The IP Anchor Effect

New technology is one of the primary drivers of growth in the medical device industry. Developing new tech can be long, iterative, and expensive -- so it is understandable that companies secure patents and other forms of intellectual property (IP) to protect the new tech from copycats.

Sometimes the patents that protect new technology provides a market edge – one that captures superior product performance, improved usability, and optimized costs.

But in other cases patented tech is a mismatch with market needs. This IP, which has taken countless hours and large financial sums to develop and secure, ends up anchoring a team into the protected pathway, often at odds with true market needs. A team faced with this challenge will often overvalue the patent -- believing that the limited monopolies afforded by this IP will outweigh the risk of market mismatch. 

In the vast majority of cases, unfulfilled market needs cause the patented tech to be of limited value. The IP anchor ends up sinking the business instead of protecting it.

How can you avoid this IP anchor? How can you realize when the IP anchor effect is happening? And can you find your way out of this dangerous situation?

1. Conduct market discovery early (ideally before committing to techs and patents)

Filing patents -- even provisional ones -- is expensive and sometimes mentally exhausting. Because of the time and cost that you incur through this process, you will likely want to build off the perceived assets that you are securing. The problem is that most patents are filed before you have have conducted much market research. Provisional patents are filed quickly in order to "get your place in line" in setting your priority date at the patent office. So, you end up filing patents (as a proactive measure) which later becomes an anchor due to the time and costs that have been sunk.

Instead, focus early efforts on conducting market research. This process, including user and stakeholder interviews, watching standard of care procedures, and other firsthand data collection, is the best way to gain an understanding of the market. Through this process you will learn how and why things are done the way they are, and you will be able to better assess how a solution fits into the current landscape. It's ideal to undertake this process before you lock into a solution and file any patents.

Of course, this is perhaps an idealistic scenario. The process of conducting market discovery takes time and money. And early stage investments go toward companies that are developing solutions (not discovering problems and opportunities). So, raising funds on the basis of conducting market inquiry is not a viable strategy. That means that this important market research either needs to be conducted before funds are secured, or it needs to be baked into the vetting process of new concepts after early funds have been obtained.

2. Leverage neutral resources to gain objectivity

When it comes to market research -- it's better late than never. Of course, sending a team to conduct research on a tech that they have been developing for the last year can be a challenge. Even more so when the tech is underpinned by a patent portfolio. This development-team research almost always leads to confirmation bias -- a phenomenon wherein people hear the things that they want to hear – the opinions and perspectives that support their own preferences and views.

A way to avoid confirmation bias is to engage an external team to conduct the market research. This degree of separation does a few things:

• It removes confirmation bias. Since the neutral parties aren’t influenced by prior work, existing solutions, or secured patents, they will be able to conduct the research with a high degree of objectivity in their questioning and analysis.
• It makes study participants more likely to be candid. Interviewees are always more open with a neutral group that isn’t invested in a particular solution and won't be offended with their criticisms or suggestions.
• You will get better results. Conducting research well takes experience and skill to ensure that accurate data is collected. Leveraging a neutral resource that has formalized the research process and has a depth of expertise in this area will most likely generate more authentic and reliable results.

3. Ask the obvious (yet critical) questions – “What problem are we solving? And who’s it for?”

It sounds simple – even obvious. Of course, development teams will be mindful of these questions, right?

The reality is that the deeper down the rabbit hole the development team goes, the less likely these questions will be considered. At a certain point in the development process, bringing up these questions will seem antagonistic. You will be questioning the very foundation of work and person-years of time that have gone into a solution -- even more so when the solution has been protected by multiple patents. 

Despite this discomfort, it’s important that you ask these questions anyway. Here’s why.

Teams often start their solution by focusing on an overly broad market – perhaps so broad that specific requirements aren’t even written. Over time, the solution scope narrows – the clinical indication becomes more defined, the target clinical users and their workflows become more evident, and the environments of use become better understood. Meanwhile, the technical solution that was originally conceived and patented probably hasn’t shifted much from its state.

These basic questions will lead the team to consider whether (or not) the current solution, and the patent that aims to provide protection, still makes sense. With new information about clinical indications, users, environments, and other factors, it’s quite possible that there may be alternative and better ways to solve the problem.

Maybe this inquiry has confirmed that your solution is indeed the right one. But maybe not. In either case you are better off knowing.

4. Acknowledge the “sunk costs” when it’s time to move-on

At some point your team may acknowledge that it’s time to pivot. When this realization occurs, the concept of “sunk costs” should come into focus. Additional money chasing an obsolete solution won’t recover any of the time and funding that have been invested in this path. So, it’s best to just acknowledge the sunk costs and apply your future time and funds on the more promising directions.

In a company that is focused on capital efficiency, this can be a tough sell.

Teams want to salvage the prior investment that has been made. To help teams overcome this mental challenge, consider this – how long would it take you to rebuild the solution that is now being pivoted away from?

Probably not very long at all.

The investment in the prior direction was beneficial. It went toward improving your learning and understanding of the right solution. Even though you will be pivoting from your prior solution, you will be maintaining the knowledge, skill, and market understanding that you developed through the process. Now that you know what the right solution is, you will be able to execute swiftly -- much more so than the first solution that you developed.

Pivoting can seem like going backwards. But in many cases, acknowledging market mismatch and pulling up the IP anchor is the best thing that a medical device innovator can do to move forward.