New Zealand: Patent or Not to Patent? Is IP protection needed?

Last Updated: 15 June 2013
Article by Kate Wilson

No patents needed - we will be first to market. Our response – this depends on four key questions.

I usually greet the concept of being first to market obviating the need for patents with a great deal of scepticism. Largely because often the person saying it has not demonstrated sufficient market analysis to justify that position and is generally operating out of ideology.

Lest I be accused of the same, I now provide some questions that need to be answered before making such a vital decision.

What Do You Want?

What are you hoping to gain by entering a market (local or international)? Are you after a certain dollar amount, percentage of the market and/or a period of time in the market?

If you only want to make a quick low revenue foray, then formal IP1 protection probably is not required.

However, if you want to be a dominant player in either market share, time in the market or in revenue, then you need to analyse the market further.

How Quickly Can A Competitor Start To Compete?

As soon as other players see another success, it is very easy to come into the market with a cheaper or more profitable alternative.

It takes time, effort and money to develop a new product. That investment needs to be recovered and forms part of the price on the final product. If a competitor can short-cut the R&D process by copying a product, then they have no need to recover the full investment made in R&D in their pricing model. Therefore an identical product can be developed quicker, produced and sold cheaper.

Given this, you need to match up your expectations in relation to market domination against the likely timing and impact of your competitor position in the market. If you can get all you want from a market before a competitor can come in with a cheaper product, then there is less need for IP protection.

Alternatively, if you are feeling vulnerable, then you should consider the tactic of putting in some IP protection – even if the intention is merely to use it as a deterrent for a period of time. The semblance of IP protection can give a competitor "cause to pause" and any time you have to gain more traction in the market is usually worth the initial expense of applying for IP protection.

It should be noted that IP protection does not need to be continued with if the desired effect has been achieved, such as market dominance or sufficient revenue.

Is this a niche market (in space or duration)?

If a business has sufficient marketing fire to establish themselves quickly in a niche market, then again formal IP protection is not needed as much.

However, if a business flourishes in a niche market, then often that market grows as a consequence – thereby allowing entry by others. If this is a possibility, again IP protection should be considered.

Further, another consideration is that sometimes the innovative attributes applied to a niche market can often be applied to other markets either by yourself or potential licencees. Therefore, you should consider whether it is worthwhile applying for IP protection to:

  1. keep competitors out of a growing niche market, or
  2. to licence the intellectual property in alternative markets.

Do You Have Barriers To Entry That Could Foil Competitors?

There are numerous non IP barriers to entry which could prevent competitors from entering the market. These can include:

  1. having the best staff, or
  2. exclusive supply of a key ingredient or
  3. exclusive access to specialised equipment, or
  4. regulatory approval.

However, none of these barriers to entry should be viewed as absolute and still need to be examined.

For example, good staff can leave or be "hit by a bus". While you may have good employment contracts that restrict your employers from taking proprietary intellectual property, this does not address the hole that the employee leaves behind.

It is a sad fact that the 'exclusive' supply of an ingredient or equipment cannot be guaranteed. For example, the exclusive supply may be a natural resource however it may be possible for others to farm that resource elsewhere. It is also possible for others to recognise the functional attributes of that resource and look at ways to synthesise it. IP protection can prevent these work arounds.

Having regulatory approval can actually make it easier for a competitor to compete by showing that they have the same product as you, obviating the need for them to conduct the expensive trials you had to get approval.

Conclusion

In most cases, New Zealand companies do not have the fire power to dominate a market and get from it what they need – without having some form of IP protect to slow down their competition. There are exceptions to this rule, but a full analysis is required of the market before a decision is made.

Footnotes

1Refers to the ownership of an intangible thing - the innovative idea behind a new technology, product, process, design or plant variety, and other intangibles such as trade secrets, goodwill and reputation, and trade marks. Although intangible, the law recognises intellectual property as a form of property which can be sold, licensed, damaged or trespassed upon. Intellectual property encompasses patents, designs, trade marks and copyright.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James & Wells Intellectual Property, three time winner of the New Zealand Intellectual Property Laws Award and first IP firm in the world to achieve CEMARS® certification.

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