PROTECTION – INTELLECTUAL PROPERTY (IP) STRATEGIES

       “Intellectual property has the shelf life of a banana”

  ~ Bill Gates ~

Before you can protect your company’s IP, you must identify it. Talk to your employees and take an inventory of any creative works (copyrights) your company owns, whether such works are used internally or sold to others. Determine how your company identifies & distinguishes its products & / or services in from those offered by others the marketplace (through use of trademarks). Figure out whether your company has any secrets that give it a competitive edge, and whether it has invented anything that may be eligible for patent protection. Don’t forget to make sure that you have permission to use the names, images or likeness of all persons in your marketing collateral & on your company website, etc. Then, contact an intellectual property attorney to make sure that you did not miss anything and to help you through the registration process.

METHODS FOR PROTECTING THE INNOVATION – INTELLECTUAL PROPERTY

Every hour of every day each of us deals with one or more forms of intellectual property. We deal with it at home, at work and during our free time. Every time we buy something we deal with brands (trademarks). Almost everything we read, listen to or watch is protected by copyright. Daily, we use inventions that are or were protected by patents.

And every time we have a Coke or Pepsi, we are drinking something whose formula is a heavily guarded trade secret. Each one of us also has a right of publicity, which allows us each to determine how our name, image or likeness is used for profit. As a business owner, employee or lawyer, the first step is learning how to identify your company or client’s valuable intellectual property assets so that you can take the next step to protect these assets.

THERE ARE 4 MAIN AREAS OF IP: COPYRIGHTS; TRADEMARKS; TRADE SECRETS AND PATENTS:

• Copyrights are creative works of expression, such as artwork,
photography, graphic design, music, text, source code, architectural works
and boat hulls.
• Trademarks are what businesses use to identify and distinguish what they
offer in the marketplace from that which is offered by others, and
includes brands, logos, slogans, and taglines.
• Trade Secrets are business secrets that are not known, nor easily learned,
by people outside the company.
• Patents are unique inventions, designs or processes.

IP RIGHTS ARE EXCLUSIVE BECAUSE THEY ALLOW THE OWNER TO EXCLUDE OTHERS FROM USING ITS IP.

Ownership of IP assets entitles the owner to certain rights. Most importantly, IP owners may prevent others from using their IP without permission and / or the payment of a fee (usually referred to a licensing fee or royalty rate). It is sometimes simpler to understand IP rights in terms of what the IP owner can prevent others from doing with its IP.

Copyrights owners have the sole and exclusive right to copy, transfer, and publicly perform or display (whichever is applicable) their works, as well as to create derivative works, which are works that are based upon the copyright owner’s original creation. They may also prevent all others from exercising these rights without permission, which usually includes payment of a licensing and / or royalty fee.

Trademarks owners have the sole and exclusive right to use their mark on their goods and/or services and to prevent all others from using the same or a similar mark for the same or similar goods and services.

Trade Secrets owners have the sole and exclusive right to benefit from use of their secret(s) and to prevent the unauthorized use and disclosure thereof.
Patent owners have the sole and exclusive right to create or utilize the invention / process covered by the patent and to prevent all others from creating / using an identical or equivalent invention or process.
IP owners may also transfer some or all of their rights permanently to one entity (by an assignment) or for a limited duration to one or more entities (through licensing).

An assignment terminates the IP owner’s rights and transfers those rights to a third party. Licensing enables an IP owner to continue to use its IP at the same time as one or more others are using it.

Beyond these forms of IP there are less obvious, but equally important, form such as intimate relationships with members of the value chain including customers and suppliers, obtaining proprietary approvals for the company’s offerings, regulatory actions that support the company’s position among others intangible forms of IP like the company’s reputation in the market etc. These can be critically important, when employed in the context of the business, because they’re asymmetrical favoring the company over its competitors in ways that are hard to defeat but tend to be situational and managed separately. As part of the employee education process these will be discussed with examples. One example is an exclusive supply arrangement between the company and a customer based on a personal relationship between the CEOs. This kind of protection is very difficult for a competitor to breach.

THE DURATION OF IP RIGHTS DEPENDS ON THE NATURE OF THE IP.

IP assets are valuable to your business because they are unique and exclusive.
No one else has or can legally use those assets without your permission. A company can use its IP to generate revenue from third parties through licensing agreements. Unauthorized use of IP is considered “infringement” and may be remedied by sending cease and desist letters or by filing a lawsuit.

Copyrights rights’ duration depend upon who created the work and when. If the work was created and owned by an individual author after January 1, 1978, copyright protection lasts during the author’s life, plus 70 years after the author’s death. For works owned by a corporation (“works made for hire”) that were created after January 1, 1978, the duration of copyright will be 95 years from first publication or 120 years from creation, whichever is shorter. For works created before 1978, one must determine who created the work and when and then consult the Copyright Act to determine the duration of rights under the applicable version of the Act.

Trademarks rights last as long as the mark is used properly. Proper use includes preventing infringing uses and avoiding naked licensing (licensing without quality control) of the mark.

Trade Secrets rights exist as long as the secret remains secret. Disclosure of the secret, even -through unauthorized means, can eliminate the trade secret.
Patent rights’ duration depend on the type of patent application filed and when it was filed. Design patents last for 14 years from the date the patent is granted. Utility patents filed before June 8, 1995 expire 17 years from date of issue or 20 years from date of filing whichever is longer. Utility patents filed after June 8, 1995 expire 20 years from the date of filing.

IP registration creates a formal government record of the asset. This record serves as proof of certain evidence in litigation, and is like a deed to the IP asset when a business is sold. Copyrights registration is not required for rights to exits, but is required to sue someone for infringement.

Trademark registration is not required for rights to exist, but provides numerous additional and important benefits that are only attainable through registration. Trade Secrets are not registered (as registration would reveal the secret, thereby destroying it). Patents are the only IP asset that must be registered for rights to exist.

EVERYONE DEALS WITH IP

The majority of our purchasing decisions based on brand names; everything we read is subject to copyright protection; we use patented inventions every day and we frequently drink or otherwise use trade secrets (such as the formulas to Coke and Pepsi).

HERE ARE SOME OF THE WAYS THAT THE PEOPLE IN YOUR COMPANY OR CLIENT’S COMPANY DEAL WITH IP:

Marketing
• trademarks (brands, taglines, slogans, logos).
• copyrights (logos, marketing collateral).
IT
• copyrights (source code).
Design
• trademarks (brands, taglines, slogans, logos.
• copyrights (logos, marketing collateral).
Management
• copyrights (company and product manuals, guidelines, plans and strategies).
• trade secrets.
• trademarks (promoting the company’s brand(s).
Research and Development
• patents (inventions, processes).
Sales
• copyrights (sales brochures, pitches).
• trade secrets (your company’s unique selling technique).

INTELLECTUAL PROPERTY – MANAGEMENT PROCESS

Patent Strategy Objectives

To obtain a comprehensive patent estate which covers the products the enterprise plans to sell and processes it plans to use. The object will be (a) to obtain broad, valid and enforceable patents covering current and potential products and processes with no holes in the coverage, and (b) to avoid piecemeal filing.

MANAGEMENT REVIEW OF INVENTION DISCLOSURES

Establish management review committees for each division or business segment to meet periodically (e.g., quarterly) to evaluate invention disclosures. Committee to have representatives from management with decision-making authority, Research, Development and Engineering,

Marketing and Sales and a dedicated Patent Attorney.
The Committee has four roles. The first and most critical is to rate inventions for value from multiple dimensions identifying those that are primary – requiring broad comprehensive patent protection. Next the Committee recognizes those inventions worth patenting but scope and cost are to be controlled within established limits.

Finally, the Committee decides on filings to be delayed pending further developments or not appropriate for filing patent application. This final role also involves recognizing intellectual property worth protecting in a different way such as trade secrets.

EMPLOYEE TRAINING

The Intellectual Property Department will hold periodic education sessions to ensure new employees are knowledgeable in intellectual property protect and to educate new hires. These educational sessions will be held no less than twice annually. The basic program will cover:

• Patents – how to recognize patentable invention.
• Trade secret – how to protect trade secrets.
• Copyright – use of copyright notices.
• Trademark – proper trademark usage.

The program will also communicate appropriate recognition tools encouraging the recognition of company intellectual property while supporting collaboration critical to the innovation process and without creating competition among inventors. The incentive program is specifically design to encourage the filing of invention disclosures.

RECORD KEEPING

Record keeping is critical given if litigation occurs all records can be obtained and often interpreted in ways unimagined by the inventor who wrote them. Hence being careful with record keeping is an imperative. Employee will receive notebooks for recording ideas, experiments, combined with an implementation system for numbering notebooks and controlling access to notebooks. Employees will be educated how to maintain proper invention records and will be tested periodically to assess continuing capability. Invention disclosure forms will develop and distributed to appropriate personnel for submitting ideas to management for consideration.

PROTECTION OF CONFIDENTIAL TECHNICAL AND BUSINESS INFORMATION

The intellectual property team will develop, implement and monitor procedures for protecting confidential information at each business facility (i.e., offices, production plants, warehouses, research/ engineering centers) and share this accountability with the local management team.
The program will be proactive and auditable using sign in/out requirement for all visitors including visitor identification tags, escorts complimented with limited access through monitored gates/reception areas
Confidentiality agreements to be signed by all employees with key employee signing more extensive confidentiality agreements that contain carefully drafted non-compete clauses. Confidentiality agreements with customers/suppliers will include forms that can be quickly prepared with minimal amount of information from the field. These will include but not be limited to the following:

• one-way agreement with information going out from company.
• one-way agreement with information coming into company.
• two-way exchange of information.

In each case the company representative managing the relationship with the external party will be responsible for determining whether standard secrecy agreements are sufficient or whether a more sophisticated joint development agreement is needed.

The Intellectual Property Law team will assist in this process as required. If other party makes improvements or inventions, based on company technology, joint development agreement required. Finally the Intellectual Property Law department will develop filing system (and possible database) for maintaining control of and access to confidentiality agreements.

FOREIGN FILING STRATEGY FOR PATENTS

Foreign filing activity begins with identifying the core countries for each division or business segment where business activity and local laws justify filing patent application. The management review committee will determine which cases are to be foreign filed – decision to be made 6-9 months after U.S. filing date. Committee also determines if invention warrants coverage in any countries other than the core countries. The filings will be carefully monitored to make sure patent coverage is sufficient and to eliminate foreign cases where business interest has waned.

COMPETITOR PATENTS

It shall be the policy of the company not to infringe any valid patents of any competitor supported by taking the following steps:

• Identify key competitors and/or technologies that are critical to the
company.
• Collect/review all patents that relate to such competitors and/or
technologies.
• Develop database for recording basic information concerning identified
patents.
• Periodically review patent literature for relevant patents and update
database.
• Competitor patents to be reviewed for impact on business plans and to
access new technology of competitors from a technological perspective as
well as a commercial perspective.

When adverse patents are identified, the appropriate invalidity/non-infringement opinions will be obtained, licenses sought, or design-arounds implemented with consultation from patent attorneys.

MONITORING OF INFRINGING PRODUCTS AND ENFORCEMENT OF COMPANY PATENTS

A review committee for monitoring infringing products and enforcing the company’s patents will allow salesmen/field personnel to be educated in identifying competitive products that may infringe the company’s patents. Enforcement of the company’s patents will include licensing and if need be litigation

LICENSING OF THE COMPANY’S TECHNOLOGY

Identify technology/patents that the company’s desires to maintain exclusively – these are not be licensed along with technology/patents that the company is willing to license. A team lead by the business unit’s designate, supported by the Intellectual Property Department and R&D will determine if licensing is appropriate and the business unit we assign value. The business unit designate with help for Corporate Law will negotiate licensing agreements. In general licensing agreements will consider exclusive/non-exclusive arrangements, geographic and field of use limitations and royalty rates.

TRADEMARKS

A survey will be conducted no less than annually identifying the inventory of all corporate trademarks for the purpose of identifying the trademarks considered to be most valuable to the company. This inventory will be used to obtain federal registrations to be obtained for all trademarks (including the corporate logo) deemed to be valuable. The most important trademarks are to be registered in foreign countries where business activity is significant or is expected to be significant for the products covered by such trademarks.
Guidelines regarding consistent use of trademarks to be established and distributed to label makers, advertisers, among others, will be monitored by the company for compliance and competitor trademark usage to be monitored for conflict with any the company’s trademarks. Official Gazette of the U.S.P.T.O. to be monitored for trademarks that may be in conflict with the company’s trademarks leading to oppositions to be filed in cases of serious conflict.

COPYRIGHTS

All literature published by the company, including advertisements, instruction manuals, packaging labels, and the like will contain proper copyright notice. The aforementioned IP protection process describes how patents, trade secrets, know-how, trademarks and copyrights will be managed. The following framework only considers patent IP since these are commonly the most extensive forms of protection and require the greatest investment.
A coherent IP strategy must be both multi-dimensional and customized supporting specific business outcomes. The intent is that one basic approach to managing patent IP can be applied across the business allowing for a separate approach needs to be employed for trade secrets, know-how, trade-marks and other forms of IP.

A COMPREHENSIVE PATENT IP MANAGEMENT SYSTEM MUST INCLUDE THE FOLLOWING ELEMENTS:

Industry Characteristics

• Relevance of IP in the industry.
• Degree of competitiveness.
• Innovation rate.
• Product life cycles.
• IP fit in firm.

PATENT ESTATE CHARACTERISTICS

• Patent intent – defensive, offensive, revenue generating, providing
negotiating leverage or supporting corporate image/brand.
• Patent strategies – single or multi-application portfolio supported by a
definitive filing approach – blanketing, fencing, surrounding, or
networking.
• Patent portfolio management – random, cost efficient, revenue
maximizing, integrated with business operations, visionary by creating
future opportunities and margin.
• Patenting tactics – aggressive, active, selective, passive or reputational.

PATENTING APPROACHES

• Aggressive – very serious competitive tool. Primary business goal is
extracting value from patents (e.g., IBM).
• Active – driven by large degree of competition, need for legal protection
and exclusion (e.g., specialty chemical industry).
• Selective – used where innovation is high and product life cycles short
(e.g., electronics).
• Passive – protect core technology, slow rates of innovation, high capital
costs and need freedom to operate (e.g., petrochemicals).
• Reputation – driven company’s image.

PATENT PORTFOLIO CHARACTERISTICS

• Size – the patent portfolio should be large enough and comprised of
relevant patents to enable cross-licensing if desired.
• Breadth – self-citations of strategic patents exceeds 20% indicates that the
“patent fence” has become effective.
• Velocity – time between granting of original strategic patents and patents
for follow- on technology. With shorter time frames desired.
• Momentum – refers to the growth trend of the patent portfolio in
numbers of patents. Building portfolios growth on average by 10%
annually.
• Claim quality and scope – refer to enforceability of the claims and breadth
of coverage per patent.
• Geographic reach – describes reach and should defend where the
business is located or anticipated.

PATENT INTENT – DEFINITIONS

Defensive intent – patent is used by a company to protect its own property against external competition in order to safeguard the developed technology and its commercialization. The patent is considered an effective weapon enabling the company to exclude competitors and secure as large a market share possible

Offensive intent – patent covers technology likely to be needed by, or is useful to, competitors, where creating value comes from product sales, licensing and/or from strategic alliances formed to reach new markets.

Increasing bargaining power intent – patent provides for a better negotiation positions for example in licensing agreements.

Imagine intent – patent is considered an instrument aimed at bolstering a company’s public image as a technologically strong enterprise.

Promoting intent – patent protection is often viewed as the decisive tool to secure sufficient payback for R&D investments, especially in an environment of increased national and international technological competition. Patents can be used as a means of encouraging employee creativity and as a form of recognition.

PATENT STRATEGY – ELEMENTS

Single patent strategy – the company protects its technology asset with a single patent.

Multiple patents strategy – the company defends its technological asset with multiple patents. The strategies can be classified as followed:

• Blanketing strategy – the efforts are made to turn on area into a
“minefield” of patents. This strategy is the less structured way of tracking
out multiple patents. In this strategy a company patents not only the base
technology but also peripheral and even unrelated technologies.
• Fencing strategy – is a more methodical approach of a “blanketing”
strategy where different patents are developed blocking certain lines or
directions of R&D (e.g. a range of variants of a chemical process).
• Surrounding strategy – a strategic patent is fenced in or surrounded by
other patents. The surrounded patent(s) are generally less important than
strategic patent, but collectively block the commercial use of patented
technology even after the core patent has expired.
• Networking strategy – a technological area is protected with a close
network of patents filings. This is a narrower form of a “fencing” strategy.

PATENT PORTFOLIO MANAGEMENT

A patent portfolio can be managed in different way according to the expectation that a company has about the contributions that his IP be making to the company’s goal.

• No criteria management – the IP is considered a legal resource, an
instrument to protect the company own technology but the management
of these assets does not follow any criteria. Having a very high number of
patents is the only guideline.
• Cost cutting management – a patent is still considered a legal instrument,
but the management is focused on reducing IP costs. Patents are useful
instruments to protect a company’s core business, but the company to
recognize that maintenance fees of patents are high and consequently
refine and focus both IP creation and portfolio to control costs.
• Revenue maximization management – a patent is considered not only a
legal instrument but a business tool, an instrument able to generate
additional income. So the management of patent portfolio is driven by
extracting revenue from licensing.
• Integration management – IP is embedded in the company’s day to day
operations and procedures. The focus is on IP not only as a legal and
strategic asset but is also supportive of the decision-making process.
• Visionary management – a patent is considered a tool to create
opportunities for future margins. The company tries to foresee future
trends and technologies and seeks actively to position itself as a leader in
this field by acquiring or development IP that gives them this position.

PATENT PORTFOLIO APPROACHES

Aggressive

An aggressive approach to IP means patenting represents a significant investment and is viewed as a competitive tool and a critical part of the business strategy. IP management is oriented towards supporting the decision-making process and is embedded in the company’s day-to-day operations. The management of IP includes evaluating the progress of innovations toward commercialization, re-evaluating the strategic importance of each innovation, generating new patents identifying the technological area in which new or more patents are desired. Patents become an important value driver with the primary business goal being extracting value from the patent portfolio.
This is a typical feature of high-tech (IT) firms. Patents are important tools because they:

• grant a monopoly right that prohibits others from commercializing the
patented technology without express permission from the patent holder.
• are important because represent a source of income, helping the
company finance measures to strengthen its competitive advantage.
• reinforce the bargaining power of patent owner.

Having a wide and strong patent portfolio is a useful instrument in negotiations or cross-licensing agreements and the mere existence of a broad portfolio can intimidate negotiating with the company. This strategy requires holding of a large number of patents leading to a blanketing patent strategy where each patent has a large blocking power but comes with high costs.

Active

Specialty chemical is an industrial sector where an active strategy is commonly employed in protecting its core business. A specialty chemical firm applies for a patent to safeguard the developed technologies and their commercialization, and to protect the R&D investment from competition. For a specialty chemical firm the patent is a critical asset. The specialty chemical industry is characterized by high innovation rates and strong, determined competition. When competition is significant specialty chemical firms choose a defensible and focused network of patent filings where the firm protects its basic inventions from outflanking patents and also covers possible future applications. In the specialty chemical industry patents can be considered an incentive system for research and development professionals. Patents are considered a critical means of driving revenues and creating profit.

Selective

Where industries are characterized by high innovation rates and short product life cycles, such as the electronics, the patent is considered as an instrument to spread know-how that will allow followers to copy the industry leader so trade secrets can be preferred forms of protection. Where patents are filed their purpose is to cover technological areas which are likely to be needed by, or are useful, to competitors. In this situation, the company files patents to block certain lines or direction of competitors’ R&D rather than enable sales. The IP activities are strategically focused, looking outside the company and into the future. To be effective, the company must be able to identify future trends of the marketplace and rival organizations and willing to use patents as bargaining instruments.

A company, having a selective approach to IP, is broadly focused on technologies that can be developed and patented in anticipation of some future use.

Passive

A passive approach to IP uses patents to protect its core technology and enable freedom to operate. A passive approach is characterized by a small patent portfolio but one with a high technological capacity, large blocking power and substantial economic impact.
This behavior is typical of a mature, slow growing industrial sector like petrochemicals. Its patent portfolio management is based on cost control and limiting coverage to well defined business areas. A review of selected patents will determine whether the company can terminate maintenance payments and still retain effective coverage.

Reputational

A reputation-based approach to IP management means considers patents as instruments to solely bolster a company’s public image. The number of patent filed is considered as a proxy of firm’s reputation consequently firms having this behavior adopt a blanketing patent strategy. But unlike aggressive approach, the patent can be the result of a modest investment. Companies with a reputation-based approach do not follow any criteria in IP management but hopes that by creating a large number of patents it can appear as a technologically strong enterprise. Having a very high number of patents is the only guideline of this IP management.

PATENT PORTFOLIO CHARACTERISTICS

• Size – the patent portfolio should be large enough and comprised of
relevant patents to enable cross-licensing if desired.
• Breadth – self-citations of strategic patents exceeds 20% indicates that the
“patent fence” has become effective.
• Velocity – time between granting of original strategic patents and patents
for follow-on technology. With shorter time frames desired.
• Momentum – refers to the growth trend of the patent portfolio in
numbers of patents. Building portfolios growth on average by 10%
annually.
• Claim quality and s cope – refer to enforceability of the claims and
breadth of coverage per patent.
• Geographic reach – describes reach and should defend where the
business is located or anticipated.

CURVEBALL STRATEGIES: ADDITIONAL WAYS TO PROTECT YOUR TECHNOLOGY1

Success in the marketplace is ultimately achieved by winning customers, not by defeating competitors. No matter how tough or clever you are, you have to deliver products or services, that customers value. After all, competitors eventually will catch on to the curves you’re throwing and adjust their moves in response. Strategic hardball-playing rough and tough with competitors employs smart strategies to defeat rivals. Strategic curveball, outfoxing competitors, can be just as effective in vanquishing the competition.

AN EFFECTIVE CURVE WILL GET RIVALS TO:

• Do Something Dumb that they otherwise wouldn’t have that is, swing at a
pitch that appears to be in the strike zone but in fact isn’t, or
• Not Do Something Smart that they otherwise would have failed to swing
at a pitch that appears not to be in the strike zone but in fact is.

HERE’S HOW TO THROW FOUR TYPES OF CURVEBALLS
Draw your Rival Out of the Profit Zone. Lure competitors into disadvantageous areas, for example, by competing for, but intentionally failing to win, the business of less profitable customers. In a classic curveball move, Ecolab adopted a pricing strategy that helped Diversey win-to its detriment-these seemingly attractive customers: It priced its bids to small independents high enough to lose to Diversey but low enough to keep pressure on Diversey’s margins. Meanwhile, Ecolab focused on big chain accounts, which, although they commanded lower prices and were more difficult to acquire, were cheaper to serve. The high volumes they purchased generated economies of scale, and the number of outlets involved meant they were less likely to switch suppliers. Ecolab priced aggressively to win this business. The result was gross margins that, if the prices were matched by Diversey, would wreak havoc on its high-margin strategy.

Employ unfamiliar techniques. Knock rivals off balance by importing a technique used in another industry, for example, employing the retailer’s hard sell in the stodgy world of retail financial services. The financial institutions mainly sought to keep costs down while preserving their market share and margins. Their one area of major investment was in customer relationship management techniques and technologies, designed to load up existing customers with ever more complicated products and product extensions in the hope of squeezing the last bit of profit from their wallets. Hornby used the brash marketing and merchandising tactics of a retailer to challenge the incumbents.

Between 1999 and 2001, when the Halifax merged with the Bank of Scotland to become HBOS, the institution set for itself a goal of having the “best deal on the street” – an aim more reminiscent of Best Buy than Barclays Bank. It offered attractive deals including interest­ bearing checking accounts and aggressively priced credit cards and loans that weren’t tied to holding a mortgage with the bank. HBOS also ran its branches as retail sales outlets. They were remodeled to resemble High Street retailers, and the conversion of the branches went beyond cosmetics. Managers exhorted the staff to close sales and rewarded them when they did. Incentive compensations, nearly unknown in the UK retail banking industry, further boosted lead generation and drove sales productivity to three times that of some rivals.

1 “Curveball: Strategies to Fool the Competition”, Stalk, Jr. George, HBR September, 2006.

In another parallel to the retail business, computer systems generated prompts for sales staff to use when interviewing prospective customers and provided back-office support from product IT systems Specialist and point of sale expertise allowed sales people to make immediate decisions on, say, a loan application and reduced the after- sales administrative burden of the sales team. Today, HBOS is the largest and one of the most profit­ able retail banks in the UK, and it is growing at double-digit rates in overall revenue, revenue from new business, and profits.

Disguise your success. Veil your success by achieving an advantage through unlikely means- for example, generating product sales through your service operations. One way to throw competitors off balance is to mask high performance so rivals fail to see your success until it’s too late. For example, you might drive sales through your service organization, making service technicians de facto sales representatives, effectively transforming a cost center into a profit center.

In the late 1990s, two companies, MedicTec and DiaDevice, not their real names, were in the business of designing, manufacturing, selling, and servicing a wide array of medical diagnostic equipment, ranging from $15,000 desktop devices to $6 million electronic behemoths that fill entire rooms. DiaDevice, the industry leader in a white coat was following them and, finding it hard to imagine that a doctor would be interested in this review, asked the engineering head about the interloper. The man turned out to be a service technician from DiaDevice, which had only a few pieces of equipment at the hospital. The real surprise, though: The technician was as­ signed to the site full time.

This didn’t make sense, Allan said to himself. MedicTec had significantly more equipment at the hospital but could never afford to dedicate a service technician to a customer of this size. Granted, providing a rapid and effective response to equipment problems was particularly important for DiaDevice as it strove to gain customers in North America.

But with service costs totaling between 15% and 20% of revenue at a company like MedicTec or DiaDevice, you didn’t want to provide more service than was needed to keep a customer satisfied. Sophisticated algorithms for service scheduling, which took into account such things as the cost to customers of service interruptions, determined optimal service levels and guaranteed that “over-servicing” wouldn’t occur. Standard industry algorithms would certainly not have justified a full-time service representative at this hospital.

But Allen was curious. Back at the office, he pulled together data on customers for whom many did offer a dedicated service engineer. Those customers were typically in major cities with high customer and equipment, density customer and equipment, density, places where service algorithms had indicated that a full-time service technician was cost-effective. Allen’s review initially uncovered no surprises. Although the sites with dedicated service technicians had lower equipment downtime rates and higher customer satisfaction scores, the differences weren’t significant. The algorithm apparently was working, keeping service cost low across the company, with no serious decline in customer satisfaction.

Digging deeper, though, Allan saw that service contract renewal rates at these locations were roughly twice the national average for a medic tent customers, perhaps not Europe, was increasingly gaining market share in North America. MedicTec managers were convinced that DiaDevice was buying its way into the market with low­ ball prices and that the only way to meet the challenge was to out-hustle the newcomer on the sales front.
MedicTec’s service chief, Allan, decided to undertake his own evaluation of the problem. Breaking away from the demands of headquarters, he began a round of customer visits. At one site, the largest hospital in a midsize Midwestern city, Allan toured the facility with the hospital’s head of engineering, stopping at each piece of MedicTec equipment to discuss its operating strengths and weaknesses.

Perhaps not surprising given customers’ satisfaction with the service they received. But that wasn’t all: New equipment sales at sites with a dedicated service technician were also about twice the national average for MedicTec customers. Subsequent conversations with these customers revealed that MedicTec’s on-site service engineers didn’t only generate customer satisfaction and goodwill, many engineers pitched in to repair rival suppliers’ products when they went down. They also tended to boost new equipment sales by influencing a hospital’s request-for-proposals process.
Who better to provide input into the request for proposal (RFP), the hospital’s purchasing team would reason, than an on-site technician who knew the strengths and weaknesses of all the equipment installed at the hospital, whichever the supplier, and who knew how best to fill gaps or extend the institution’s capabilities to meet growing needs?

This clearly was what DiaDevice had set out to do, not in big hospitals where MedicTec already had dedicated service technicians, but in the second-tier hospitals where MedicTec had determined that on-site service wasn’t cost-effective. Here, DiaDevice was gaining share in both service-contract renewals and new equipment sales, virtually unopposed by MedicTec. It wasn’t easy for Allan to convince his colleagues that MedicTec should place full-time technicians at the sites of customers ripe for poaching by DiaDevice. MedicTec’s investment criteria were heavily driven by cost-oriented savings.
In the company’s culture, it was better to place your bets on cost reduction, where you could control the game, than on growth or marketing, where the numbers were hypothetical and success depended on others. Only when Allan was able to predict accurately at which sites MedicTec would lose share in both service-contract renewals and new equipment sales did the company respond to DiaDevice’s stealth sales moves.

Stealth sales can be exploited in industries where field service is an important element in customer satisfaction and is a large portion of a supplier’s cost structure. Such industries include aircraft engines and components, mass storage devices, factory equipment, and process automation systems. The key is to determine the effect that more customer service will have on service contract renewals and follow- on sales, particularly of new products where successful ramp-ups are critical to achieving deep customer satisfaction.
Let Rivals Misinterpret Your Success. Allow rivals to act on a conventional but incomplete explanation for your success, for example by squeezing costs rather than aggressively utilizing assets. We look at a successful company and we understand why it’s successful, or at least we think we do. Buzz about the firm’s innovative strategy spreads through the industry. Business media pick up the story and retell it from every angle. Before long, competitors and non-competitors alike are trying to emulate the company’s moves, which have taken on the mystique of media and business school legends.

Often, the conventional assessment is wrong, or at least incomplete. A successful company can sit passively by as his rivals overlook key source, or even the key source, of its outstanding performance and stumble in trying to replicate it. A rival smart enough to see all elements of the strategy, though, can realize similar success, nailing the curveball for a home run. Look at the recent history of low cost airlines. To meet the competitive challenge posed by startups such as Southwest, major carriers launch their own low-cost operations. Most of those initiatives (think of Continental Light, Delta Song, US Air’s Metro, and United’s TED) have enjoyed less than stunning results. That’s because most big carriers failed to appreciate and implement one of the key drivers of newcomers’ outstanding performance.

Most of the elements of Southwest’s strategy are available for public scrutiny: One aircraft model for the fleet, low landing fees at out-of-the-way airports, low training and labor costs, no pension obligations, and -most conspicuously, minimal in-flight amenities provided by fun, loving flight attendants dressed in Bermuda shorts. This view of Southwest’s sources of success is accurate but incomplete.

The curveball Southwest threw its competitors and ultimately the industry is a strategy of extreme asset utilization. The company uses a production-oriented approach to scheduling, with the goal of keeping planes in the air as much of the time as possible. Traditional carriers, on the other hand, typically have a customer-oriented approach to scheduling, one that will tolerate a plane remaining on the ground for, say, 20 extra minutes in order to pick up connecting passengers or accommodate business customers’ preference for top-of-the hour departures. Southwest structured its operations around being able to turn its planes at the gates within 20 minutes and get them flying again. This was a much faster turnaround time than legacy carriers’ typical 60 to 90 minutes at the gate. By keeping its planes in the air 20% to 30% more hours, Southwest achieved higher asset utilization rates for both aircraft and employees.

Southwest’s point-to-point route network also enhanced asset utilization. In the hub- and-spoke network of most traditional carriers, a plane arriving late to a hub typically results in three planes being late leaving the gate, with at least six pilots and nine to 12 cabin attendants experiencing unplanned downtime. A late plane arrival in a point-to-point network affects the utilization of just one plane, two pilots, and three cabin attendants. The high asset utilization model is at least as important to Southwest’s success as its reduced labor costs and bare­ bones customer service. As asset turns increase, the prices required to maintain the return on assets can be reduced, which leads to lower fares, fuller planes, and, completing the virtuous circle, even greater asset utilization. As Southwest knockoffs appeared around the world, AirTran and JetBlue in the United States, Ryanair and Easy ]et in Europe, Virgin Blue in Australia -most legacy carriers failed to see the significance of asset utilization to the effectiveness of Southwest’s strategy or were unable to escape the traditional approaches of their base businesses to emulate it.

IMPORT SUCCESSFUL BUSINESS MODELS

Competitive practices from another industry are most likely to succeed in slow-growing businesses with established supplier-customer relationships and stable market shares. In such cases, the industry participants are comfortable with their business models. Their cash flows are predictable and come from a core group of customers that they approach using sophisticated methods honed over time in well-defined ways.
In such a setting look around for strategies that have worked in other industries where this is the case and ask, “Why not try that here?”

WHERE CURVEBALLS COME FROM

The opportunities to throw your competitor a curve are everywhere. We have described four in this article; there are many more. But how do you identify such opportunities? The best way is to look beyond the “averages”. We manage our lives and our businesses using aver­ ages. If we didn’t, we’d be so overwhelmed with information that we couldn’t manage at all. But this approach masks a gloriously rich world. As soon as we choose an average on which to make decisions, we cut ourselves off from more detailed information that could lead to insight affecting our decisions and our results. The insights that led to the curveball strategies discussed here can be traced to looking beyond the averages: Making marginal customers seem attractive. Income statements and balance sheets are infested with averages. Dig beyond the aggregation of accounts and look for out­ lying patterns in such areas as the cost to serve a customer or pricing by account size. When you do, you are likely to find new ways of looking at the business and its customers that were disguised by the aggregation of accounts. Chances are if you have been misled by the aggregations your competitors have been, as well.

IMPORTING BEST PRACTICES

The most egregious form of averaging is “industry practice!’ When confronted with this standard way of doing things, look for an industry or industries where the practices are different.
Don’t let yourself be discouraged when people point out that there are good reasons why effective practices from one industry won’t work in yours; that attitude makes companies more susceptible to a curveball strategy.

STEALTH SALES

Ask an executive what his company’s market share is and the answer will usually be an average. Drill deeper to determine the figure by account or by different service and sales force deployment models and you will see the data begin to scatter. In the scatter pattern between the best and the average results, it is very likely you will be able to identify new strategies for increasing market share that you and your competitors have missed.

EXTREME ASSET UTILIZATION

The relevant, but ultimately unasked, question over the past decade or so has been: “How can low-cost airlines charge so much less than the savings from cutting costs suggest possible and still be so much more profitable and faster growing?” If the executives of legacy airlines looked more closely at their performance data they would see situations when ground time for aircraft and crews is minimized when airplanes and crews consistently make it back to home base at the end of the day -in which asset utilization is much higher than average.

By dissecting asset utilization as a function of variables that drive that utilization, one can begin to see the outlines of a new way to run a business. Looking beyond the averages often yields new strategy and operational paradigms that help senior managers make better decisions and ensure they are acted upon on a day-to-day basis.
By contrast, if competitors settle into managing the averages, they will not immediately, or even for an extended period, see the curveballs they are thrown.

Summary

Before you can protect your company’s IP, you must identify it. Talk to your employees and take an inventory of any creative works (copyrights) your company owns, whether such works are used internally or sold to others. Determine how your company identifies and distinguishes its products and/or services from those offered by others the marketplace (through use of trademarks). Figure out whether your company has any secrets that give it a competitive edge, and whether it has invented anything that may be eligible for patent protection. Don’t forget to make sure that you have permission to use the names, images or likeness of all persons in your marketing collateral and on your company website, etc. Then, contact an intellectual property attorney to make sure that you did not miss anything and to help you through the registration process. Every hour of every day each of us deals with one or more forms of intellectual property. We deal with it at home, at work and during our free time. Every time we buy something we deal with brands (trademarks). Almost everything we read, listen to or watch is protected by copyright. Daily, we use inventions that are or were protected by patents.
And every time we have a Coke or Pepsi, we are drinking something whose formula is a heavily guarded trade secret. Each one of us also has a right of publicity, which allows us each to determine how our name, image or likeness is used for profit. As a business owner, employee or lawyer, the first step is learning how to identify your company or client’s valuable intellectual property assets so that you can take the next step to protect these assets, including the following:

• Copyrights are creative works of expression, such as artwork, photography, graphic design, music, text, source code, architectural works and boat hulls.
• Trademarks are what businesses use to identify and distinguish what they offer in the marketplace from that which is offered by others, and includes brands, logos, slogans, and taglines.
• Trade Secrets are business secrets that are not known, nor easily learned, by people outside the company.
• Patents are unique inventions, designs or processes.

Beyond these forms of IP there are less obvious, but equally important, form such as intimate relationships with members of the value chain including customers and suppliers, obtaining proprietary approvals for the company’s offerings, regulatory actions that support the company’s position among others intangible forms of IP like the company’s reputation in the market etc. These can be critically important when employed in the context of the business because they’re asymmetrical favoring the company over its competitors in ways that are hard to defeat but tend to be situational and managed separately. As part of the employee education process, these will be discussed with examples.

Critically protecting intellectual property is every employee’s job with the Intellectual Property Legal Division insuring that employees are property educated and monitoring systems are in place for policing the firm’s intellectual property while partnering with the business in creating an effective strategy that’s effectively implemented.

Finally, the firm should consider “Curveball Techniques” to confuse competitors as a stealth approach to protecting the firm’s business interests.