September 26, 2014 Customer-focused Innovation and What to Get Right

Volume 17 | Issue 7

The need to quickly uncover and react to customer demand, leaves manufacturers scrambling to protect intellectual property, define relations

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Next-generation manufacturing (NGM) is becoming a huge driver for forward-thinking companies. From employing entirely new materials to streamlining processes, manufacturing improvements are showing the potential and likelihood to transform marketplaces.

A critical facet of NGM is customer-focused innovation. Customer-focused innovation involves (1) developing, manufacturing, and marketing new products that meet customer needs at a faster pace than the competition; and (2) a focus on inserting the “voice of the customer” into the design process to better capture customer expectations and preferences.

This article addresses three main areas for the customer-focused next-generation manufacturer: (1) seeking intellectual property (IP) protection, (2) implementing the right technology and supplier agreements, and (3) leveraging and using Big Data.

First, the next-generation manufacturer needs to protect the IP that it develops. The IP often represents the most valued asset in a technology-driven company, so companies need to keep focus on building a strong IP portfolio. Steps a company can take include:

1. Protect your innovations. Customer-focused innovators appreciate the critical nature of bringing to market products and services that customers want. Companies need to track their innovative processes and resulting products, and seek to build legal fences protecting their innovation as quickly and widely as possible. Patent protection demonstrates the true novelty and technical advancements of the company’s products.

For customer-focused innovators, achieving patent protection on a fast track can deter unwanted competitors from jumping in as soon as the latest products are being introduced. The U.S. Patent and Trademark Office (USPTO) has adopted programs that companies can employ to obtain patents in under a year. Quick wins at the USPTO demonstrate the validity of a company’s technology, show differentiation in the market, and provide a protected path for the first mover. Companies can use other tools such as continuation applications in front of the USPTO to slow down encroaching competitors.

Companies also need to protect their inventions in the key markets around the world to provide leverage against competitors that may have a greater market share somewhere else.

2. Foster intelligent innovation. Create an environment that encourages engineers and other creative groups to seek IP protection at the earliest possible point in the innovation process. Regularly review concepts submitted by engineers to determine what might be eligible to protect, conduct brainstorming sessions that look at the market downstream, and offer rewards for obtaining issued patents.

Technology Agreements
Well-drafted technology agreements are critical to customer-focused innovation. They clearly define the participants’ rights and obligations on vital issues. Establishing the ground rules in advance of collaboration can prevent the significant expense and time commitment often required by later efforts to resolve disputes.

Simple technology agreements have a place in customer-focused innovation. They often will be one-sided and provide a bright-line, simplistic disposition of rights. Simple agreements tend to be used more frequently with end consumers, rather than with customers that are manufacturers or resellers.

For customers that are manufacturers or resellers, however, it likely will be necessary to establish more elaborate and sophisticated technology agreements that govern the relationship and provide value to the participants. Based on the participants’ market positions and the expected contributions to the collaboration, the technology agreement should address the structure of a joint coordinating team, the expected time commitment, the distribution of costs/compensation, the expected deliverables and timing, any reviews or approvals, regulatory compliance, exclusivity of the relationship, permitted use of third-party services, and the future supply relationship.

1. IP ownership. Ownership of IP can be a barrier to participation in collaborative innovation if the potential participants adopt a winner-takes-all approach. A company conventionally will demand ownership of all IP related to its products and services. This remains a preferred approach, if reasonably achievable. However, it cannot be the only approach if the parties’ diverging positions will prevent them from reaching agreement on the ground rules for the collaboration. Companies that are prepared to explore alternate approaches to IP rights will often reduce impediments to collaborative innovation.

For example, it may be unnecessary to demand IP ownership in areas of fast-changing technology, where the benefit of IP ownership may be small in comparison to the first-mover advantage resulting from access to innovation. It may be sufficient to receive a sole and exclusive license in your field of use, thereby ensuring that you will be the only entity entitled to use the innovation in your market.

2. Indemnification. Indemnification is another area of complexity in a technology agreement. Indemnification is essentially a risk-shifting exercise. Depending on the relationship between the participants and other circumstances, it may be entirely appropriate for risk to be shifted from one participant to another. For example, if you incorporate a customer’s innovation into your product for supply to that customer, it may be appropriate for you to seek indemnification for IP infringement to the extent of the customer’s innovation. Beware of indemnification obligations that are subject to a limitation of liability in the agreement, which can greatly affect the value of the indemnity.

Big Data
There is much discussion of the importance and capability of Big Data to support business innovation. For this discussion, we will define Big Data as a process to identify factual insights to improve business decision-making. The process is enabled by people and technology that allows for the rapid analysis of huge volumes of varying types of data (both from traditional data bases as well as unstructured data, from sources such as email, Twitter, and Facebook).

As it relates to customer-focused innovation, Big Data offers manufacturers unparalleled insight into what their customers want in the products they buy, how they use them, and when they need them. A recent example of a next-generation product that uses Big Data is a basketball produced with sensors that provide direct feedback to the user regarding the arc, spin, and speed of release of the player’s shots. While the player is receiving instant feedback and even “coaching” from the app on his or her iPhone, the app is also sending all of this data to the manufacturer relating to the frequency and duration of use, places the user frequently plays, and the impact of weather conditions on the performance characteristics of the ball. Regardless of how, or whether, the manufacturer uses these insights, Big Data offers manufacturers the unprecedented ability to interact with and obtain multiple types of feedback from users to fuel further targeted innovation.

Big Data’s many attributes — such as its targeted and detailed feedback, speed, and relative low cost as compared to traditional research models — ensure it will continue to grow as a bedrock of corporate decision- making and key consideration in product innovation. Despite this unprecedented access to insights, manufacturers must be aware that just because they can extract certain insights does mean they are entitled to or can use the results. The ability to extract useful information from and the availability of data is quickly outpacing the development of applicable laws and regulations in this area. Nevertheless, laws do exist that govern the rights to access certain data and how a manufacturer can use such data.

Our point here is not to pour cold water on the value of predictive analytics, but simply to raise awareness that the exuberance over its use must be tempered with an understanding of the existing legal and regulatory restrictions on the use of such data.

Pavan K. Agarwal is chair of the Intellectual Property Department at Foley & Lardner LLP. He practices in various patent law areas, including patent litigation and licensing, as well as opinions and prosecution. Mr. Agarwal represents numerous high-tech clients, with a focus on electronics and automotive technology companies. He has extensive experience representing manufacturing clients in several patent-heavy U.S. Federal Districts and the International Trade Commission.

James R. Kalyvas is chair of the Technology Transactions & Outsourcing Practice at Foley & Lardner LLP. He is also a member of the firm’s national Management Committee and serves as Foley’s chief strategy officer and co-chair of the Privacy, Security & Information Management Practice. Mr. Kalyvas advises companies, public entities, and associations on all matters involving the use of information technology, including structuring technology initiatives, vendor selection, negotiation, technology implementation, and enterprise management of technology assets.

Andrew E. Rawlins is vice chair of the Intellectual Property Department at Foley & Lardner LLP. He has more than 25 years of experience in the patent field and previously served as a patent examiner at the United States Patent and Trademark Office. Mr. Rawlins focuses his practice on strategic business counseling on patent issues, including a focus on patent procurement and portfolio management, technology agreements, and opinions on validity and infringement.

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