Three insights into how Intellectual Property can benefit an innovative business.

By Joren De Wachter

All technology businesses innovate. It is what they do. They tackle a market opportunity by innovating.

But innovation can happen at any level. It can be inventing a new technology, it can be process or method based, it can be through applying existing ideas in a novel way, or in many other ways.

A key element to all innovation is Intellectual Property Rights (IPRs), and the way they affect the business model.

Why?  Because IPRs are an essential tool to bring innovation to the market.

The key to understanding this is that IPRs are about much more than filing a patent or understanding your freedom to operate (understanding if other businesses have IPRs, such as patents, that could block your access to market).

There are three aspects to this:

1. IPRs are about technology and market

IPRs are about much more than a technological development. They always have to be understood, and used, in the context of the actual product and service, and in relation to the market in which they are used.

If you develop a new technique, but the market has twenty possible alternatives, then filing a patent is probably quite useless, and a waste of energy, focus and money. On the other hand, if your competitors are opening up their technology and creating an open source community, it may become much harder for you to break into their network, and you may find yourself left behind by the market.

Market conditions, and the way technology is evolving, are key to understanding which IPRs can be good for your business, and which may be less efficient.

So make sure that whatever you do with IPRs is based on how you see the market develop, and how technology can give you an edge in that market.

2. IPRs are about business models and strategy.

One of the essential elements of any business model is understanding the specific, unique value you bring to the market, and what that market is willing to pay for it, either directly or indirectly (e.g. Google innovated by offering more efficient search, but their business model is based on selling the ability to be found).

For any product or service that has an innovative aspect to it, understanding how IPRs affect such product or service, is always an essential part of establishing the business model.

Should you protect, or rather open up and share? If you do, how much and to what extent? What are the different options? When your customers buy your product or service, which rights are they actually acquiring? Which rights do you obtain upstream, and how can you sell them on downstream?

These are not “legal” or “copyright” issues, they are key components of any business model, and need to be addressed when that business model is being constructed, not as an afterthought.

And they are also key to any strategy.

Look at the example of Lego. When all of its “hard” IP was expired, and it only had its brand value left, was losing money, and cheap copycats of its building blocks were swamping the market, one of the key components of Lego’s turnaround story was its innovation in creating a new form of Intellectual Capital. It converted those millions of young, and not so young, Lego engineers, into an online community, that shares its designs, uses online tools, and always buys Lego to express its creativity. In a way, Lego has integrated the Intellectual Capital of the combined, aggregated creativity of its customers into its business model and its strategy.

3. IPRs are about risk and opportunity.

While it is true that IPRs are, in essence, negative rights (they provide the exclusive right to block others from bringing something on the market, not the actual right to use what is protected), it is important to think of them in terms of both risk and opportunity.

The risk factor is typically reasonably well known: what risk is there someone will block my access to a market on the basis of their patent, design etc.?

But don’t forget that the risk goes two ways: if you own certain IPRs, and use them in the right way in your business model, you may have a bargaining chip, or be able to influence other people’s behavior.

And what’s more, and more important, is that IPRs are also about creating opportunity.

They create the opportunity to shape the rights you grant your customers in exactly the right way that allows you to get the most benefit out of a happy customer. An important part of the win-win is shaped by the rights that are granted by each side – understanding those rights and modeling them in the right way will be essential to business success.

When a license to use software is written in the right way (be it open source,  proprietary or a hybrid), that comes down to using IPRs to create opportunity, and to choose the most appropriate way to use IPRs to grow the business.

The challenge, but also the opportunity, is that there is a lot of flexibility in this area, and, indeed, a lot of creativity and innovation in the way IPRs are used today to support business opportunity and strategy.

[This post originally appeared at jorendewachter.com.]