Product Companies Must Modify Patent Strategy When Adopting Innovation as Business Model

DEVELOPMENT-INNOVATION road sign  Product innovation requires a new patenting strategy.I recently finished an IP Strategy engagement with major consumer products corporation, where I interfaced with the head of New Product Development and Innovation Strategy. This company is embarking on a major shift in the way it brings products to market. In short, the company is transitioning from one that introduces new products with incremental improvements into the market on a regular basis, to one that focuses more on innovation. For this client, this strategy will mean that a significant portion of its product development efforts will be focused on solving unmet and identifying emerging customer needs, with the ultimate goal of introducing truly innovative consumer products that will be successful in the marketplace.

I am sure that my client’s new products will be found to be highly desirable to their consumers: the team is highly competent in the processes that need to be implemented in order to successfully execute innovation-based product development. The missing piece, and the reason that I was brought in, is for the team to possess actionable steps for bringing the company’s patent strategy into alignment with its new innovative product development strategy. That is, the innovation lead realizes that the shift to from products that include incremental changes to ones that incorporate truly innovative features will also require substantial modifications to the way the company generates patent protection.

Notably, this company has hundreds of patents in its portfolio, the result of its filing of several dozen patents a year for over recent years. Management currently has a continued expectation is that the IP team will continue to crank out patent applications at the same rate. Certainly, generating a high volume of patents is much easier when a company creates a high volume of new products on a regular basis. As long as the new product is novel and unobvious, a patent can be obtained. Creating new products from innovation programs is a much different process, however. This means that, in conjunction with adoption of innovation as a business strategy, my client must rethink its understanding that more patents equal more value: patents resulting from innovation efforts are likely to be fewer, but, if done correctly, they will be more “meaningful.”

As I have written about before, to generate “meaningful” patents in the product innovation space,* protection of the underlying consumer need is paramount. In short, competitors do not care about the product, they care about customers.Thus, any patents that will “meaningfully” protect that product innovation must encompass the reason why the customer will desire the product in the first place.

One way to do this is to ignore the product features–that is, the “how”–when drafting the patent claims. As has been perfected by P&G, the claims should instead focus, to the extent possible, on the functional features that define the desirability of the product to the customer in the first place. For the Swiffer product discussed in this post, among other things, the customer wants the water used to mop the floor to remain clean during the mopping process, and she wants to know when the mopping pad needs changing. The claims obtained by P&G covered this required functionality, and, along with a suite of comparable functional patents, have allowed the company to keep competition at bay in the entire category for more than 15 years.

For any company that is truly seeking to bring consumer product innovations to the marketplace, modification of patent strategy is mandatory to prevent competitors from appropriating customers from whom the product solves their unmet need. Using the Swiffer product as an example, P&G established a whole new market with this product. Prior to introduction, the consumer did not even know that she needed an expensive floor mop that, once purchased, would require her to spend $10-20 a month on supplies (i.e., mopping pads and cleaning solution). In fact, if you asked her prior to the introduction of the product if she would be willing to commit to such a recurring expense when historically her mopping cost was essentially zero $ (using “Navy mops” and sponge mops), she would have most probably said “no way.” But once she experienced the vast improvements in cleaning effectiveness (and the piece of mind that resulted when she saw that her floor was actually getting clean instead of just moving dirty mop water around as with the “old school” mops), the Swiffer customer demonstrated that she was willing to pay a premium price for the Swiffer product in perpetuity. Certainly, other companies, such as Newell-Rubbermaid, Lipmann etc., would have loved a piece of this market—a market that was created and validated by P&G—but the company’s successful patent strategy effectively presented this from happening.

Put in a more general context, without the innovator’s investment, competitors would be unsure that the customer existed, but once that customer has been validated by the innovator’s efforts, the customer is ripe for the taking unless there is patent protection that prevents otherwise legal competition for that customer. In the product innovation space, such protection should typically focus on the functional aspects of the product that are defined by the parameters of the customer’s unmet need. If an innovator’s patenting strategy takes the typical approach of assuming that coverage of the product is the point of reference for protection, competitors will be able to solve the same customer need with a non-infringing product substitute. Moreover, these competitors will be able to attain this customer using the innovator’s efforts as a roadmap, and without the same amount of investment. The innovator will then find itself in a price-eroded environment where lower profit margins make it impossible to achieve the financial projections that define the decision to make the innovation investment in the first place.

In closing, it should be noted that this approach is only applicable when the company is truly bringing new product innovations to consumers. For most companies, product introductions that result from innovation endeavors will be less numerous than those that emerge from routine product development efforts. Nonetheless, the patent strategies of most companies do not distinguish between the two product development pathways. Coverage of specific products will remain relevant for most companies, and will likely be the most prevalent strategy for those companies that are in the product business. Where a product is the result of innovation and not routine product development, the company must also modify its patent strategy to generate protection of the whole innovation (i.e., the consumer need), not just the invention (i.e., the product).

*Note that while my client will indeed be an innovator, and not just a developer of products, there are different “flavors” of innovation in the context of patent drafting strategies. Product innovation should be contrasted with technology innovation, the latter of which are working in the realm of unmet technology needs, where such unmet needs could be used in a variety of end products. When a company is innovating in the technology space, “meaningful” patenting efforts will require a different drafting mindset. I will address this concept in a subsequent post.

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