In this post, intellectual property expert, Tony Shaw, Patent Attorney with Allens Patent & Trade Mark Attorneys discusses where investors should look for value when assessing tech, biotech and lifescience stocks, and provides tips for companies on how to manage a successful IP strategy.
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Investment in early stage tech companies, in particular ASX listed small-cap life sciences and tech companies is used (or should be used), primarily to fund technology development. Why? Because valuations improve as companies begin to demonstrate that their technology is becoming commercially relevant. Just look at how Spinfex’s phase II trial data helped them sell to Novartis for US$200 million cash up-front, in a deal that also included clinical development and regulatory milestone payments.
Good clinical trial or market data are key to attracting attention, but without solid intellectual property (IP) and an IP strategy, even the best new drug won’t be worth much. While a press release that says ‘we just got a patent’ is yawn-inducing, a good IP strategy is fundamental for success.
“A good IP strategy doesn’t require luck or coincidence, it requires process and a systematic approach.”
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For some, an IP strategy just means giving their patent attorney a brief outline of their technology and telling them to file a patent application that broadly covers the entire field. At best, this leads to weak patent coverage, at worst no useful IP at all. Ideally, patents should be targeted to cover particular inventions that are commercially important to the company, whether they be a product per se, a technology that enables production of the product or technology that may not be the company’s core business but may nevertheless be out licensed to generate revenue. Any investment in IP protection should be made with consideration to the value that IP brings to the company. It should be remembered that the patentability of an invention is not solely determinative of the value of that invention.
Every tech company that is serious about success should have an IP strategy. This requires an understanding of patent and trade mark law, commercialisation of new and evolving technologies, and a clear vision of what makes up the company’s research and development program. A firm view of the future of the industry also helps – because a patent needs to cover what the product will be when it goes on sale, not just what it is early in development.
An IP strategy should be developed early and periodically refined in a process that involves both the company and their patent attorney. The company should provide their attorney with future goals, their core competencies and a realistic analysis of their existing and planned R&D. This should be combined with market analysis, consideration of commercial opportunities and an analysis of existing and potential alliances.
Keep in mind that getting a patent, while sometimes not straightforward, is the easy part. What is really needed is a patent covering a commercially useful technology which can then be leveraged to create value for the company. This doesn’t often happen without a well thought out and well executed IP Strategy.
“Some companies succeed without an IP strategy, just like some people win the lottery.”
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There are always exceptions, some companies that have short-lived products, like apps often don’t utilize IP. Some companies succeed without an IP strategy, just like some people win the lottery. A good IP strategy doesn’t require luck or coincidence it requires process and a systematic approach.
Allowing for mistakes
Busy people doing several jobs at once usually run small tech companies. They often don’t involve their patent attorneys when making decisions about what will be protected (even though they should!)
Sometimes management doesn’t appreciate the value of a potential IP asset and the chance to acquire an asset is missed. Conversely, sometimes patents are filed for no clear reason and add little value. A company needs clear criteria as well as preferably independent checks to control the execution of an IP strategy to ensure that a mistake or oversight doesn’t lead to a missed opportunity to create value.
“Periodic IP audits by a patent attorney are always a good idea and one that more often than not will result in identifying previously unknown assets.”
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The boring stuff – IP audits and IP training
Its always surprising how some people think obvious things are patentable and will make them millions and others think that great innovations are so obvious (to them) that they can’t be patented. Patentability analysis should be left to patent attorneys. A company should use its attorney to train their R&D team to understand patentability requirements so that they are better placed to inform decision makers when they have developed something that is potentially patentable.
Periodic IP audits by a patent attorney are always a good idea and one that more often than not will result in identifying previously unknown assets.
Learning from Success
Almost daily, I see tech companies that are still trying to develop products based on 10 year old patents. These companies have not learnt or have ignored lessons from dominant tech companies. Companies like Genentech, any big pharma company, Apple, IBM (the list goes on) all have carefully developed IP strategies. Granted, an ASX listed small-cap life sciences company doesn’t have the R&D nor legal budget of an Apple or IBM but that is no reason why their executives should not be thinking like a bigger company with their approach to IP.
Having a great IP strategy is not easy but a tech company (a good one at least) will have a board that understands and knows how to leverage IP to create value. It will train its employees to identify patentable assets and will conduct periodic IP audits.
Reviewing or considering your IP strategy?
Dr Tony Shaw is a patent attorney with Allens Patent & Trade Mark Attorneys, and specialises in IP advisory for listed company clients. If you’d like to speak with Tony about your IP strategy, please contact him via tony.shaw@allens.com.au or +61 2 9230 4622.
Many thanks to Tony for this insightful post. The views expressed in this post are those of the author and do no necessarily reflect the views of Allens Patent & Trade Mark Attorneys.
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