IPL 8: IP in Business: SWOT Analysis

• Competencies for IP in Business involve identifying a company's IP position through SWOT analysis, explaining methods to extract value from IP, and identifying relevant issues in IP deals.

SWOT Analysis

• SWOT analysis is a framework for evaluating a subject's competitive position and developing strategic plans.
• SWOT identifies Strengths, Weaknesses, Opportunities, and Threats related to the subject's position.
• SWOT can be applied to an industry, a specific company, a part of a company such as a product line, or even an individual for personal improvement.
• Strengths and Weaknesses are internal factors, while Opportunities and Threats are external.
• Each SWOT point can be weighted differently and prioritized, affecting the strategies that are eventually adopted.
• Scenario: A startup company, EcoTech Solutions, is considering entering the solar panel market. They conduct a SWOT analysis to assess their readiness.
  • Strengths: EcoTech has patented a unique solar cell design with higher efficiency than existing models.
  • Weaknesses: Their production capacity is limited, and they lack brand recognition.
  • Opportunities: Government subsidies for renewable energy and increasing consumer demand for green products.
  • Threats: Established competitors with economies of scale and potential changes in government regulations.
• Fictitious Scenario: Imagine a small bakery, "Sweet Delights", wants to expand. A SWOT analysis reveals:
  • Strengths: High-quality, unique recipes and a loyal local customer base.
  • Weaknesses: Limited seating and an outdated website.
  • Opportunities: Growing interest in artisanal baked goods and potential partnerships with local cafes.
  • Threats: Rising ingredient costs and increasing competition from chain bakeries.

IP Strengths

• Strengths are what a company excels at.
• Strengths distinguish a company from its competitors

IP Weaknesses

• Weaknesses prevent a company from performing better.
• Weaknesses are areas in which a company needs to improve.

IP Opportunities

• Opportunities are favorable external factors that provide a company with a competitive advantage.
• Scenario: A tech company, Innovate Inc., has developed a ground-breaking AI algorithm. An opportunity arises when a new government regulation supports AI adoption across industries. Innovate Inc. seizes the opportunity.

IP Threats

• Threats are external factors that could potentially harm a company.
• Scenario: A fashion brand, StyleCo, faces a threat when cheaper counterfeit products flood the market, eroding its brand value and sales.

SWOT Analysis Follow Up

• Strength-Opportunity strategies help the company leverage its strengths to maximize opportunities.
• Strength-Threat strategies help the company use its strengths to mitigate threats.
• Weakness-Opportunity strategies aim to minimize the company’s weaknesses by taking advantage of identified opportunities.
• Weakness-Threat strategies help minimize the company’s weaknesses to avoid identified threats.
• Fictitious Scenario: A software company, SoftDev, identifies opportunities and threats. They can use their strong R&D team (strength) to capitalize on the growing demand for cybersecurity solutions (opportunity) and mitigate the risk of increasing cyber threats (threat). They can address their limited marketing budget (weakness) by partnering with a larger company (opportunity) to overcome the competition.

Extracting Value From IP

• Ways to extract value from IP include: working the IP, licensing, collaboration/joint ventures, sale, and collateralization/securitization.

Working the IP

• It is the most direct way to exploit IP
• Applying a trademark or registered design to goods for sale is an example.
• Applying patented technology to create or do something.
• Working the IP generates revenue and builds brand and customer loyalty.
• It also maintains barriers to entry based on the exclusive rights granted by the IP.
• Scenario: A company, "Tech Solutions," has a patented technology for noise cancellation. To leverage the IP, they integrate it into their own line of headphones, leading to direct revenue generation and brand recognition for superior audio quality.

Licensing

• It is another way to extract value from IP.
• Others can work the IP through licensing, even if the owner doesn't.
• Licensing allows others to work IP even if the owner already does.
• Working one's IP generates revenue from selling goods/services where the IP is applied.
• Licensing IP provides revenue from license fees and royalties.
• Types of licensing arrangements
  • Non-exclusive
  • Sole
  • Exclusive
• Licensing Options
  • Fully paid up license fee
  • Running royalty
  • Combination of upfront license fee and a running royalty
• Scenario: The National Skin Centre's (NSC) licenses its Suu Balm.
• Scenario: A university research lab developed a novel drug delivery system. Instead of manufacturing the product, they license the technology to a pharmaceutical company. This allows the lab to generate income through licensing fees, which can be reinvested into further research, while the pharmaceutical company expands its product line.

Licensing: Franchising

• It is a special business setup involving the licensing of IP and IA
• Franchisors grant franchisees the rights to sell a product
• Franchisor's must provide a service using its business system.
• Agreement between the franchisor and the franchisee in which the franchisor maintains a continuing interest in the franchisee's business.
• The franchisee operates under a common trade name, format, or procedure controlled by the franchisor.
• The franchisee makes a substantial capital investment in their business from their own resources.
• McDonald's is an example of franchising.
• Ray Kroc started a franchise of a successful Southern California hamburger stand.
• Kroc brought an assembly line-like concept to the fast food industry.
• Kroc believed that customers should know what to expect wherever they are in the world.
• Scenario: "Burger Bliss" is known for its unique burger recipes and branding. To expand, they offer franchises, granting other business owners the right to open "Burger Bliss" restaurants using their brand, recipes, and operational systems. In return, franchisees pay upfront fees and ongoing royalties.
• Consistent brand image is important as seen by I Can Read's brand guidelines.
• Managing copyright issues by registering curriculum in markets as seen by I Can Read.

Licensing: Cross-Licensing

• It is a contractual arrangement where each party licenses its IP rights to the other parties.
• Typically in the context of patents.
• Occurs between collaborators or competitors.
• Consideration is not mainly money, but primarily mutual licenses.
• Cross-licensing happens between companies that own patents over different aspects of a product.
• Cross-licensing gives the licensee freedom to operate, avoiding infringement and litigation.
• Cross-licensing enables the licensee to make its product more attractive.
• Both Google and Samsung are preeminent players in the Android operating system for smartphones.
• Google and Samsung have a broad license to cross-license a range of patents.
• Google and Samsung have existing patents and can file more in the next 10 years.
• Scenario Google and Samsung cross-license to reduce the potential for litigation and focus on innovation.
• Scenario: Two competing tech firms, "Innovatech" and "GlobalTech", both possess patents on different components of smartphone technology. They enter into a cross-licensing agreement, allowing each firm to use the other's patented technology in their smartphones. This arrangement avoids potential patent infringement lawsuits and enhances both companies' product offerings.

Collaboration / Joint Venture

• It involves loose terms.
• It can involve elements of working the IP, licensing, and/or sale.
• This would be when two or more parties have something to contribute.
• This enables parties to achieve more than could be achieved individually.
• A pharmaceutical company with a new drug that cannot be taken orally collaborates with a company that has developed a nasal spray delivery system.
• There is R&D collaboration between a non-profit research institution and a commercial entity, which is expected to result in new IP products.

Collaboration and Joint Venture Terms

• A collaboration can take the form of a joint venture, or not.
• Parties can collaborate as they are, or form a joint venture vehicle for risk management, and compliance with local regulation.
• (a) background IP (b) foreground IP (c) sideground IP (d) postground IP

IP Sale

• This provides immediate returns.
• IP involved is not or is no longer of interest to seller ("non-core IP")
• The IP would not be worked by the company.
• Example Kodak
  • Kodak filed for bankruptcy protection in 2012.
  • Kodak sold around 1,100 patents for US$525m at a fire sale.
  • Kodak only reached short of US$2.6b target, but needed $$ urgently to get out of bankruptcy.
  • Kodak finally emerged from bankruptcy in late 2013
• Example Yahoo / Verizon.
  • Verizon acquired Yahoo’s internet and media business.
  • Verizon acquired some of Yahoo's IP, in 2017.
    • In 2021, a SoftBank subsidiary made a one-off US$1.614b payment to Verizon to acquire TM rights relating to "Yahoo" and "Yahoo Japan" in Japan, and a “paid up, perpetual right to use existing licensed technology in Japan".
• There is a difference between license and sale.
• Buy the IP vs Buy the company that owns the IP
• Scenario: "InnovaCorp", a struggling tech company, decides to sell its patents on wireless charging to a larger firm, "PowerTech", for $5 million. This sale provides InnovaCorp with immediate capital to pay off debts, while PowerTech integrates the technology into its new line of smartphones, gaining a competitive edge.

Collateralisation / Securitisation

• It is an asset-based lending.

Issues in IP Deals and Due Diligence

• Volkswagen bought the assets of Rolls Royce and Bentley automobiles for around US$900 million.
• Volkswagen only realized after the deal closed, the IP assets it paid for did not include using the Rolls Royce trademark.
• BMW owned the Rolls Royce trademark.
• Therefore, Volkswagen acquired all the rights needed to make a Rolls Royce car, but not the right to brand it as one.
• Moral of the story?
• Types of IP Deals and Due Diligence:
  • Licence negotiations
  • Sale negotiations
  • Merger or acquisition
  • Joint venture
• IP Due Diligence includes the actions identification, investigation and evaluation

IP Due Diligence Example

• Singapore Patent
  • Seller did not give warranties and indemnities.
  • The patent expires in 2023
    • But you will plan to sell the product in China, besides Singapore.
    • But you will need 6 months to set up the plant in China.
    • You are not prepared to compete with a licensee
  • Name of seller in agreement does not match name of the previous owner on patents register.
• Patents register records a license
  • Is the patent valid to the best of the seller's belief?
  • Sale agreement is subject to law of Country X (not Singapore).
    • Did the seller even have authority to sell your target collaborator the patent?
    • Will there be problems enforcing the agreement under foreign law?

IP Due Diligence

• During IP Deals and Due Diligence, it is a good idea to consider the Who, What, When, Where, Why and How