside most other projects so they could focus on this critical problem.
To create bargaining power with Acme, Awesome spent several million dollars to acquire some existing patents in an effort to negotiate a settlement. Since Awesome had not been protecting their innovative ideas and did not have an existing intellectual property portfolio, they were starting from scratch.
Fortunately, the acquired patents helped with the settlement negotiations. Eventually, the lawsuit was settled – which cost several million dollars on top of the cost to acquire the patents. And, some significant legal fees on top of everything else.
In addition to these tangible costs, many of the company’s activities came to a screeching halt until the litigation was resolved. These immeasurable costs had a huge impact on Awesome’s financial situation.
Robert, and Awesome, survived the litigation. But it took years to recover financially and to regain their customers’ (and potential customers’) trust.
Finally, millions of dollars later, building an Innovation Strategy became a top priority.
Believe it or not, Awesome was Lucky!
This type of lawsuit would have destroyed many smaller companies. If Awesome didn’t have the financial ability to fight the lawsuit, it would have been like a big bad wolf devouring three little pigs living in a worn-out tent.
Patent litigation is complex and costly. If you don’t have funds available for a patent litigation attorney, you can’t even fight back.
Before filing a lawsuit, the big bad wolf does its due diligence to find the weakest victim. “Find me some little company with no intellectual property and minimal cash. We will make an example of them.” After the wolf wipes out the first victim, it has set a precedent and can coerce other victims to give up or pay a hefty licensing fee to settle the litigation.
Sadly, this situation was avoidable – or at least could have had a much smaller impact on Awesome.
How to Build A Strong IP Portfolio
If Awesome had taken action a few years earlier, for a small fraction of the millions they paid, they could have developed an intellectual property portfolio that might have caused Acme to target someone else. Awesome could have upgraded from a tent to a brick house.
With a stronger intellectual property portfolio, even if Awesome was sued, the company would have been in a much stronger position to negotiate a better settlement and reduce the disruption to the company’s operations and customer relationships.
In the past 25 years, I have worked with many companies who were negligent in taking steps to protect the innovative ideas that set their products apart from the competitors. These companies believed that they were a group of good, creative people and they deserved to be successful.
“We are constantly creating new ideas, so we don’t need to worry about protecting our innovations.” Wrong.
It could happen to you too.
You have worked hard to assemble a team of talented people who create great products and give your company an advantage in the marketplace. If you fail to protect your key product features, and ignore building a valuable intellectual property portfolio, it’s going to come back to bite you.
Take the important steps today to identify and protect the innovative ideas embodied in your company’s products.
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Steve – great article on a very important topic. Thanks for the helpful tips.Reply