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Even when times are tough, don’t stint on R&D

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In the present economic climate, the increases in the cost of living are impacting individuals and businesses across the board. 

This is very tangible at a personal level, expe-rienced at our regular shopping trips to the super-market, when coming to pay for food items at the checkout. This is a reflection of labour shortages, fuel costs, and inflation. Those with long memories will recognise that these things are cyclical; there will be an economic upturn and normal service will resume in the future. It is only a matter of when this will be. However, in the meantime, it is possible that the current downturn will continue before it is reversed. For a business then, more than ever before, current expenditure must be carefully rationalised.

Those with prudent leadership will already be looking at the cost of running the business, looking for potential savings to preserve the bottom line. If they are smart, other businesses will follow suit, particularly if present downward trends continue in the short term. However, focussing on the here-and-now, i.e. short term expenditure, can be to the detriment of financial commitments to existing or future long term projects. Many businesses will consider long term projects to be manifested as research and development (R&D) on new products and/or processes, and the expenditure associated with the protection of the related registered intellectual property (IP).

Businesses working in the Agri-tech or Agri-business space will be making significant investment in R&D, both in time, money and technical resources, and IP. For example, a new fertiliser may require extensive trials on soils and crops to validate its effectiveness before it is launched into the market. This may take months or years to complete. The same is true for the likes of organic pesticides and herbicides, with regulatory hurdles that potentially need to be overcome as well. Similarly, equipment that may make seeding or harvesting of agricultural crops can take time to develop before arriving at a version that is practical for production and retail.

As such, the R&D that goes into new products and processes, and the related costs that arise from the protection of the IP that surround these, become natural targets when it comes to trimming costs or diverting the resources of the business, financial or otherwise. To many business owners and managers, the potential rewards that come from the resulting sale and/or exploitation of new products and processes are too remote and abstract and as such, are easily dismissed in favour of reallocating the resources being put into R&D and the protection of any IP arising of that R&D elsewhere in the organisation, or culling them altogether. This is a short-sighted approach. In fact R&D and IP should be one of the last areas of the business that should be considered for cutbacks, at least not large scale, broad brush cutbacks.

For a start, sacrificing investment and resources in R&D can have negative implications for the ability of a business to resume normal operations once the business confidence has been restored. It will take time to make up the ground lost and potentially technology, market and protection opportunities will have moved on. Or worse, competitors may have made inroads into the same technology space, established their own IP and entered the market. It is worth noting too that R&D resources does not just cover material things, but also people. If trimming R&D costs means losing researchers and engineers, it is a possibility that those people, and their knowhow (which should also be considered IP) could be lost to a competitor.

IP is an important strategic tool for any company, usually directed towards protecting its competitive advantage in the market. IP can take a variety of forms, but the most basic are those that can be registered: patents (protecting how something works), designs (protecting how something looks), and trade marks (protecting how something is branded). Patents can be particularly crucial as these offer a potentially broad monopoly that may last up to 20 years. An application for a patent needs to be filed before there is any public disclosure of the invention that is being protected. Although there some exceptions around this, these should only be used as an absolute last resort. At the core of the patent is a specification that defines and describes the technology. This needs to be done in sufficient detail that the reader of the specification will be able to understand the invention and then reproduce it without undue experimentation. It will be appreciated that data arising out of the R&D process can be important to include in the specification.

It follows then, that R&D cutbacks can affect the ability of a business to protect its IP. Of course, the financial situation that a business may find itself in is such that it may be a literal matter of survival. Out of sheer necessity it may have to select the R&D area of the business as a means of cutting costs. So, if forced into this, how does one select what R&D to cut back or even cull? As should now be clear, R&D and IP are interrelated. A business should always understand what registered IP it actually has and the likely duration of that IP.

As a first step, bring in the IP lawyers and patent attorneys to do a review of the IP portfolio. This review work should also extend to an assessment of the ongoing R&D. For larger businesses, there may be a relatively significant IP portfolio and in some cases, it is possible that this may relate to products that are no longer sold or have few sales. Any R&D and IP costs (which by this stage In the present economic climate, the increases in the cost of living are impacting individuals and businesses across the board. is likely to be maintenance costs) related to these should be immediately scrutinised with a view to culling or trimming these.

Alternatively, the registered IP could be offered for sale or licenced to third parties. It is important to match any expenditure on R&D to the potential financial return on the products/process to which that R&D relates. If multiple projects are in progress, then it will be prudent to assess the likely financial return of each project before deciding which ones to trim or abandon. However, the financial return on R&D investment should not be the only factor considered; the competitive advantage, or more importantly, the ability to protect that competitive advantage by filing the appropriate registered IP rights, e.g. patents, is also important.

There may be a greater degree of comfort in maintaining investment in a project where there is a greater likelihood of securing robust and relatively broad patent protection. This may be more realistic for ground breaking projects that represent a significant step change in the market. In these scenarios for example, the first filed patents are much more likely to be broader and harder for competitors to circumvent. Thus, maintaining some ongoing R&D on these types of projects and protecting them with registered IP rights as appropriate could be justified. In contrast, projects relating to improvements to existing products/processes may offer less opportunity for any protection, let alone broad and robust protection. In some instances, these types of projects are more around maintaining market share, by seeing what competitors are putting into the market, noting the differences to your own product range, and then remedying this with improved versions of your products. In many instances, this will result in relatively restricted registered IP, if any, and thus there is little or no competitive advantage to protect. This may then have a bearing on whether R&D and IP costs are justified for these projects. The relative age of the registered IP relating to existing products/processes could also be a factor when deciding on allocation of R&D expenditure.

Those that are relatively young with a long period of protection ahead could perhaps have any related R&D expenditure deferred in favour of more aged rights that are close to the end of their period of protection. The business may prefer to put resources into trying to create a new competitive advantage around these aged products. Newer products on the other hand may still be competitive in the market, in the short term at least. The value in bringing in IP lawyers and patent attorneys to help assess existing R&D focus and relating that to potential IP protection is in understanding which of these are more likely to provide a commercially useful competitive advantage in the market. R&D that is more likely to result in a greater and protectable competitive advantage for the business is easier to justify and have more value in the long term. In conclusion, the present uncertain economic environment is such that businesses may look to, if they have not already started to do so, into an examination of the viability of their ongoing operations.

It is understandable that owners and managers will seek out potential cost savings within their business by targeting existing R&D projects as a means of achieving this. However, this could be at the peril of long term commercial and protection opportunities. By better matching potential R&D outcomes with protectable IP, businesses will potentially be well placed once we return to more favourable business conditions.

By JARED MILLAR, SENIOR ASSOCIATE, JAMES & WELLS

 

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