Intellectual property (IP) is a product of the human mind. IP is recognized under the law as the fruit of invention, authorship, discovery, and education that most businesses call “innovation”. IP rights are the property rights associated with innovation. A business’s competitive advantage is directly impacted by the shared or proprietary nature of those IP rights.
How does a business decisionmaker determine the intellectual property they should invest in to protect?
Oftentimes the biggest challenge for the small and medium sized business is how to determine which of their IP rights they should protect and be willing to enforce. The answer is easy if the decisionmaker correlates the firm’s competitive advantage to the sources of their IP rights. The only reliable way to do that is by performing a SWOT analysis to identify their IP strengths and weaknesses followed by a VRIO analysis to align the IP rights with principles of competitiveness.
Most business professionals are aware the term “SWOT” is an acronym for “strengths, weaknesses, opportunities and threats”. The SWOT analysis has two parts “SW” and “OT”. The Strengths and Weaknesses (SW) portion is internal to the business. The Opportunities and Threats (OT) portion is external to the business. The external portion (OT) is always a function of a firm’s legal and institutional business compliance, while the internal portion (SW) is always associated with the resources and capabilities used by the business to succeed. Some examples of strengths and weaknesses include the company brands, inventions and discoveries, talented employees, proprietary processes, customer lists, and unique machinery.
The VRIO analysis is a deeper dive into the strengths and weaknesses (SW) of the business. VRIO is an acronym for “value, rarity, imitability, and organization”. Whenever a business has a resource or capability that is valuable, rare, hard to imitate, and exploited by the organization, that resource or capability adds to the business’s sustained competitive advantage in the industry and should be protected as a valuable IP right.
Considering brands, inventions and discoveries, talented employees, secret processes, customer lists, and unique machinery, and applying the VRIO analysis to each, we immediately envision the appropriate measures to be taken for each. The decisionmaker may then simply prioritize those valuable IP rights based on the strategy of the business. The good thing is, the VRIO analysis also reveals weaknesses ripe for investment in innovation yielding more valuable IP, the need tie-up key employees by contract, and underscore the need to monetize aging IP rights particularly if they are no longer exploited by the organization but retain great value to others outside the company.
The following chart summarizes the VRIO analysis.
|Valuable||Rare||Hard to Imitate||Exploited
by the Organization
|No||No||Competitive disadvantage||Below Average|
|Yes||Yes||No||Yes||Temporary Competitive Advantage||Above Average|
|Yes||Yes||Yes||Yes||Sustained Competitive Advantage||Persistently Above Average|
For example, there is a component of sustained competitive advantage associated with 1) patents covering inventions and discoveries, 2) registered trademarks for brands, and 3) trade secret protection for customer lists and secret processes. Keeping things secret and “need-to-know” involves best practices and is inexpensive, whereas obtaining patents and brand registrations require a greater investment.
The IP team at Chenoweth Law Group can help you identify, prioritize, and perfect the IP rights you need to gain and sustain competitive advantage within your industry.