What does it take to be a successful disruptor? As well as learning lessons from entrepreneurial companies such as SpaceX, Uber, Bloom Energy and others in CNBC’s Disruptor50 list, it is important to understand how to protect your innovation as it develops so you can maximise your profits when the time comes, says Paul Foot, a patent attorney at Withers & Rogers.
For every disruptive innovator, or business entity that is out to disrupt an existing marketplace, it is important to have a long-term intellectual property (IP) strategy in place from the start. It doesn’t really matter whether your business plan is based on being bought out by the incumbent, or usurping their place in the market, without the relevant patent protection in place, you won’t get very far.
Tesla’s approach to the development of driverless cars shows a strong appreciation of the value of IP. The company has had no fewer than 293 patent applications published in the last five years. As a result, the company has secured a strong position in this fast-developing area of technology. While it may seem counter-intuitive, Tesla’s decision to freely license its patented technology in 2014 is further indication of an IP-savvy business that wants to ensure its own innovation is favoured in the race to standardisation, and the market for electric cars as a whole can grow.
Elsewhere in the automotive sector, there has been a flurry of deals struck by vehicle manufacturers with disruptive businesses recently. Most have been linked to on-demand services, which give the consumer access to cars on a pay-per-minute basis, such as Ford’s GoDrive car-sharing service, which launched in London last year, and GM’s investment in Lyft – an Uber competitor.
Not all disruptors sell their innovation, however. When James Dyson launched his cyclonic vacuum technology onto the market in the 1990s, he licensed the technology in Japan, but went alone in the rest of the world after being rebuffed by Hoover and other makers of bag-type vacuum cleaners. When Hoover subsequently adopted cyclonic technology, he was able to use his patents to block the sale of their cleaners and obtain a multi-million pound damages award.
It is not unusual for early-stage disruptors to want to break into the market gradually; allowing time to build up a strong customer base and some significant critical mass before making a play for market domination. They may also want time to explore other potential applications for their technologies. In these cases, particularly when that area of the market is moving fast, it is important for the disruptor to file patent applications at the earliest possible stage; referring to all other conceivable uses of the technology. Then, as the technology is refined the application can be “re-filed” one or more times within a 12-month time period, to capture and stake a claim to the emerging refinements as they evolve.
When disruptors launch their products and services into the marketplace they can be susceptible to copycats or reverse engineering. Having patent protection in place from the start means the business will be able to challenge such opportunists by asserting their IP rights through the relevant courts. Without this protection, the disruptor could find his or her window of market opportunity closes just as quickly as it opened.
Even established businesses that are investing in their own disruptive innovation may prefer to keep their R&D activity low key to begin with to avoid alerting the competition to their future intentions. For example, some larger businesses may set up a separate business entity, perhaps under a different brand name, to own the IP rights for the technologies they are developing. Such structures can make it easier to sell or spin-off the technology, if non-core, or bring it back into the business if it is seen to be central to its future revenues.
The modern trend of open innovation could also pose risks to an unsuspecting disruptor. Lots of innovative businesses now believe that sharing IP and looking outside the business for new ideas is essential to secure a strong position in a dynamic business environment. However, disruptors should never allow themselves to be put in a position where they are divulging technological insights without patent or other IP protection in place. If necessary, they should also be prepared to document information carefully before any meeting takes place to ensure there can be no mistake over who owns their ideas. Before sharing any information, there should also be a clear agreement in place to determine who will own the rights to any jointly-developed innovation.
There is no doubt that disruptors can have a significant and lasting impact in their chosen markets but they are unlikely to succeed without a sound understanding of the value of IP.
Paul Foot is a patent attorney and advanced engineering specialist at intellectual property firm, Withers & Rogers.