ILF Innovation Insurgency

We’ve been pretty active teaching high growth businesses about commercialising IP. We believe that successful innovation is the key to economic prosperity for businesses and in turn, New Zealand.

In October 2014, we presented and facilitated a session at the Kiwinet Commercialisation Forum on creative ways for research organisations to engage with industry.  The focus was on enabling industry to more easily access the good ideas originating in research organisations.

In the same month ILF founder, Simon Rowell, co-presented a full day workshop for Licensing Executives Society of Australia and New Zealand on the fundamentals of intangible asset management.  This course covered key aspects of different types of intellectual assets, then an introduction to IP licensing, anatomy of a license agreement, and an interactive case study.

November saw us speak to a handful of AUT design students who were about to display their new products at an open public exhibition, to give them feedback on commercialisation options and identify any that we thought should not display at the event to preserve their ability to get patent protection.  We’re now helping one of those students to present his idea for a baby monitor to a large UK baby product company.

Since December 2014 we’ve run learning events for entrepreneurs in Auckland on “10 tips for maximising the value of your IP”, “7 deadly sins of product development”, “Magic Mitten case study: from idea to international licence”, and “5 killer IP issues when pitching to investors”.

In February and March 2015, Simon gave presentations to startups participating in Live the Dream, an incubator of social enterprises.  Their incubatees are literally creating “good” ideas – socially minded businesses making the world or some part of it a better place.  He presented on intellectual property for start ups, giving them information about how to use IP as an effective business tool for collaboration, capital raising, exit and value generation.

We rounded out the financial year by having Simon participate as a mentor in Innes48, the largest startup competition in New Zealand.  The event runs continuously over 48 hours with 15 teams creating their business plans and investor pitches in that period and presenting to judges for a $15,000 prize pool.  Simon was able to help many teams with IP advice and strategy, as well as giving guidance on what investors look for.

Magic Mitten Case Study

Since the time of its inception Innovation Liberation Front has worked with many successful brands. We would like to introduce to you one of our market leading brands in its segment.

Background

Simon Rowell and Mark Hubble were in an anti-natal class, four years ago.  Mark, who runs a recruitment business, came up with an idea for a baby calming aid that uses white noise at a safe level that is audible to the baby but can’t be heard by anyone else in the vicinity. He invited Simon Rowell, an intellectual property expert, whether he believed the idea could be taken to market.

Today, four years on, the Magic Mitten is being successfully sold as the GroHush in the UK, North America, Hong Kong, Australia, New Zealand and several other countries.

Challenges

When Mark and the other Magic Mitten co-founder, Dean Smith, first approached Simon they had a number of issues that needed to be addressed.  These were:

  • They wanted to know what IP they could secure for their device and whether it could be licensed.
  • They had minimal funding and needed to validate a minimum viable product before securing international patents.
  • They needed help putting together a business plan to take the Magic Mitten to

How we helped

We helped Magic Mitten by:

  • Arranging for patent searching and securing patent protection for the product
  • Filing trade mark applications for the Magic Mitten brand and the strap line Hush Little Baby.
  • Negotiating a sales agent agreement, manufacturing agreement, and licence agreement, including obtaining upfront payments while preserving a higher royalty rate under pressure to reduce it.
  • Helping with initial prototype and product design, brand design, and web design. We worked alongside Magic Mitten on product development issues such as shape, size, colour and materials with the first manufacturer.
  • Helping design cost effective trade fair signage and brochures.
  • Representing Magic Mitten at a trade fair and securing an experienced sales agent and first UK customer.
  • Developing a business plan. We used our contacts within the Entrepreneurs’ Organisation for support and guidance in industry specific issues.

What we learned from the experience

Magic Mitten gave us insights into how to develop a product from an idea to being the market leader in its category. Along the way we learned:

  • Taking an idea to market always takes far longer than you expect
  • Trade fairs are great for validation and finding distribution channels
  • Sales agents can be a good channel early on but you have a longer cashflow problem to fund, and there can be hooks in the agreements
  • Experienced operators are critical for market penetration
  • Getting into the shop is half the battle, staying on the shelves requires ongoing strong sales

Results

We successfully helped license the Magic Mitten product to The Gro Company, a leading brand in the children’s sleep category. They are selling the product as GroHush in more than a dozen key markets with several other countries in development.  The product is sold by leading retailers including Mothercare, John Lewis, JoJo Mama n Bebe, as well as online retailers such as Amazon.

Patent Trolls

The term patent troll is a derogatory term used to describe people or companies that acquire patents with a view to aggressively licensing them to potential infringers.  Often this “stick licensing” is their only business strategy. A patent troll may obtain patents by buying them at auctions (for example from a bankrupt company attempting to liquidate assets), by approaching individuals or small businesses whose patents have just been granted to sell them, or sometimes by attempting to oppose or invalidate a patent as a means to negotiate a purchase. They can then threaten businesses that potentially infringe those acquired patents with lawsuits, with a view to securing licensing income from them.   This strategy tends to work well in countries like the United States where the cost of defending (and potentially losing) a patent infringement lawsuit is particularly high.  A negotiated settlement is usually cheaper than defending the suit, it deals with the risk of losing, and lets the company refocus on business as usual rather than be distracted by prolonged legal proceedings. The name patent troll may have originated from an educational video released to corporations in the early 90’s. The goal of the video was to alert corporations to the newest scandal in business, as well as to dissuade potential future trolls. The video depicted a troll rushing into the patent office stealing the patent from the rightful owner.

Are patent trolls good or bad?

The “troll” terminology may well fit situations where the patent owner asserts the patent in sutuations where there is no reasonably arguable case, or where the underlying patent rights are knowingly suspect (i.e. likely invalid).  However, over time the terminology has been extended to any “non-practising entity” that seeks to enforce patent rights.  Our view is that, other than in the case of spurious claims, non-practising entities can actually play a positive role in the innovation ecosystem. Non-practising entities (NPEs) can provide an alternative route for inventors or small businesses to monetise their patents, that is, earn income from their innovative activities,  Sometimes inventors or small companies lack the financial resources or skill base to successfully commercialise their ideas.  Also, a common reason given for small businesses not to seek patent protection is that they cannot afford to enforce the patents. So called trolls provide these businesses with an opportunity to extract some value from their patents and by extension their innovation activities.  The NPEs can act as an aggregator of rights, adding at least some efficiency into the process of obtaining freedom to operate in particular fields. Until the onset of the troll era, small inventors, creditors in bankrupt companies with patent portfolios and companies with many patents in technologies that they no longer planned to use, had few options to monetize them. In some instances, large companies refused to purchase or license these assets, taking a gamble that they could continue infringing because the costs of asserting patents restricted the owners’ ability to enforce their rights. The evolving use of patents by so called trolls required new strategies and new business plans for many powerful companies.

Implications for small business

Small businesses who come up with great inventions but struggle to get traction internationally now have other avenues available to generate greater value from their efforts.  So called trolls can offer lump sums or revenue share in return for patent rights. If you are on the receiving end of a licensing request from a “troll”, then be sure to get advice on the strength of the claims, and the cost of challenging them.  Often times, if you are able to find knock out prior art or another solid basis for invalidating the underlying IP, then you can negotiate a “free” licence of the trolls rights – as it is not in their interests to put the licence portfolio at risk for the sake of one further licensee.  Leaving the IP in place while you retain a free licence also has the added advantage that you may benefit from the deterrent effect of the patent remaining in force. A coalition of organizations and law schools recently launched Trolling Effects, an online crowdsourcing tool developed to battle patent trolls. The site offers a database of demand letters and blogs with helpful information about legislation and patent troll scams.

Building a successful SaaS company

Software as a service is a software licensing and delivery model in which software is centrally hosted and is licensed on a subscription basis to users who access it using a thin client via a web browser. It is sometimes referred to as “on-demand software”. SaaS has become a common delivery model for many business applications, changing the way businesses of all sizes in all industries use software.

The SaaS model meant the end of business as usual in the software world. For customers, the benefits are obvious and compelling: they get sophisticated functionality without up-front expenses or the hassles associated with the installation and maintenance of traditional software. For vendors of such services, the model provides low barriers to entry and unprecedented opportunities, as well as new risks and challenges. Creating and managing a SaaS company demands a new way of running a business—one that extends to all business areas that make up an organization.

To build up a successful SaaS company one needs to consider the following:

  • Make Leaders Accountable: Any major project or initiative depends on executive sponsorship for success, and the SaaS world is no different. Whether you’re a pure-play SaaS startup or an established traditional independent software vendor, there is no substitute for the vision and unifying force an executive leader can provide. Given the advantages of the SaaS model, supporting the vision of a SaaS initiative is easy. What’s harder is defining the particular characteristics such an initiative needs to be successful and selecting those metrics that can track success. Although many executives gravitate toward easy, logical metrics such as revenue and profit and loss, the most important underlying day to day metrics of a SaaS business may be unfamiliar or, worse yet, unavailable. In short, you need to answer the following questions: What are the most important indicators of success? How can we measure them? And who is responsible for meeting them?
  • Commit to a strategic path and align resources:Software companies exploring the service model must rethink their pricing model (license or subscription), customer base (existing or new) and product offer (core application or adjacent capabilities).
  • Embrace customer insight and intimacy:SaaS’s rapid development cycles entail many more touch points with customers than the traditional model. Software executives and developers need to rethink their relationship with users: inter-actions become an opportunity not only to renew and enhance the customer relationship but also to improve the service itself. Since developers host the systems that customers use, they now have access to vast amounts of data about the ways that customers use their software. That, in turn, can inform decisions about how to prioritize improvements and highlight opportunities for cross-selling.

Software vendors will also come to understand that long-term customer loyalty is no longer optional but essential. Under the traditional model, vendors could focus their customer relations on the point of sale, occasionally overpromising and then leaving customers alone until the upgrade. With SaaS the renewal process is continuous, and customer loyalty is important every day.

  • Organize for innovation:The differences between selling licensed software and running a software service are greater than most executives may anticipate. Managing two distinct businesses within one organization is a major challenge. Aligning sales incentives can be particularly difficult since commissions are typically based on a large up-front fee and cloud customers make small, recurring payments, often with no up-front cost or commitment. Sales organizations, therefore, need to revaluate their commission structures, for example, by compensating sales forces based on the expected lifetime value of customers.
  • Deliver Apps your Users will Love: With the SaaS model, software is delivered completely via a Web browser. For application developers, this approach is a double-edged sword: although they can develop more quickly for a single platform and version, they also must meet the high user expectations created by consumer applications such as Amazon.com and Google. When users interact with SaaS applications, they expect constant availability, an intuitive interface they can customize, and automatic upgrades that leave all their customizations intact. In addition, they are constantly on the lookout for new and improved features. Because of these expectations, SaaS companies must delight their customers day after day to keep them coming back. Creating such apps requires commitment, planning, resources, and constant communication to your users. As you develop your product strategy, keep these points in mind.

The intellectual property issues SaaS companies must consider include:

  • Developing a distinctive and catchy brand that is widely available for use throughout the world, as there is potentially no geographic limit on where the software will be made available. Searching every country of the world for conflicting marks can be costly, so a sensible cost effecive strategy for brand clearance must be developed;
  • Protecting the chosen brand in markets of interest, and considering using the Madrid Protocol as an international trade mark filing strategy versus filing individually in each country;
  • Considering whether inventive features of the app could or should be patented, and where;
  • Adopting solid IP ownership clauses in all in-house and outsourced product development projects;
  • Developing a user/subscription agreement that is clear and easy for users to understand, but covers off key issues such as liability and possible abuse of the licences;
  • Avoiding trade mark infringement issues involved in using competitors brands in key word ad campaigns and other SEO and social media campaigns.

Licensing as a business model

You may be interested in starting a new business, expanding an existing business (extending your territory or the nature of business) or improving the market position of your SME by increasing the quality or availability of your goods or services. In many situations, licensing of intellectual property rights is an effective tool for achieving these business goals.

Licensing started in its modern form in the 1930s when Herman Kamen obtained the licensing rights to Walt Disney properties. It has since developed into a highly sophisticated business model worth trillions at retail sales level.

A licensing agreement is a collaboration between an intellectual property rights owner (the licensor) and another who is authorized to use those rights (the licensee) in exchange for an agreed payment (usually a fee or royalty).  Depending on the nature of the rights being licensed, these agreements might take the form of a:

Technology License Agreement

  • Patent licence
  • Trade secret licence
  • Copyright licence
  • Trade mark licence
  • Franchise agreement

In practice, all or some of these agreements often form part of one single contract, since for one product or business there are usually many different types of intellectual property rights involved.

Licensing may provide a low (or lower) risk way to derive additional value from your intellectual property assets. Compared to the huge investment required to establish new manufacturing plants or to grow a trade channel in a new country, the cost of developing a licensing program is comparatively small.  Further, if you are careful in selecting your licensees, then you may be able to reduce many of the risks that you would otherwise face in launching a new product in a new market.  Your licensee will hopefully have a great track record with new product launches, have an established trade channel, a significant marketing budget and local knowledge – that is, skills and resources that you do not have.

Depending upon the exclusivity of the license, there are varying degrees of risk involved for the licensee and licensor; however, an effective license strategy will minimize risk for both parties. Before a company considers licensing out its technology, however, it should consider whether other ways of taking advantage of its property, such as joint ventures and strategic alliances with other companies, would better complement its economic position. Once licensing is decided upon as an appropriate commercialisation model, the nature of the company as well as the particular property it wishes to utilize should be carefully considered before deciding the architecture of the license.

Licensing can be used to generate bottom line growth from licensees:

  • entering new geographic markets beyond your capabilities
  • taking core technology into new applications or fields of use that are not of interest to you
  • using non-core technology that is not being employed by you
  • exploiting a market vertical in which you have limited capabilities.

Because there is no capital outlay and few operating expenses in executing a licensing program compared to doing the work of the licensee yourself, the additional revenues generated in the licensing program have a very high profit margin.

Every licence agreement is essentially a reallocation of risk and reward associated with commercialisation of the product/service in question.   The licensing strategy should address how each risk is most efficiently allocated – who is best placed to bear this risk and when?

Depending on what is being licensed, when and where, there will be different risks associated.  Has the product been made and sold before?  In this market?  For this particular application?  Is there further development required?  What further support or input is required from the licensor and is the licensor capable of providing that?  What experience does the licensee have in this particular field or country?

Other key issues that will need to be addressed include:

  • Will either the licensor or licensee be making improvements to the product/service, who will own these improvements and will they also be made available and on what terms?
  • What happens in the event pending IP rights are not granted?
  • Who will bear the cost of enforcement of the IP and will the licensee have the right to enforce in its own name?
  • What will be the duration of rights?
  • Will the rights be exclusive or not?
  • What performance requirements will be imposed on the licensee and what will be the ramifications of not meeting those performance requirements?
  • Who will be responsible for IP costs and decisions about new the scope of new protection?
  • What announcements or publicity concerning the agreement will be permitted?
  • Whose brands will be used?

Both parties should feel that the financial terms of the agreement suit them. The licensor should not expect to earn royalties in excess of the value it can expect a given technology to add to the product of the licensee.  If the licensor is too greedy in the licence terms it seeks, it will create incentives for the licensee to explore working around the intellectual property.  There are certain industry expectations and rules of thumb that are often used as starting points in negotiations, and these should be properly understood with substantiated reasons for departing from them prepared in advance.

Licensing has the ability to significantly and quickly expand the overall market penetration of the product.  While the licensee will take the lion’s share of the increased revenue, they also take the greatest risk.  The key is ensuring that the licensor’s slice of the additional revenue is greater than what it could reasonably achieve on its own, within its own risk profile.

When are trade secrets more valuable than patents?

A trade secret is confidential information that is not known generally within the relevant industry. Things like manufacturing processes, optimal operating conditions and recipes are sometimes suitable to be kept as a trade secret.

I found one reference stating that the estimated value of trade secrets in the United States alone is $5 trillion – so clearly some trade secrets are enormously valuable.

The advantage trade secrets have over patents is that there is no time limit on protection – provided it remains a secret you can enjoy the benefit indefinitely, whereas patent exclusivity expires after 20 years.

But keeping a secret for longer than twenty years is an extremely difficult task. Think of how many different staff might have access to your secret over 20 years, and the likelihood that one of them might not follow correct protocol, become disgruntled, actively steal the secret or just move into a competitive business where their particular knowledge of the secret might be put to use.

A trade secret also doesn’t prevent someone from reverse engineering your technology or recipe.  There are companies that exist specifically to help reverse engineer products, software and such like.   With most technologies, it won’t be long before someone smart has figured out “the secret sauce” to compete with you.

Once your trade secret is out, it will be too late to apply for patent protection, because the technology will no longer be novel.

Trade secrets must be actively protected by measures such as strictly limiting who has access to the secret (or components of it, as really no one should know the whole picture), installing physical and IT security measures to ensure premises are secure and the storage of the secrets is impenetrable, ensuring there are backups which are also equally secure, maintaining access logs of who has access to the secret and when, taking out data protection insurance, ensuring key staff confidentiality agreements are robust, enforcing strong restraints of trade in employee agreements, and conducting exit interviews with staff that leave.

How do I go about determining an appropriate royalty rate?

The key definition in the royalty provisions is not the size of the royalty rate, but the base to which the royalty rate is applied.  Should the royalty be a percentage of the invoiced sale price of the product, the manufactured cost or profit margin?  Should the royalty be a piece rate – that is a set figure per product sold or manufactured?

Once the royalty base is determined, then the licensor must negotiate the royalty rate (e.g. the percentage applied to the royalty base).

Royalty rates for various groups of technologies based on established and successful licensing arrangements are of interest as a check in relation to costs within industries and the profit margins of efficiently run businesses.  This benchmarking against similar products or technologies relies on the availability of sufficient public information. There are published studies of royalty rates that can be accessed freely.

There are a number of rules of thumb which can used to find an appropriate royalty rate.  One well known rule of thumb is the so-called “25% Rule” (see Goldscheider, R. Jarosz, J. and Mulhern, C. “Use of the 25 Per Cent Rule in Valuing IP” les Nouvelles December 2002).  Under this rule projected profits to the licensee are the starting point, with the core assumption being that the innovator should be entitled to approximately 25% of the gross operating return from the innovation.  In addition to the cost of sales, some proponents of the rule advocate deducting non-manufacturing operating expenses.  The operating profit to be used should be pre-interest and tax.

Revenues $100
Cost of sales $60
Gross Margin $40
Operating expenses $20
Operating profits $20
Royalty rate 5% ($20*25%/100)

The application of the 25% rule will in most instances give an unrealistically high figure and other factors may be taken into account to adjust the royalty rate downwards.

Note however that the 25% rule has been criticised and discredited as a sound basis for royalty determination in a high profile United States case involving Microsoft and Uni-Loc.   Nevertheless, it remains a useful assessment tool for many licensing practitioners.

Exit Strategy

An exit strategy is an essential part of any effective commercialisation strategy which is often overlooked. A great business plan will integrate an exit strategy for investors, thus showing them that the model will result in benefits and profits for them, no matter what happens. An exit strategy can have various forms, depending on the investment, the general climate and the business. A good exit strategy, well matched to the characteristics of the business and market, will:

  • improve the probabilities of success
  • shorten the time to exit, and
  • often significantly increase the ultimate exit valuation

A clear exit strategy is especially important before developing a financing strategy. Not all investors are compatible with the business needs and ultimate goals of the owner of the business and in such situation exit strategies can provide a good measure for testing the compatibilities. Creating a misalignment between the types of investors and the exit strategy may result in a complete failure of the company.

While choosing an exit strategy following things need to be considered:

  • How would you like to exit your company (full sale, partial sale, asset sale, initial public offering, etc.)?
  • Who would you like to sell your company to (competitor, experienced owner, family member, etc.)?
  • How long are you willing to stay on to help the buyer?
  • What is your target profit on the sale after paying off any debt?
  • Are you willing to provide any vendor finance for the buyer?
  • What are your plans for your employees?
  • What do you want to do once you are no longer involved in the company?
  • Where will your income come from once you exit the company?

Based on the above mentioned considerations there are a number of options available for you such as:

Trade Sale:  In a trade sale other players in your industry are offered the opportunity to purchase your business as a going concern. You have the option to cultivate potential acquirers by courting companies you think would benefit from such a deal. If you choose your acquirer wisely, the value of your business can far exceed what you might otherwise earn in a sale.  You have to be careful executing this strategy if your business will remain in operation, as staff and suppliers may get nervous if word of the potential sale of your business gets out.

Merger: Sometimes, two businesses can create more value as one company. A merger is similar to a trade sale, except one of the companies is merged into the other company after the sale occurs.  This happens where for example one business has an existing infrastructure and can service all the customer needs of the merged business, allowing better economies of scale by adding the revenues of the merged company while potentially shaving staff and infrastructure costs.  If you believe such an opportunity exists for your firm, then a merger may be your ticket to exit.   Again, care is needed in executing this strategy.

Go public:  While you may be sitting on the next Google, IPOs take much time to prepare and can cost anywhere from several hundred thousand to several million dollars, depending on the exchange and the size of the offering. However, the costs can often be covered by intermediate funding rounds.

Sell your shares: This works particularly well in partnerships such as law and medical practices. When you are ready to retire, you can sell your equity to the existing partners, or to a new employee who is eligible for partnership. You leave the firm cleanly, plus you gain the earnings from the sale.

Let it run dry: This is perhaps more of a last resort option, and may work well in small sole proprietorships. In the years before you plan to exit, increase your personal salary and pay yourself bonuses. Make sure you are on track to settle any remaining debt, and then you can simply close the doors and liquidate any remaining assets. With the larger income, naturally, comes a larger tax liability.

Liquidate: Sell everything at market value and use the sale proceeds to pay off any remaining debt. This is a simple approach, but also likely to reap the least return. Since you are simply matching your assets with buyers, rather than selling your business as a going concern, you may not reap any strategic value that the combination of those assets generates.

Business Planning

A business plan covers what you intend to do with your business and how it will be done. The process of writing down what is involved in bringing your idea to reality requires dealing with the why, what, who, how, where, when, and how much of your venture. Writing a business plan forces you to take a deep look at your idea and how you will turn it into a business. Doing so helps you recognize areas that need rethinking or support.

A good business plan follows generally accepted guidelines for both form and content. There are three primary parts to a business plan:

  • The first is the business concept, where issues like industry, business structure, particular product or service, and different strategies to make the business a success are discussed.
  • The second is the marketplace section, which describes and analyzes potential customers like who and where they are, what makes them buy and so on. Here competition and product positioning are also described.
  • Finally, the financial section contains the income and cash flow statement, balance sheet and other financial ratios, such as break-even analyses.

A good business plan provides a host of benefits, not least of which is helping to procure funding from potential investors. It provides an organised outlook to the business proposition which increases the chance of obtaining venture capital and bank loans. It also helps identify potential problems as it should address all areas of risk in starting and running  the business. As information is researched about the different aspects of business plan, one may learn that suppositions initially made about marketing budgets, cost of materials, licensing and permitting, labour costs, real estate or leases and other critical aspects business are incorrect. Learning this before the launch of business gives time to make adjustments before any actual contracts are signed or funds committed. Business plans include budgets that help you manage cashflow — critical to keeping your business running.

In addition to providing benchmarks for success, a good business plan sets realistic criteria for shutting down the business to prevent one from investing more money into a failing business. Solid numbers that suggest that the business is unsustainable will help you make the decision to shut down a failing business easier and will prevent you from losing more of your or your investors’ money than necessary. Also in cases where a planned business does well the owners and investors need to have prepared an effective exit strategy. A good business plan should identify possibilities for exit strategy at the very outset.

A business plan should also provide a strategic intellectual property plan. The IP component of the business plan assists in a number of distinct ways.  It should set out the various ways in which the competitive advantages described in the business plan might be sustained long term using IP as a barrier to entry.  It should also address one of the key risks in any new business venture, which is whether the business has “freedom to operate” – that is, can it execute the plan without infringing third party rights?  For a start-up company seeking early funding, showing potential investors that you have at least thought of these issues may be the difference between ending up in the “investigate further” pile rather than the “no” pile on the first review.  The plan should specify key IP deliverables and propose a schedule for their completion. In this regard, the business plan provide an objective standard by which the activities of the business may be judged. It may also facilitate budgeting by identifying projected costs.

An effective strategic intellectual property plan will therefore prompt the development, acquisition, maintenance, and exploitation of intellectual property assets. Each piece of intellectual property should be viewed as something that furthers company goals and confers value to its owner. That value may be independently and discretely recognizable, or may be an embedded part of a comprehensive business strategy.

Product Development

The next stage in commercialisation after ideation is the development of the product from the idea to the market stage. Product development is the process that takes that idea through a series of stages until the concept emerges at the end of the process as a completed product ready for the market.

At the development stage of the product life cycle, it needs to be ensured that the idea will meet the potential customer expectations as well as design, resource and manufacturing requirements.  While planning for all the potential outcomes and risks in advance is essential, the process should be iterative – testing ideas, designs and such like against prospective customers, challenging your own assumptions about the product, how it might be used, what is important, and such like. The main focus should be on working with a team of designers, manufacturers or product development experts in concert with a key group  of prospective customers as a constant sounding board, to produce prototypes, test prototyped product, and source and price materials. New 3-D printing technology can provide for a cost effective way to rapidly prototype different versions of your product.

There are many different intellectual property issues which might be considered or created during the process of development which includes patents, trade marks, copyright and trade secrets.

One IP-related concern which should be kept top of mind in product development is the importance of confidentiality.  It is best to avoid public disclosure of new ideas until final decisions around patenting and other IP issues have been made, so as to not negatively impact the patentability of the new product or process.  International patent laws for example, in varying degrees from country to country, prohibit the valid patenting of inventions which have been disclosed to the public in advance of patent filing.   As well as the need for appropriately timed confidentiality around projects in the earlier development stages, if IP protection for a particular project relies in whole or in part on trade secret protection, it will be necessary to document and maintain long term confidentiality around the ideas or information in question.

It is highly recommended to consider using non-disclosure agreements to cover external product testing and other third party involvement in product development projects, to minimize the triggering of public disclosure timeframes and otherwise minimize the risk of third party misappropriation of your IP.

Most inventors or developers lack the full set of skills or resources that are required to do 100% of the product development work themselves, so they must engage third parties.  It is critical to be careful to use written contracts that explicitly deal with the issue of IP ownership to avoid unexpected consequences – the last thing a new venture needs is a question over the rightful ownership of the underlying IP.  In cases where a number of research partners are required to bring a product or technology to fruition, a joint development agreement should be drafted which clearly defines the relative contributions of all the parties involved, as well as where the resulting new intellectual property will be held.

Decisions will need to be made around whether to seek to intellectual property protection for one or more aspects of the new product, and when exactly that protection should be sought.  Filing a patent application sets in motion a timeline which is critical with few options for extension.  At the end of the timeline are some significant costs if you seek international patent protection, so it is important to match these costs with expected revenue or investment rounds in your budget timeline, to ensure smooth coordination of IP strategy with market entry.