Patenting for Profits

Managing intellectual property rights used to be straightforward. A company produced great innovations in its research and development labs, obtained as many patents as possible and exploited those patents in the marketplace — or prevented others from doing so. The more patents, the better.

How the world has changed. The link between the number of patents a company has and the amount of money it makes has broken down. Today, leading companies are finding they can make more profit with fewer patents by focusing on securing only the essential protections they need to exploit their innovations. They round out their intellectual property portfolios by negotiating licenses for other key technologies.

Most businesses, though, continue to pursue the old “more is better” strategy. In effect, they’re flying blind when it comes to managing their IP portfolio. They can’t even articulate their strategy, let alone measure its effectiveness. It’s a situation reminiscent of where information technology strategy was 10 years ago — nowhere near the chief executive officer’s agenda. The results can be costly. Unfocused R&D programs can erode returns on investments in innovation, and overlooked patents can lead to lost revenues. Companies can end up outspending their competitors yet still find themselves stymied in key markets.

Worst of all, companies that lack a precise understanding of their IP portfolio can end up fighting off claims that a technology for a key product actually belongs to someone else. The risks of such battles have grown with the rise of “patent trolls” — companies that exist solely to generate licensing fees from patents they buy. Look at the recent travails of Ontario-based Research in Motion Ltd., the maker of the popular BlackBerry wireless device, for a painful illustration of the costs of being blindsided by a patent claim.

For technology companies, a highly disciplined patent strategy, tightly connected to the overall business strategy, is becoming essential to long-run success. Companies deriving higher-than-average profitability from their patents share three characteristics.

A Strong Market Focus

First, they tend to focus only on the markets that matter most to them. They have a clear sense of the “freedom of action” — in other words, the ability to commercialize an innovation as they see fit — which they need to compete in each market, and they know precisely where they need to have exclusive rights to a technology and where a shared license will do. Wireless communications giant QUALCOMM Inc.,