The fundamental business rule says that "If you want to be first – outstrip your competitor".
Leading business managers in different countries assert that, to build a strong and competitive company with sustainable development, one has to choose a correct business management strategy. In Bill Gate's words, "to be a market leader, you have to move fast; otherwise you will fail. Remember that customers need premium quality goods, at low prices, and fast…" (1)
What does business management mean? Business management is a selection of steps determining the character and direction of an entity's activity focused to achieving maximum prformanc in market competition conditions. Bear in mind that even in relatively stable markets your competitive edge is erratic. The chances that you will keep your competitive edge intact for long will dwindle. Its stability now depends more than ever on factors beyond your control. There is always the threat that your competitors will outstrip you before you will even come to be aware of this.
According to business management consultant and author Jean Collins, to be a market leader one has to set for himself "big, hairy and bold goals". Do not limit yourself to accounting for the past or current market condition. One should anticipate the market direction and learn how to build a business to account for short and long-term changes in market conditions. The competitive edge of a strong company builds on offering a finished product or all-round service to any extent – from a customised unit product to a maximum volume of products 365 days a year, 7x24.
Business profitability is known to depend on making competitive products and offering higher quality goods and services. This can be achieved only by using new technical solutions in the manufactured product. But prior to patenting the chosen technical solution, one has to study all available information to determine the product development trends, and make sure that the product being developed does not infringe third-party patents.
At the same time, measures should be taken to protect one's own product by patenting it.
This calls for a well-developed patenting strategy and a clear awareness of the risks for the applicant on the thorny path of developing a new product.
Patenting to be first
Hence, a key element of business management in a competitive environment is meeting the following requirement: "Patenting to be first". This calls for developing a strategy for patenting intellectual property (IP) and persistently following it in all business activities.
The goal of patenting is creating a steady position of the manufactured product in the chosen segment of the goods and services market. However, patenting as such must not and cannot be an end in itself for the organisation. A crucial factor is the proper application of the granted patent in the strategic interests of the developing business.
Here is what foreign analysts and consultants Mike Freedman and Benjamin Tregoe said on a successful choice of a patenting strategy: "We worked with an electronics company who was the first in the 1960's to develop a radio pager. At that time, it was a technological breakthrough. Eventually, the company nonetheless was bogged down on strategy issues of their own development because they could not identify the invention's area of application. Such companies as Motorola and Sony, without a second thought, snatched the technological leadership from this small company and used the invention with success." (2)
As a rule, owning rights in IP, including inventions, utility models, industrial designs, trademarks, computer programs, know-how and other results of intellectual activities provides for several lines of their commercial application.
Patent law that extends to inventions, utility models, industrial designs, and trademarks ensures monopoly rights of using them in the territory of Ukraine, or in any other country provided a patent has been granted in a specific country. Patent law is prohibitive, meaning that it provides a patent owner the right to prohibit third parties the application of a patented invention, utility model, industrial design or registered trademark. Accordingly, it can allow the use of IP subject-matter on a contract basis.
Computer programs, know-how and other subject-matter protected by copyright are also IP pursuant to Article 41 of the Law of Ukraine On Property (3). They can be used in both proprietary production and evaluated by their owners and placed on the balance sheet of the enterprise or sold to third parties.
Inventions and know-how are valued worldwide as a commodity that can be transferred or sold to an interested third party. These procedures, as a rule, are based on a license agreement providing for all aspects and terms and conditions of transferring engineering documentation or patent rights. Using an invention in one's own production ensures unique consumer qualities of a product. It allows pricing it higher and protecting one's own market sector from the competition. However, such a strategy of commercial application of an invention is suitable, mainly, for enterprises and organisations having big production capacities commensurable with the market capacity of the given product. Therefore, big monopoly companies who strive to limit the competition in their market segment, as a rule do not sell licenses for manufacturing products they produce themselves. For example, the Swedish company Alfa Laval whose core business is food industry machine-building scarcely sells licenses. Certainly, some Ukrainian manufacturers, primarily those in the military-industrial complex, are not interested in disseminating their technologies, and attempt to maintain their priority positions in the market of their products.
At the same time, transferring rights to IP subject-matter and selling licenses is attractive for enterprises and organisations with small production capacities who are involved in developing innovative products. In this case, the patent owner, as a rule, is interested in selling one's invention in the licenses market if the expected income from selling a license will be higher than if this invention is used in own production.
On exploitation of IP in business management
The most keen business managers in Ukraine are known to utilise effectively their IP to increase their own share in enterprise assets by increasing their company's authorised fund. Their contribution consists in IP patents owned by the founders, thus enabling to determine their stake in the organisation's authorised fund, and accordingly, their share in the distribution of dividends.
Other options of using IP in business management are also known.
For example, a group of creative-minded professionals headed by their director worked at a Kharkiv enterprise, which is now registered as a public company. The result of their creative efforts was a patentable invention. With the consent of the entire team of authors, it was patented in the name of the director who became the patent owner.
The invention turned out to be a commercial success. The products developed by using this invention were in big demand. The enterprise purchased a license from the patent owner for use of the invention and launched batch production of this product with a substantial revenue. All the authors received an adequate cash award, and the director acquired control of the enterprise without any extra cost of purchasing a controlling block of shares.
This situation shows that owning IP in present day conditions enables controlling significant production assets for long because an invention patent term in Ukraine is 20 years, provided it is maintained annually. If the invention has a dramatic effect on the production process, whilst production re-equipment, especially in current conditions, is a challenge involving huge capital investments, then patent exploitation can provide control over an operating business and yield income for the patent owner even after the owner has terminated labour relations with the enterprise.
Another way of commercialising IP in the interest of business management is to place it on the enterprise balance to optimise taxation on legal grounds.
Yet another way of exploiting IP for business management and boosting sales is ensuring the competitiveness of own products in the external market, in particular, the EU one. In this case, when an enterprise is entering an external market, the IP subject-matter should be patented abroad to ensure a competitive edge for the imported product. A decision on foreign patenting must not be shelved. In spite of the one-year term afforded to the applicant by the convention priority provision for patenting in other countries, practice shows that an applicant, as a rule, lacks the time needed for timely selection of countries for further patenting of one's invention. The inventor recollects suddenly in an attempt to catch the departing train and thus bears extra costs, or loses the invention priority. Bear in mind that, upon expiry of 12 months from the application filing date, irrespective of whether a qualifying examination (as to substance) was conducted or not, the inventor's right to filing an application in another country with the initially assigned priority is cancelled. A well-reasoned applicant's strategy for further patent promotion is most effective for achieving goals in protecting the chosen patented subject-matter in both the primary application filing country and abroad.
Hence, developing a patenting strategy is a key component of business planning and management. Take heed that, in market economy conditions, the competition is always on the move. The finest companies are continuously improving their business management system by patenting all manufactured products and production processes, and are busy doing this every day. Therefore, if you are facing the task of developing business and increasing its effectiveness, an important aspect of addressing this problem is developing a strategy for patenting IP.
- Gates B. Business at the speed of thought, M., Eksmo Publishers, 2003, 480 p. (Transl. into Russian)
- Freedman M. and Tregoe B. The art and discipline of strategic leadership: New approach to corporate management, M., FAIR-PRESS, 2004, 272 p. (Transl. into Russian)
- Law of Ukraine "On Property" of 07.02.1991 No. 697-XII