Risk Management

One of the first steps in risk management is the identification of exposure to loss. Most people are quite attuned to typical loss exposures such as:

Property problems

Damage to neighbouring property due to building work.
Temporary wall collapses injuring pedestrian .
Building floors crack as building settles. Owner loses 3 months' production while repairs are made. Cause determined to be faulty design.

Income Exposures:

Power outage closes mill, resulting in two days' lost production.
Government levies a fine for operating contrary to permit.

Personnel Exposures:

Senior partner suffers a minor stroke and is unable to work for three months.
Two employees die in an accident.

These and other examples often come to mind since they are part of everyday life. Most companies are aware of and are managing these risks through their insurance programs. Unfortunately, other exposures surround intellectual property, that many companies have not yet addressed.

Consider the following examples of IP loss for the same categories.

Property

Fire destroys your office. Among the property lost is the entire set of documents - print and electronic - including a unique process that your staff had come up with.

Liability

You are sued by a competing pizza chain for copying the look of their retail outlets.
A writ is issued and an injunction is sought to stop production at your plant, alleging unlicensed use of a patented process that you have been treating as a trade secret for 10 years.
A consultant installs a computer hardware and software solution to your business problem. The inventor sues both of you for patent infringement.
A control valve managed by your control software fails to work at the processing plant of a client company producing dangerous chemicals. The resulting accident kills people living close to the plant. The families of those affected sue you and the chemical producer.

Income Exposure:

Launch of your product is delayed due to a patent-infringement suit and injunction based on a software patent that you believe to be invalid.
Initial stock offering is postponed due to lawsuit over your ability to manufacture under licence agreement.

Personnel Exposures:

A senior partner leaves the company and takes with her two key patents that are in her name. Two employees have been selling research information to a competitor who beats you to the market with a new product.

One might argue that the first "classic" series of exposures are accidents or "acts of God". Can the same be said of the latter set? Are these exposures more likely the result of events over which people have control?

How does an organisation begin to go about managing IP risk?

The first step is identification. The next step is the analysis of the exposure and the determination of what risk-management or risk-control techniques are appropriate. The best techniques are chosen, implemented, and then monitored for results.

Two risk-control techniques are loss prevention and loss control.
The first seeks to minimise the chance ( or frequency) of a loss while the second seeks to minimise the severity of the loss. If we accept that many of the "intellectual property" loss exposures are not accidents or acts of God, then much can be done in the way of loss prevention and loss reduction.
Knowing how to manage and protect your intellectual property is a key in the new product development and risk-management processes. It is a clear requirement of doing business in any knowledge based industry.

Recommendations:

Conduct an intellectual-property audit of the company, to identify and "inventory" IP assets, assess if they are being used to maximum advantage and review any potential for creating more IP. Also analyse existing IP practices, including records management, confidentiality practices, and contracts administration.

Do not undervalue the spectrum of intellectual capital assets: know-how, trade secrets, patents and trademarks can add up to a valuable whole. The most valuable possession may be a respected trademark that can be a potent barrier to market entry and distribution channels for competitors. Discern the important difference between a product life-cycle and the technology embedded in the product. The two are not really the same. Although the product may be obsolete within a year, the patented technology might be viable for many years.

Determine guidelines and objectives of the IP for the company in view of long-term direction of technology development. Identify areas of unacceptable risk and devise strategies and tactics for shedding that risk to contractors. Software and technology licenses can be written to shift liability to the purchaser.

In IP planning, analyse strengths and weaknesses - decide which technologies or products to develop, whether leadership in these technologies is important or affordable, and when to license-in needed technology. If the future direction of the firm makes some IP assets unnecessary, license or sell what is not being used.

Use a consultant to analyse weaknesses in your patent portfolio and suggest strategies for dealing with marketplace position. For instance, you may wish to invent and patent incremental innovations around your competitor's core technology to force him to license to you.

It pays to adopt a product-driven attitude towards invention in your company. Encourage your engineers to file patents as an essential part of new-product development and make them do patent-infringement searches as a pre-design step.

Be proactive in mapping competitors' patent positions in the market and leapfrogging ahead to where they are going. For example, change clients' perceptions of their problems in order to design better software solutions. But first be vigilant in researching competitor’s patents and trademarks.

Encourage a strategy of inventing around competitors' patents, such as eliminating elements by consolidating or changing functions. Don't add parts, but focus on restructuring function. For example, substitute a new low-price component that does the job of two old parts. Insert an IC chip to computerise a manual system, or reinvent a process or service by including communications devices or software.

New materials and user-friendly design can pump life into a tired product line. An aesthetic innovation can be protected cheaply by industrial design registration (Known as design patents in the USA or Japan).

Finally, develop an IP plan and implement it. The plan must include:
Procedures for security of confidential client data and trade-secret
maintenance by confidentiality programs and proper personnel contract
management. Don't forget the exit interview.
A budget for patent costs according to an analysis of new-product
development needs. Annual roll over provisions are appropriate within this
budget since most firms do not invent the "home run invention" each year
but when they do the cost of international patenting is high.

Placing a priority on a company's intellectual property position is excellent risk management strategy, and a necessary part of business planning.