Guest post by Wim Vanhaverbeke and Paul Germeraad
Editor’s note: Wim Vanhaverbeke of Hasselt University in Belgium and management consultant Paul Germeraad have led efforts to research, validate and disseminate best practices in Open Innovation. In this article, excerpted from the March/April issue of the CIMS Innovation Management Report, they explain how to find existing sources of such technology in patent databases and then to assess and value that technology for commercialization in ways that ultimately support win-win negotiations.
Patent data are now readily accessible through data mining tools that enable competitive technological intelligence. By using these tools, managers can greatly improve the effectiveness of their Open Innovation activities. First, starting from their strategic needs, companies can define which class of technology and partners they wish to find.
Second, appropriate use of new patent analysis software tools has been shown to improve the speed and quality of finding the right technology and partners. Finally, after spotting desirable technology and partners, companies can negotiate access to the technology in an equitable and timely manner.
Of course, every business has own technology needs and will have to adapt the six-step methodology we outline here to its specific context. However, we believe the methodology is reliable and comprehensive enough to be a good guideline for most organizations facing the challenge of finding and acquiring a specific type of technology from an external partner that will fit its commercialization plans.
Finding and Evaluating Open Innovation
The logic behind this six-step process is that information sources should first be analyzed at the broadest level to ensure that investigators understand the overall technology landscape before focusing closely on those individual technology options that closely match the company’s needs. This initial step should ideally produce a small number of potential options.
For the final candidates selected, the methodology then switches to estimating the IP “freedom to operate” risk and IP’s ability to exclude other competitors from each option as some IP environments have inherently more aggressive participants than others. (“Freedom to operate” refers to a business or legal opinion on whether a new product infringes an existing patent’s claims.)
The last step in the process is to carefully summarize the strengths, weaknesses, opportunities, and threats so the negotiating team is well prepared to forge a mutually beneficial agreement.
Here are the six steps:
1. Understand Landscape: Determine Investment Rates
The goal of this step is to determine whether the product or service will be launched in a favorable commercial environment. The key questions to be answered are: Which entities have invested the most R&D money in this field?, and 2) What are the most common technical approaches and associated products?
Plotting patent filings per year shows whether other entities are investing in the same area (rate of increase or decrease) and a technology’s maturity stage. Using an approximation of $1 million invested by a company for each patent family published, such information shows the extent to which a field has attracted enough investment to make finding an Open Innovation opportunity likely.
2. Understand Recent Trends: Heat Map of Technical Domains
This step checks whether there is consistency between the technical and commercial lifecycle positions. The key questions: 1) Which technologies are emerging and falling out of favor?, and 2) Which entities are entering or leaving this field?
A heat map of an overall technical field like membrane technology (where we have done previous work) helps to reduce the number of technology areas to investigate. Heat maps (see Figure 1) show how many patents are present in each technical domain where specialty membranes are made or used. The diversity of applications shown in this example of membrane technology reinforces an assertion that membrane technology is broadly applicable to many markets.
Plotting the number of patent families in each technology domain that were filed annually shows the relative rates of investment in each one. Shrinking fields (where the number of patents/year decreases over time) represent subsets of membrane technology in which a technical alternate to membranes has been discovered. Growing fields indicate where membrane technology is likely to be of value in the future. Likewise, the change in number of companies entering and leaving specific technology domains provides insight into potential competitors.
What you can learn from a diagram like Figure 1 is whether other people think the investment is worthwhile and if they are betting correctly with R&D and IP investments. This is validation that you have a good idea, and on the flip side a caution that you’ll have to be content with determined competitors.
3. Focus On and Understand the Best Performance/Cost Technology Option
The goal of this step is to evaluate potentially relevant technologies for their quality and ability to speed the introduction of a new product or service. The key question: Which technology option is the best suited for a company to utilize? Typically the overview set of patent documents is too large to be mined manually. Therefore, we use patent metadata to narrow the opportunities to those that are:
- Relatively recent, with the presumption that older technologies have either already been exploited or have poor performance versus cost ratios
- Aligned with the company’s core competencies
- Aligned with the company’s strategic/risk profile for incremental (“baked”), next-generation (engineering needed) or breakthrough (science needed) options.
This is done by sorting patents based on a combination of four segmentation criteria: patent ages, radicalness, generality, and citation rate. In one case study, the frequency of the “most likely scouting opportunities” found in the set of Environmental-Technology-related membranes (67,798 patent families), that were also aligned with the company’s chemical engineering core competency, yielded a refined data set of 9,056 membrane patent families. Further screening for age, radicalness, generality, and citation rate reduced the refined data set to 77 patents (see Figure 2).
These 77 documents can be manageably reviewed by subject matter experts to determine which have the best relative performance vs. relative cost ratios. In the case of a company with expertise in membrane technologies that wished to enter the consumer marketplace while remaining in industrial markets, we were able to use this methodology to find their best option in the biomass area.
4. Expand Your Perspective to Utilize All Potential Options
The goal of this step is to ensure that all sources of potentially relevant technology—individual, commercial, and academic—have been explored for their ability to contribute to the quality and speed of introducing the new product or service. The key question is: What other entities are available to help?
It often occurs that a small company’s technology has been spun out from original work at a university. The follow-on R&D efforts of the small company, combined with university patents and know-how, make such entities a true nugget for an Open Innovation scouting project.
5. Estimate Legal Threats and Opportunities
The goal of this step is to estimate from a business—not legal—perspective the likely degree of overlap between proposed technical solutions and those already existing in the literature. The overlap must be small enough to bring the risk of intellectual property infringement below an acceptable level.
The key questions: 1) In which countries are patents being filed? 2) Will you have freedom to practice? 3) Will you have the ability to exclude others? 4) Are IP sharks or trolls present?
This “business-person perspective” can be rapidly formed by utilizing patent and business metrics developed to assess at a high level the ownership, validity and enforceability of patents. If the assessment raises red flags a subsequent legal assessment is warranted prior to negotiations.
6. Prepare for Negotiating Purchase/Access to Desired Technology
The goal of this step is to ensure that the project and management teams know how to negotiate for the desired external technology. The key question to be answered: Which gaps, strengths and weaknesses exist in the IP portfolio the company will possess upon license or acquisition?
The company must obtain the technology at a fair price along with a commitment to transfer the know-how. To ensure that the negotiations are conducted in a manner that yields the expected results, the negotiating team uses individual patent-based metrics that enable it to negotiate point by point.
This statistical process involves more than 40 patent metrics covering the probable strength and validity of the patent portfolio, the strength and breadth of the technology and uses covered, and finally, the geographic coverage of the portfolio. Spider diagrams are often used to understand the statistical significance of any one metric when preparing for negotiations.
The Patent Advantage
Patent documents are footprints left by companies or research entities. Patent analysis software can extract a wealth of information from those documents and find relationships among them. The advantage of patent information over other sources of information is that the patent’s technical and market disclosures have been vetted carefully by many people so that the information is robust and accurate enough to justify the million-dollar cost of a typical footprint.
Researchers, business development people, and management teams have all debated whether to start projects and fund the research necessary to leave that footprint. Because footprints are the result of thoughtful strategic planning, a patent landscape will be a robust source of information about technical and commercial strategies and tactics.