Digital innovation is a priority for most companies now. For those who haven’t traditionally operated in this space, it is a particular challenge. Established companies are finding themselves thrown back into a start-up scenario requiring adjustment of their IP strategy. In these early stages, patents and other technology rights become foundational assets that determine market access.
Once growth starts to happen, the company becomes a target for IP-based attack, often from beyond the radar of what is usually expected. It can make for an uncomfortable introduction to digital unless some adjustments are made in advance. While your IP strategy may have proved its worth in known competitive environments in the past, there is a considerable risk that it no longer applies under new digital circumstances.
Even if the players in your market remain essentially the same, they are a familiar threat. As before, they are likely to have good reasons not to attack. Rather, entities owning IP in the digital space may have stronger motives to claim their share of your growth based on your use of digital technology.
In this new environment, the well-established principle to ‘protect your own products’ may well now fall short. As right as it has been in a traditional competitive scenario, we should not forget what IP actually protects and how it affects your strategy. Patents merely grant a negative prohibitive right, ie, you may prohibit others from using the invention. However, you do not have a positive right of use.
If you infringe someone else’s patents, a competitor can prohibit you from marketing your product irrespective of whether you own a patent covering that product. Especially when venturing into new technologies, it can have a major impact on your IP strategy.
So even if you have built up an effective patent portfolio to position yourself against traditional competitors, it does not mean you are safe from patent-based attacks to your products and services. These are likely to come from those in the digital space who, in most cases, are not affected by your existing sector-specific IP portfolio.
Another risk scenario is an attack by a non-practising entity (NPE), ie, a company or research institution that holds patents and other IP rights in the digital space but does not offer any products or services. Such NPEs are often also referred to as licensing entities or, more pejoratively, as patent trolls. While the ways in which you manage this variety of IP risks certainly overlap, there are differences in how you respond to practising and non-practising entities.
Know what IP is out there in the digital space
Irrespective of what kind of attack scenario you might be facing when venturing into digital technologies, an obvious prerequisite to any risk mitigation strategy is to obtain comprehensive knowledge about the IP rights which exist and could potentially represent a risk for your commercial activities. In the field of patents, this knowledge is typically gained by monitoring databases to alert you to applications and grants on a regular, typically weekly, basis. Any hits are then assessed for their relevance to your current or future products.
The challenge is to define a monitoring profile to give you a digestible number of hits, yet still provide a sound overview of potentially critical patents. These searches provide a multitude of options to restrict the scope of the search. Typically, the search profile is technology based using classification schemes. You could, for example, further reduce the number of hits by combining this technology-based search with the names of relevant competitors. However, it’s likely to create risky blind spots for NPEs or players holding patents in the field of digital technology that are new to the company.
Patents only give a snapshot of anyone’s current commercial activities. These can change quickly, so risk assessments may rapidly become outdated and should be continuously updated.
Attacks by practising entities
Your first preventative measure is a strong IP portfolio covering aspects of your technology that are attractive to traditional or digital competitors. As a task, it is becoming even more complex. As digital technologies become more ubiquitous and the amount of prior art constantly increases, higher demands are made for the novelty and inventiveness of patents.
In most cases, it is no longer enough to claim, for example, the use of artificial intelligence for performing certain tasks in a known process. Instead, the challenge is to show a new and unexpected technical effect of the claimed subject matter. One objection frequently raised in the context of applying digital technology is that the distinction over the prior art purely resides in the administrative space and does not improve or modify the technical functioning of a system beyond applying known algorithms to known computer systems to solve known administrative problems. The task is thus to show an actual technical improvement to the system which may, for example, reside in faster processing or using less power.
Another challenge is, of course, to identify patentable aspects that are not only relevant to your traditional competitors but also attractive to established players in the digital space which, in many cases, already hold a sizable number of patents relevant to the respective technology. One approach is to study these digital products and patents, then protecting your own developments as add-ons. The benefit is to strongly position yourself against your traditional competitors, as well as making yourself attractive to digital players who may want to sell or license their technology in your market. It will deter attacks and give you more scope for licensing.
So, instead of just protecting your own products, the scope of your IP strategy should cover potential evolutions of your competitors’ products, both in the traditional market and in the digital space. Thus, for example, instead of not protecting alternative solutions unused in your own products, it’s worth taking a step back and looking at them through the lens of the competition.
A second, more aggressive approach to manage the risks of attack is to prevent a potentially critical patent being granted or to attack when it is. Most of the existing national or regional patent systems allow for one or two ways of achieving this goal. In some jurisdictions, an attempt to prevent a patent from being granted can be made by submitting third-party observations or, where applicable, by filing a pre-grant opposition. A challenge to a granted patent can be made by a post-grant opposition or by invalidating it before the competent patent office or national court by means, for example, of a nullity action.
Third-party observations allow you to submit prior art and arguments with the patent examiners to convince them a patent should not be granted or, at least, without potentially a critical scope of protection. While it is the least expensive way to manage risk, it has the downside that you are not part of the grant procedure.
Opposition procedures, whether before or after grant, are the second least expensive, most efficient and so frequently used approach to managing patent risks. They have to be initiated within a certain timeline, (nine months in the case of the EPO), are typically subject to a comparatively low official fee and have to give sufficiently comprehensive reasons for why claims fall outside patent law. The advantage is that you as the opponent are part of the proceedings with equal rights as the applicant. Moreover, first-instance decisions in opposition are typically subject to appeal. Finally, with regional patent systems, as in Europe, the opposition is a convenient way to centrally attack a granted patent before it possibly falls apart into a plurality of national patents.
The most expensive way to attack a granted patent is to invalidate it in later nullity proceedings. While, compared to an opposition, such an action can be initiated at any time it typically involves considerably higher cost risks and noticeably higher fees.
Attacks by non-practising entities
As NPEs are not susceptible to counterclaims of infringement, the only way to manage the risks to your IP is for you to attack their patents, as discussed above. Rather than developing their own patents, certain NPEs acquire patent portfolios with a view to enforcing them. It often happens when practising entities pull out of certain fields of technology and monetise their related IP by selling it or spinning it off into a licensing entity.
Hence, what may once have been the patent of a practising entity perceived as less aggressive in the market may well end up in the hands of a considerably more aggressive NPE, whose business model is to license and, if need be, enforce their patents. So if you ignore potentially critical patents just because they are held by a perceivably less aggressive practicing entity, it may turn out to be the wrong approach.
Patent pools and standard essential patents
A company venturing into digital technology is likely to encounter the special licensing entity represented by patent pools. For a certain technology, the owners (both practising and non-practising) pool their patents to license them all to third parties. Such a scenario is often encountered in the form of standard essential patents (SEPs) which are inevitably infringed if a certain industry standard is to be met. Such SEPs cannot be freely enforced by their owners but are subject to a licensing offer under so called fair, reasonable and non-discriminatory (FRAND) terms. Enforcement is only available if the potential licensee refuses to take a license under these terms. While the above approaches for attacking these patents are certainly also available in this scenario, the sheer amount of patents involved typically does not lend itself to such an approach. Instead, it is better for you to assess your exposure to this scenario and seek early clarity by gaining the necessary licenses.
Strategic and timing considerations
When it comes to taking action against patents, concern is often expressed about creating awareness with the owner, who may then counterattack. You can avoid it by filing your attack through another natural or legal person, often referred to as a strawman, ie, without revealing who you are. It is possible since, in many jurisdictions, such validity attacks are considered to be made in the public interest ensuring that only rightfully granted patents exist.
The psychological effect of validity attacks, especially via oppositions, should not be overestimated as, in many fields of technology, they are considered daily business and a standard tool for managing risk. Moreover, it is commercial impact, rather than legal activity, that normally triggers the interest of competitors or NPEs.
In summary, when venturing into digital technologies, managing your IP-related risks is a continuous task which should be based on a well-established monitoring system and synchronised with your growth. Attacking possibly critical third-party patents early on, eg, through opposition, is a comparatively low-cost option which has its universal effect against attacks from both practising competitors and NPEs. Where the risk stems from practising entities, such as competitors in the traditional market and players in the new field of digital technology, a further facet is the development of an IP portfolio that strives to cover the current and future business of these potential attackers. All these measures serve to lessen your IP-related risks and contribute to your expansion into digital technology.
This article first appeared in: Managing Intellectual Property Today - Fuelling innovation and high growth by Novaro Publishing
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