IP diligence is a constant

By Peter Ackerman

What do a Koosh ball and a tab of Viagra have in common? Aside from the pleasure they bring to millions, their economic success is premised upon the same type of IP protection. The company that makes Koosh balls – rainbow-coloured, plasma-filled rubber balls with protruding soft rubber spikes – and the company that addresses erectile dysfunction with a pharmaceutical compound differ in terms of their culture, strategies, complexity and revenues. However, the tools they use to nurture and protect their inventive ideas from concept to commercialisation are similar. It is the same with every creative organisation – the diligence with which good IP management tools are used has a bearing on the odds of sustainable success.

These tools include the legal wrappers placed around creations so as to preserve the invested resources, protect them from predators and keep the way clear for profits. These wrappers are:

  • patents to protect ideas (eg, new chemical compounds or toys);
  • copyrights to protect the originality of how an idea is expressed (eg, software source code, brochures, books or songs);
  • trademarks to protect the value of something that indicates the source of a product or service (eg, a logo, tagline or product name); and
  • trade secrets to protect confidential information.

Other tools include the processes and technologies that organisations use to ensure they are identifying the right information and effectively analysing and exploiting that information.

IP diligence is a senior management and board-level strategic issue as much as an operational one. Around the globe private and state awareness of the economic significance of intellectual property continues to grow. From the US Supreme Court’s recent eBay decision (alluding to the possibility of greater scrutiny before injunctive relief will be granted in patent infringement cases), to India’s new Rajiv Gandhi School of Intellectual Property Law, to the Hong Kong Scout Association’s merit badge for respecting IP rights, intellectual property is quickly becoming the information economy’s predominant financial asset class. Concomitant risks and opportunities abound.

IP diligence begins with the basics – sound internal vision and information management practices.

Koosh

In 1987 Scott Stillinger enjoyed teaching his young son to catch a ball. However, most balls were difficult for a five­year-old to catch. As a design engineer, Stillinger wondered whether he could come up with something better. He thought that the still-evolving hand-eye coordination and manual dexterity of a young child required something easy to grab and soft enough to absorb the occasional miss to the face.

Over a period of time Stillinger made sketches and carved spheres out of wood. He cut hundreds of rubber bands in half and glued them to the ball in various ways. Eventually, Stillinger settled on a design. His son loved the prototype of the Koosh ball – a rubber ball filled with a jelly-like substance with protruding random soft rubber-band spikes. Stillinger also designed the machine process by which to mass produce the ball.

Stillinger formed OddzOn Products Inc with his brother-in-law, Matt Button, who worked for Mattel at the time. OddzOn applied for a US utility patent and retained a local manufacturing firm. Initial working capital was secured and additional employees were hired. The process for manufacturing the Koosh ball was retained as a trade secret.

The Koosh ball became the biggest selling toy of 1988. The company grew to over 50 employees, with another 50 outsourced manufacturing workers. Millions of units were sold through a network of sales representatives and established store locations. Koosh balls became the distraction of choice for office workers all over the United States. Games were created with it – for example, one using fabric racquets to keep the ball airborne was popularised by graduate students at the Massachusetts Institute of Technology. The Koosh ball evolved into an extended line of over 50 products, many of which were aimed at making sports easier for small children to play, including the Vortex, the Boingo Ball and Fling Shot. Numerous companion products were created, many through licensing of the patent. The brand itself was extensively licensed and appeared in a number of films and television programmes, colouring books, official user guides and many other areas. Koosh Kins became a family of characters and were used by Archie Comics for a comic book mini-series.

Thus, the original Koosh ball spawned a new generation of tactile toys and related products.

Viagra

Dynamite was invented in the 1860s by Alfred Nobel, creator of the Nobel prizes. One of the ingredients in dynamite is nitroglycerin. Since 1847 it had been known that nitroglycerin has properties that can relieve the symptoms of angina by dilating blood vessels, thereby reducing chest pain and increasing blood flow. Later in his life, Nobel took nitroglycerin at the behest of his doctor to alleviate his heart symptoms.

In October 1988 three US pharmacologists won the Nobel Prize for Physiology and Medicine. Their decades of work combined to unlock the mystery of nitroglycerin’s vasodilation properties. They discovered that nitroglycerin and similar substances release a gas called nitric oxide, which tells the smooth muscle walls of blood vessels to relax and widen, thereby increasing blood flow.

In the mid-1980s Pfizer was conducting research to develop better vasodilation medicine for the treatment of heart failure and hypertension. Discoveries along the way narrowed the scope of research towards the treatment of angina. After synthesising and testing hundreds of molecules, the resultant compound entered clinical trials in 1991. Healthy male volunteers reported an interesting side effect – they were getting more frequent erections after taking the compound. Some were begging to continue with the compound when the clinical trials ended.

Another redirection of the research led to the pursuit of this compound’s efficacy for the treatment of erectile dysfunction, as it had proved insufficient for its originally intended purpose. Clinical trials for Viagra commenced in 1993 and concluded successfully, and US and international patents were applied for. Viagra was approved and the first prescriptions were written in 1998.

Viagra has been one of the most successful drugs in history. Everything went up when it was launched, including Pfizer’s stock price. A team of over 1,000 researchers at Pfizer spent almost a decade developing it, and there were almost 3 million prescriptions for the drug in its first three months on the market. A single Google search for Viagra yields over 61 million hits. Books and articles have been written about its cultural impact. Vigorous generic and proprietary competitive products have emerged, and new research is underway into related areas.

Thus, Viagra spawned a new generation of sexual dysfunction therapies.

Common thread

Both the Koosh ball and Viagra were serendipitous inventions resulting from sensitive and keen observation. When the problem and the solution are mapped well together, it is almost inevitable that competitors will emerge with varying degrees of scrupulousness.

Within five months of the launch of the Koosh ball in 1988, counterfeits began to appear. Armed with this, OddzOn was able to expedite the issuance of its patent. Shortly after the patent issued, OddzOn became extremely serious about protecting its rights. As many companies do, OddzOn personnel went to trade shows around the world and identified a number of infringers. They pursued over 50 importers of counterfeit products through a variety of legal means, and succeeded in forcing many to cease copying the Koosh ball. The litigation surrounding the Koosh ball has been prolific and seminal enough to have made its way into law school textbooks on IP rights. OddzOn spent as much on legal fees as it spent on rubber for the product itself, but it persisted.

In a bold strategic move designed to set an example and gain market awareness, OddzOn filed suit against the largest and best known of the infringers, and eventually prevailed. It accompanied this suit with an advertising campaign to ensure that word got out that the company would enforce its IP rights. From then on, OddzOn enjoyed years of relatively infringement-free product sales and continued to expand its brand. Sales reached tens of millions of dollars and eventually the company was acquired by Hasbro.

In a similar manner to OddzOn, Pfizer resorted to its patent and trademark rights soon after the public release of Viagra in order to keep various forms of copying and generic drug introductions at bay. The stakes were higher although the principal approaches came from the same toolbar. Pfizer spent more than $1 billion to develop Viagra and the product has generated revenues in excess of $1 billion per year. Therefore, it was to be expected that contention would greet the brand and technology at all levels – from a New York chef who named a dish Viagra Ceviche and chewing gum infused with Viagra’s main ingredient, to a Virgin Airlines advertising campaign and formidable battles with individual national patent regimes such as Egypt and China.

OddzOn and Pfizer both used the same tools of the IP trade to great effect. They understood the concept of using a ‘belt-and-suspenders’ approach to protecting intellectual property. Each pursued diligently the full spectrum of IP rights. Each aggressively utilised the patent regime, to varying geographic and quantitative degrees, in order to protect the core invention. Each utilised copyright and trademark protection to preserve the integrity of its written materials and brands. Each held back certain trade-secret processes and methodologies. Each asserted vigorously through litigation the IP rights it had worked so hard to create.

Applying these common threads to any IP-dependent enterprise uncovers similarities in their application and execution. These issues are applicable to any organisation and their status should be of major concern at all levels of a company from the perspectives of value creation, competitiveness, risk and regulatory compliance.

Evaluating IP diligence

To determine how well an organisation manages its most valuable assets, the following questions should be considered. These issues are summarised here.

On what intellectual property does the company depend?

Understanding what intellectual property is currently owned, what is in process, what is of potential value and the parties involved in these activities is the first step in properly protecting and leveraging that intellectual property. An IP audit can help, and real-time visibility is ideal.

Are employees properly trained to identify and protect intellectual property?

The best source to identify intellectual property is a properly trained workforce. Employees who are trained to understand the value of intellectual property are much more likely to disclose it internally and protect it externally. A successful IP training programme for companies with sizeable numbers of IP creation personnel should include an online training tool that employees and contractors can refer to as needed, as well as a mechanism for delivering updated policies and procedures.

Are time-sensitive issues consistently and purposefully managed?

Many IP protection activities are extremely time sensitive. Invention assignment agreements and, where permitted, non-compete agreements must be in place before an employee or contractor starts work. Any gap in this coverage or an attempt to secure it after the fact greatly weakens the protection and in some cases removes it entirely. Since most patent jurisdictions are first-to-file systems, the timing of patent applications is critical, and the timing of trademark and copyright registrations drives the availability of many legal rights and remedies.

Who owns the rights to the intellectual property?

Aside from internal protective documents such as non-disclosure, work for hire and other agreements, what does the chain of title look like regarding intellectual property that is acquired or targeted for acquisition? How are IP rights distributed in joint ventures, standards organisations or other collaborative environments in which the company participates? Do the inventors have pre-existing, termination or shared rights? Are assignments properly recorded and security interests perfected?

Is there an IP management system in place that uniformly applies corporate IP controls?

Having an inventory and culture of awareness of the intellectual property is a good step, but will fail by itself without a managed system to track and coordinate it. Most IP rights are governmentally issued and are further interpreted through judicial processes. Many are also regulated at some level. Therefore, it is critical to monitor, for example, maintenance fee and regulatory requirements, and usage and research and development ‘clean-room’ practices to reduce exposure to claims of wilful copying.

Is the company getting the best value out of its intellectual property?

The commercialisation opportunities for intellectual property are growing exponentially. The Koosh ball is a good example of the multiple revenue streams that can be created not just through direct sales of a product that might embed an idea, but also through the licensing of a particular technology and the brand created around it. Viagra was similarly leveraged through multiple licensing and marketing strategies. Attempting to track all IP commercialisation activities either manually or with single-dimensional tools is imperfect at best and perilous at worst.

Summary

IP diligence is an organic process; it requires constant documentation and internal transparency. OddzOn and Pfizer were diligent in protecting their IP rights and finding fruitful commercialisation paths using similar approaches and legal tools. Recognising that intellectual property creates a real competitive advantage should lead to scrutiny and the implementation of a structured approach in order to protect, foster and nurture it. A company will miss its intellectual property if it stops working, and there is no little blue pill to make it work again.  

[This post originally appeared in IAM IP Value 2007]

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