Your new product makes the “nifty fifty” list of innovative new product introductions; you envision your picture on the cover of Fortune magazine; and then….you end up in legal battles and with little money. Here are some lessons learned from one company as it tried to capitalize on its innovative new product. For the sake of clarity and confidentiality we will call the company “Nifty”.
Nifty Fifty – Patent Protection
The product was an ingenious new way to make engines more efficient in the transportation industry. The good news was that the new product included a revolutionary new technology and the Design Patent awarded was a strong one; so it was harder to develop “work arounds”. If one is patenting just a “methodology”, it is easier to get around it by changing a step, but still getting to the same result.
Identify a Niche Market to Get Started
Nifty knew it did not have the wherewithal to gain traction in a large market, so it introduced its product in a smaller market, the aftermarket, a market that was not dominated by a few large players. Good news – it was successful, but the company knew that it was only capitalizing on a small amount of its product’s potential. Now that the company had some success, it looked for partners who could help it move into other larger markets. The partners would:
1. Have capital available for the infrastructure needed for larger scale production.
2. Have a significant position in a specific market or markets.
The Tale of Three Partnerships
1. The first partner saw the benefit of the new product to its market place, but when sales took off for its core product base, Nifty’s product sat on the shelf because their partner’s dealers had neither the time nor the financial incentive to push the new product. Sales were lackluster with this partnership.
2. The second partner was a large engine manufacturer, an industry leader, who desired an exclusive arrangement to keep their competitors from having this differentiating product. The license negotiation process produced a high-level product champion within the partner and both companies prospered under the agreement. Later, the product champion was reassigned and not replaced – this did not bode well for Nifty’s relationship. Next, the second partner decided that they no longer wanted to cut royalty checks. Nifty was stuck with no money and an exclusive arrangement. What next? You guessed it – a legal battle.
3. The third partner was a competitor to the second partner and was more than willing to foot the bill for the ensuing legal battle. Nifty, with the help of their (third) partner’s financial backing, won the suit. The good news was that there was a sizable financial settlement and the exclusivity agreement with the second partner was no longer in force. A licensing agreement was then executed with this third partner. Now, you would think the company was finally in partnership heaven. But not so fast, this time the licensing negotiation was completed with no clear product champion in place. As a result, the company did not get the financial and competency leverage that it had anticipated, and over time this third partner decided to stop paying the agreed upon royalties, believing that they were no longer necessary due to a loophole in the intellectual property licensing agreement. Off to do battle again on the legal front.
1. Have a strong patent. This legal protection is your first line of defense. Without this, a strong market player can simply reverse engineer your product and take advantage of the opportunity, leveraging their infrastructure and market position.
2. When selecting a partner make sure:
a. You have a sense of how they do business. Do they have integrity when dealing with their other partners and suppliers or do they have a long history of legal battles?
b. They assign a product champion who understands the value of what you bring to the table and how their company can benefit from its use. This person needs to rank high on the integrity scale and have power within the company and, ideally, will have “skin in the game” by having been instrumental in making the licensing deal.
c. You develop a tight intellectual property agreement. Time to spend some money for an expert in the IP field, because you can bet that your partner is investing their money to ensure that their interests are protected – so make sure that you are using an expert who will protect your intellectual property because he/she knows IP and your product.
d. If you decide to sign an exclusive arrangement, make sure there are designated time frames, minimum performance requirements and geographic and industry boundaries.
e. You know where you stand in your partner’s priorities: is your partner’s business growing like gangbusters causing its salespeople to focus on other high growth products? Will your product get the time and attention it deserves?
3. Stay in the market: Nifty stayed in the aftermarket segment and this gave it a better position as its various partnerships faltered. Nifty still had sales and it still had manufacturing capabilities. These actions allowed them to have more leverage than if they had simply given up all their capabilities when they signed the various partnership agreements.
Having a great new idea is less than half the battle in launching a new product. Developing a plan of how you will produce, distribute, generate demand for your product and finance the whole process is a key milestone to your success. Be sure you have your plan in place before you go to market. Be sure it recognizes whether the potential market is “right-sized” for your resources. Start documenting your steps early in your product development process to make the patent application easier to file in a timely manner and stronger by virtue of your proprietary “art.” A partnership agreement may well provide you with the infrastructure and market access you need, but be sure to develop these agreements with your eyes open. Then keep your eyes open even after the agreement has been implemented for signs that a powerful partner is becoming greedier.
If you have had experience with launching new products and would like to add other issues that should be considered, please comment on our blog.
If you would like to read more about new product ideas and where to find them please click here.
Denise Harrison is Executive Vice President and COO of the Center for Simplified Strategic Planning, Inc. She can be reached at firstname.lastname@example.org.
© Copyright 2012 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.