Elliott Simcoe

Return on Innovation | Creating Competitive Value with Intellectual Property

TBOP2017 ⋅ 5:13 ⋅ Filmed May 11, 2017
Keynote

From the humble light bulb to GoPros to Google, most of the inventions whose ubiquitous presences you’ve come to rely on in your day to day life started at the same birthplace — a patent. In this keynote, Elliott Simcoe, a partner at Smart & Biggar, Canada's largest intellectual property firm, tackles the complex and intimidating ground of intellectual property for Canadian business owners. Elliott has one goal for this presentation, which is really a crash course on intellectual property — teach owners of small and medium businesses how to grow their companies to challenge the likes of Microsoft, Instagram and Amazon. The big guys.

Though frequently misunderstood as boring or legal mumbo-jumbo, understanding how patents work is vital for today’s innovators. Elliott recounts how the loss of a simple patent cost one inventor what could have been the chance of a lifetime. The original inventor of the Fidget Spinner gave up manufacturing the toy — and when someone else snapped up her patent, they became the craze of 2017.

From trademarks to designs, trade secrets to non-disclosure agreements, entrepreneurs, innovators and inventors take note: this is the best 101-guide there is to navigating this tricky landscape and growing your business.


Further Reading


TRANSCRIPT

Hi everybody, good afternoon. My name is Elliott Simcoe. I'm a Partner with Smart & Biggar in Ottawa. Smart & Biggar is Canada's largest intellectual property firm. We have offices in Ottawa, Montreal, Toronto, Vancouver and Calgary. I'm just one of those really lucky people. I get up every morning, I get a chance to work with some really smart people, doing work for some amazing clients including some of the clients you see up here.

[00:30] I really love getting invited to speak at opportunities like this because what I'm trying to do is give you some tips, give you some pointers about how to take your companies — which are usually small and medium size enterprises, locally here in Canada — and grow them to be companies as large as Microsoft, Qualcomm, Instagram, Google and others.

[00:54] So how do we do that? We start by learning little bit about some case histories and how we can learn from them?


The Fidget Spinner

[01:05] So who's this? Who's this person that I have up here? Well, her name is actually Catherine Hettinger and if you read the internet, there's a bit of a controversy right now but it seems that she's the inventor of the Fidget Spinner. The Fidget Spinner, as those of you who have kids as I do, is the coolest thing right now. Everybody's talking about The Fidget Spinner.

[01:25] Apparently, she was the inventor of The Fidget Spinner. Her daughter had some issues with Attention Deficit Disorder and there's her daughter up on the screen. She invented The Fidget Spinner to help her daughter out. She obtained a patent for The Fidget Spinner. You'd think she'd just be raking in the royalties and licensing fees right now. That she held onto that patent as a lottery ticket and it's finally paid off. Unfortunately, that's not what happened.

[01:54] After having a lot of difficulties securing somebody to manufacture the product, she gave up in about 2005, she didn't pay about $500 maintenance fee to renew the patent and it went into the public domain. Somebody else scooped up the invention and now they are the ones taking advantage of it.

[02:16] So the point of today's presentation is how do you add value to change? She did a great job with change but how do you add value to that change?

[02:27] So today's presentation is really focused on three areas. Number one, we're going to give you a baseline introduction to the different forms of intellectual property. And then I'm going to talk about two things I want everybody to remember about patents and two things I want everybody to remember about trademarks. In fact, if [these] are the only things that you remember from my presentation today, I'm going to be really happy and feel like I've succeed. And then, I want to talk about the difference between invention and innovation and how to take your company to ensure you won't end up like Ms. Hettinger who was great with invention but not so great with innovation.


Introduction to Intellectual Property

Patents

[03:06] Certainly the most well-known aspects of intellectual property, the ones everybody's heard of course, are patents. I'm a patent guy. I'm proud to be a patent guy. I get up in the morning and I get to work on inventions for great companies doing some really interesting things in the Telecommunications area. I do some work in manufacturing, mechanical engineering and the like. I secure patents for these companies. Certainly patents are new and useful, articles of manufacture, methods, processes and the like. I'm sure everybody's familiar with that.


Copyright

[03:46] Copyright, another really important aspect to intellectual property. Some of the teams, I've been hearing, certainly copyright is very, very important. There we protect literary, dramatic, musical works. Again, I have this great job! One of my jobs is, when the Bank of Canada, comes out with a new bank note — I'm sure you've seen that we're coming out with a new 10 dollar bill, the Bank of Canada is coming out with a new 10 dollar bill to commemorate Canada's 150th anniversary — I get a phone call and I get asked to do copyright clearance because they want to put images. Picture of people, scenes and the like on those bills including the ones that are in your wallet right now. It's just a great job because I get to go down to the Bank of Canada. There's a vault. They let me inside. I get to see what an early design of the bill is and I start to talk about clearance of copyright issues.

[04:41] Copyright is an incredibly important and fundamental aspect of the intellectual property strategy of any company.


Trademarks

[04:48] Trademarks. Really, really important. There, we're talking about phrases, symbols, designs that connect in the minds of the consumer, the mark to the source of the goods. Why is it when you're driving down the 401 late at night and you're a little tired, you figure you're not going to make it to Toronto, you see that sign off the highway — maybe a Holiday Inn, Quality Inn, a Best Western, a Marriott — and it connects in your mind exactly what you can expect as far as the source of the particular service? You get off the highway and you make your choice based on your expectations.

[05:28] So trademark can be an incredibly valuable connector between the consumer, the potential consumer and the provider of the product or service.


Designs

[05:38] Designs. Well, designs protect the look and feel of articles. And certainly in the smartphone industry, design protection is incredibly important. I'm sure you've heard about the significant litigation between Apple and Samsung in connection with design patents pertaining to the iPhone and the Samsung Galaxy Series of smartphone.

[06:03] Certainly that's an example where Apple is enforcing its rights against Samsung to prevent Samsung from allegedly taking advantage of the design protection that Apple has in its smartphones.


Trade Secrets

[06:17] Trade Secrets. Again, an incredibly important aspect to any intellectual property strategy. You don't have to register your intellectual property, it isn't essential, you can keep it a secret. Trade secrets has a very, very broad definition. You need to be thinking about any sort of commercial advantage for an enterprise. So it could be a customer list, your prospective customers, the sales you're going to make, your manufacturing processes, all sorts of things. Trade secret protection is only valuable if you keep it a secret.

[06:51] So here you go. I'm going to share something with you right here. Be very careful with your trade secrets they could go out into the public domain.

[07:00] What are we looking at here? Well, this is the receipt book apparently that was shown in about the 1920s in Atlanta, to a very secret formula. It was shown to the Atlanta Hartsfield Constitution, the newspaper in Atlanta, of a very secret formula. Photograph was taken, the photograph was out in the archives and the vault of the newspaper and then it was unearthed about 5-6 years ago. Again, according to the internet and published. That is the recipe for Coca-Cola, there it is. I know it's a little difficult to read but I'm happy to show you the photograph and you can go ahead make your own Cola product and you'll have absolutely no difficulty and Coca-Cola couldn't stop you because they didn't protect their trade secret. Now of course you can't call it Coca-Cola because that infringes they're registered trademark but as far as producing your own Cola product using that particular recipe, no problem.

[08:01] If you're going to do down the route of protecting your intellectual property by way of trade secrets, keep a secret. A trade secret is only as valuable as long as it's kept a secret.


Two Important Tips About Patents

[8:13] OK. Two things remember about patents and two things to remember about trademarks. Again, this is the important aspect of the presentation. This is what I want you all to remember.


Non-Disclosure Agreements

[08:27] So you come up with an idea. Idea for a new product, a new service, a new business, something that may or may not be patentable but you think it might be a great idea. What is the most important thing to remember? What should you always do? Well, keep it a secret. Keep it a secret until you have an opportunity to speak to a patent professional like me who can help you determine whether or not it's patentable and what you should do to protect it because if you don't do that, there is a possibility you will not be able to obtain patent protection in Canada, the United States and elsewhere in the world.

[09:03] Any sort of offer for sale, an sort of public disclosure, a tweet, an Instagram posting, a white paper, a blog, a presentation like this, anything might possibly constitute a bar to you obtaining a patent. Even a casual meeting with your neighbour. If your neighbour or the person you're speaking to, your potential investor, your banker whatever is not under a non-disclosure agreement. I'm sure those of you who are around here have heard what a non-disclosure agreement is. If not, under a non-disclosure agreement or as I like to call it sometimes, the cone of silence. If you're not under a non-disclosure agreement even a casual meeting with your neighbour to discuss your idea could possibly ultimately obtaining a patent because the whole idea of patents is we grant monopolies for things that are new. OK, that's the whole deal. You disclose everything your invention and if it's new and if it meets the standard for patentability, we'll give you a monopoly for a certain period of time. If you've disclosed your invention to the public, it's not new and therefore you shouldn't be entitled to a patent.

[10:14] So that's number one that I really want you to remember.


Patent Claims

[10:18] OK, thing two. What's the second most important thing that I'd like you to remember today? It's all about the patent claims. What are those?

[10:26] Well, if you read a patent, those of you who come across a patent, what do you think a patent contains? It contains drawings of what the invention looks like. It contains a description of what the invention is about and how it works and how it can be put into a practice. Then there's these archaic words at the end of every patent called the 'claims'. OK? The claims define the monopoly. The claims define the invention. So whenever anybody puts a patent in front of you, maybe they want to enforce it against you, maybe these want to get you to buy it, just read the claims. They are not that hard to understand.


Goldilocks Theory of Patent Claim Drafting

[11:03] I call it the Goldilocks Theory of Patent Claim Drafting. OK? You don't want your patents to be too broad. You don't want them to be too narrow. You want them to be just right. If they're too broad, well then they're not new so they could be invalid. If they're too narrow, someone can design around them and there's not much point in having a patent if it's really easy to design around your patent claims. You want them to be just right.

[11:31] OK, what am I talking about when I talk about patent claims? Here's some archean language. Let's see if the audience can figure out what this is. I'm always told you're not supposed to read when you're doing a presentation so I'll do my very best to — I can't memorize this. It says, a computer-implemented method of controlling a portable electronic device comprising a touch sensitive display, comprising a couple of steps:

  • detecting contact with the touch-sensitive display while the device is in a user-interface lock state
  • transitioning the device to a user-interface unlock state if the detected contact corresponds to a predefined gesture
  • maintaining the device in the user-interface lock state if the detected contact does not correspond to the predefined gesture
  • characterized by moving an unlock image along a predefined displayed path on the touch-sensitive display in accordance with the contact, wherein the unlock image is a graphical, interactive user-interface object with which a user interacts in order to unlock the device

[12:29] There I read it all. What am I talking about?

[12:33] That's what I'm talking about (referring to PowerPoint slide). That is the patented claim for the unlock device that you see on your iPhones and that is a patent claim for defining that particular invention. It's not too broad, it's not too narrow, it's just right.


Two Important Tips About Trademarks

[12:52] OK, two things to always remember about a trademark.

[12:55] Now I do a lot of work for Parmalat Canada. Parmalat Canada is one of Canada's largest dairies. I know everything about the manufacture, sale and packaging of milk so if you have any questions, come and talk to me. Lots of trivia. Fun Fact: Why is it we have milk in plastic bags in Canada but nobody can buy milk in plastic bags anywhere other than Canada and only certain provinces in Canada? I know the answer to that. I know all about that. So these are some of the trademarks of my client, Parmalat Canada. I'm sure they won't mind.

[13:29] Lactancia, a very famous trademark for butter and yogurt. There's the design, I'm sure those of you have seen. There's some product packaging. It's a particular yogurt package. Look at that cow in the centre. Believe it or not, I've spend many hours of my life on that particular cow and how to protect it and the like. Sounds and colours. Pink for home insulation. That's protectable as a trademark that's pretty valuable.

[13:57] Now, take my word for it. I promise you I'm not going to take off my shoe but I could but here's a trademark that I think is kind of cool. The Gold Toe indicia on socks. Not the word Gold Toe, the actual gold indicia on the tip of the sock is a registered trademark. Again, I'm not going to take my shoes off but trust me when I say those are the socks I'm wearing. When I go into a store, I like those socks. I look for that indicia. That's what connects me to the product.

[14:32] I have 3 kids, they are great kids. Two teenage daughters. What is it about the jeans and other clothes that they like at these particular stores that they always go to in the mall? What is it that gets me to spend a lot of more money to buy those jeans and other clothing products other than the ones that are a lot less expensive at other stores and other department stores? It's the trademark. OK? It's the connection in the mind of the consumer between the product and quality and the resource of those goods. People will pay a premium including fathers like me.


Selecting a Good Trademark

[15:21] Thing 1 that I'd like you to remember, always select a good trademark.

[15:25] Here's the spectrum of protectability of trademarks. Starting from very generic, as a carpet cleaning company, not a particularly good name for a business for a trademark because it would be really difficult to prevent some other carpet cleaning company from coming into business and competing with you. It goes all the way down to the most distinctive, Häagen-Dazs, which is actually a complete made up trademark. I think the company is based in New Jersey and it evokes this sort of European, Netherlands, Dutch kind of thing but really it's just a product that's produce in New Jersey. It's a very distinctive trademark and as a result, they have a very broad scope of protection.

[16:15] Always keep in mind to pick a distinctive trademark if you can. Somewhere down the suggestive side works as well because you might want to evoke a certain sense of the quality and the nature of the product through the selection of the trademark. The closer you are down the right side of that scale, the more protectable the mark is and the easier it will be for someone like me to enforce it for you.


Registering Your Trademark

[16:45] Once you've selected your good trademark, you register your trademark. Companies including the teams that are here today, should give some serious thought to registering their trademark rights. If you don't register your trademark rights, you only get the ability to enforce it a narrow jurisdiction where you've used it. So registration at the Canadian Intellectual Property Office will if you right coast to coast to coast in Canada which can be very valuable and a registered mark is a lot more valuable than a so called common law mark, one that is only protectable and for which you only have rights as a result of use as opposed to registration. Registration is not expensive and as long as nobody opposes you, you won't have any difficulty.

[17:35] As far as selecting a good trademark, my war story there — those of you who live in Ottawa might be familiar with a gym that opened up some nice gyms across Ottawa and they have a few in south-western Ontario called 'The Athletic Club'.

[17:53] Unfortunately, they entered the market in Ottawa and there was a company called 'The Ottawa Athletic Club' that had been in business for about fifty years. The Athletic Club after spending, I'm sure, millions of dollars on signage and branding and marketing and the like, entered the market in Ottawa. They were recently told about a couple of years ago by a federal court judge that they had to change their mark as a result of litigation by The Ottawa Athletic Club. So now and here's my membership card. It used to say The Athletic Club and now it says 'Movati Athletic'. That's pretty expensive to change all the signage and write to all your members and tell everybody you've changed your mark. That's something you should really try to avoid.

[18:41] Pick a good trademark. Do a search. Make sure you're not tramping on anybody else's rights. Register your trademark and you should be good to go.


Invention vs Innovation

[18:50] OK, I want to move onto to the notion of invention vs innovation. Adding value to change is really what I'm trying to get at here.

[19:01] The words invention and Innovation are used interchangeably and that's really a problem. This is a picture of Humphry Davy, I think I got that right, who is the inventor of the first electric lamp. He's a great example of invention — something new. That's the change part. The notion of invention is taking some research and development dollars and creating something new. Creating a new product or service. OK?

[19:39] Really the goal here is innovation. Adding value to change. A great example there is Thomas Edison. We all know what kind of accomplishments Thomas Edison had with the light bulb and what he was able to form. He, of course, formed General Electric, in one of the largest companies in the world even to today. He adds value to change to make a marketable product or service. That's innovation. The goal there is taking what's new and getting a lot of money and that's really what the goal should be all about. That's what we try to preach to our clients.

[20:16] The other metaphor that I've heard about which I think does a really good job for me to sort of make me understand it, if you picture dropping a stone in the lake that's invention. Let's call that invention. Well, the ripples that you see when you drop a stone in the lake, that's innovation. Now what's the entrepreneur. Well, the entrepreneur is the person who looks at those ripples and [says], 'hey, one of those can be a wave and I want to ride that wave. OK? That's innovation. And of course, some of the greatest innovators as we saw before — Steve Jobs, Elon Musk — I mean these people that take something new and they create something better. They add value to change. And that's what this portion of the celebration is all about.


How Patents Improve Innovation

[21:01] So what we have here is a bit of a paradigm for — I'm going to focus on patents as I said I'm a patent guy — the paradigm works for all intellectual property, trademarks and copyright but I'll focus on patents. It's a paradigm in terms of what I mean about how IP and how patents can improve your innovation.

[21:23] Of course, the first step is to create the technology and we won't spend any time on that.

[21:28] The second step and that leads to creating the patent. Creating the patent leads to using the patent and through using the patent there are certain goals, certain values we're trying to capture in terms of improving innovation. We're talking about conflict avoidance and resolution. We're talking about market position, monetization, commercial leverage. We'll talk about each of those very briefly over the next couple of minutes.

[21:54] I want to focus initially on creating the patent. As you can see from this chart here, patent remain a core aspect [of an] intellectual property strategy. from 2000 to 2015, these are the number of patent applications filed in the United States Patent & Trademark Office. Except for a little blip in 2007-2008 due to the great recession, for the most part they have been rising every year. Year after year. If I had a chart and showed you a chart of filings of trademark applications in the United States Patent & Trademark Office in the same trend. OK? Protecting intellectual property is a major driving force behind delivering good innovation.


Getting IP Right

[22:44] The whole idea is how to get the IP right by the right people at the right time and get it right. What I've seen over the years is a couple of errors in getting the IP right. First thing we see is where there's a meeting of the minds between the inventor and the person drafting the patent application and you don't really protect what you should've protected. That's a problem and you want to stay away from that.

[23:14] And then sometimes you see patents that are really just focused on what the inventor thinks the invention is and that's not a good thing either. That leads to what the chart says is commercial irrelevance. And I agree with that.

[23:23] Really what you want to do is you want your patents and your IP to focus on the product that you're actually selling or that you intend to sell. You want to protect the commercial inventive feature, the thing that makes it special. And really what everybody should be aiming for here is the value proposition. Protection, through your patents, what is the value proposition to your customers and to your prospective customers. If you can tie that up with intellectual property, patents in this example but it works for trademarks as well, if you can tie up and monopolize that value proposition, you can image how valuable that IP will be to your business in creating valuable innovation.

[24:15] So what so I mean by value proposition? Well, there are a few inputs. Things you [have to] think about when you're trying to decide about the proper value proposition, so called Holy Grail of IP.

[24;26] There [are] the technical inputs, technical aspects, what makes it technically better.

[24:32] There's also the customer input, what the customer is looking for, you want to make sure you capture that.

[24:40] There's competitive intelligence. You want to make sure you know exactly where you're competitors are headed. It's that old Wayne Gretzky adage, 'you want to skate to where the puck is going to be rather than where the puck is'. you want to keep that in mind, what are your competitors up to now? Where are they going to be in 5 five years? How are you going to be five years ahead of them?

[25:02] There are financial aspects. What's the value of the market? What's the return?

[25:10] Of course, there's business aspects as well that you want to keep in mind when protecting the value proposition. What's your exit strategy? Are you going to go IPO? Are you going to sell? How are you going to make this IP that you're developing valuable to the company and to move forward?


Conflict Avoidance & Resolution

[25:30] In terms of the value concepts, I want to talk a little about conflict avoidance and resolution.

[25:39] Companies, medium-size and large-size companies especially, they stockpile patents and trademarks but mostly patents in order to, believe it or not, avoid conflict. They will resolve conflict. Some of the examples I have up here on the screen, the various pieces of ligation that I refer to up here are examples where unfortunately, that didn't work and somebody was made to pay a lot of money. The conflict just couldn't be avoided.

[26:08] So instead what you want to think about is developing an IP portfolio that in fact creates a whole bunch of deterrents. That's what the goal here is, is to create deterrents. So what am I talking about? I'm talking about deterrents for competitors to enter your market. I'm talking about deterrents to obtain financing. I'm talking about deterrents to prevent your customers and prospective customers from adopting somebody other than your technology. My favourite one is patent applications can a speculative deterrent value.

[26:46] I'm a real patent geek. And one of the things I do is I read a patent blog every Tuesday morning because in the US all patents are issued at 12:01AM on Tuesday morning so there's a blogger who blogs about Apple's latest published patent applications every Tuesday morning. And Apple files patent applications for just the coolest, strangest stuff that you're never going to see in a smartphone or think you're every going to see in a smartphone. Of course you don't know for sure but I think they do that at least in part for this last bullet point here. It's deterrent value by creating this mind field, this patent thicket of all sorts of different things that are going on with the smartphones. They create this automatic deterrent value for a competitor or prospective competitor to enter the market in that particular area. So that's kind of cool.


Market Positioning of Your Product or Service

[27:41] Let's talk about market position. This is sort of graphically illustrating the revenue model typical product or service. It has a certain peak after a certain number of time, after number of years. And then, of course, the number of years across the x axis demonstrates the kind of sustainability that we're talking about in terms of the product or service.

[28:08] And of course, after peak you're going to get competitive pressure which is going to keep your margins down. That's the typical unpatented product or service. The whole idea of a painting patent protection is in order to get a price premium for the product or service which will increase your profits and move the competitive pressure back. If you do it properly and do a really good job, you can move the competitive pressure back even as far as that (referring to PowerPoint slide). And of course, that yields extra profits and that goes straight to your bottom line. Of course, at this point, in the market all your R&D has been paid for and everything you see in the graph there is added profit to the company.

[29:00] Some of you I'm sure have heard the expression 'patent cliff'. You hear that a lot with pharmaceutical companies and that's what I'm talking about here. That's where the patent protection expires. You see that on some major pharmaceutical products and then competitors can enter the market and there's very quick, swift competitive pressure. It brings prices down, usually to the benefit of the consumer, of course which affect profitability.

[29:32] Monetization, just a couple of words on that. You have to think of your IP as property. OK? With any form of property you can sell it, you can license it. You can monetize it in a variety of different ways. You can value it. It can be valued and there are companies that — IP evaluation companies — that will help you increase the market value of your company based on your IP. There are certain tax advantages in certain provinces and the like to investing in IP.


Types of Commercial Leverage

[30:07] Commercial leverage. How to use your patents to maximum commercial leverage, certainly enforcing against direct competitors would be an example of unilateral leverage.

[30:19] Bilateral competitive leverage examples, there would be cross-licensing. You'll see companies say, 'OK, I won't sure you if you don't sue me' and will enter into a big licensing agreement for all our patents. And that's an example bilateral commercial leverage.

[30:36] Multilateral commercial leverage, there's patent pools where large groups of companies in particular industries get together and they pool all their patents together and they all agree not to sue each other. So that's an example of that.

[30:54] So these are the values that you're trying to capture to improve innovation. Give you an example of how patents or trademarks can improve your innovation and again add value to change.

[31:06] So what's next? where do I conclude. The message I'm trying to give you here is to build a valuable intellectual property portfolio in order to improve innovation. So how do you do that? You typically work with service providers who deeply understand your business. They are not just out to look at the intellectual property right we're talking about on it's own, you want people [with whom] you have a deep working relationship with and usually a long-term business relationship. These are the kinds of things that, in my experience, foster the greatest opportunity for innovation.

[31:52] Happy to answer any questions afterwards if anybody has questions about IP, about patents, trademarks. Anything and the like. It's been a pleasure. Thank you very much.

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