Tom Hunt summarized how a value chain approach to IP management can guide patent creation and prosecution. The value chain concept is a proactive strategic tool that is used to understand upstream and downstream uses of the technology or product that is been created. The approach is used because it can result in greater market leverage, greater revenue potential, and enhanced innovation.

In the “Value Chain” figure an example company working in the systems part of the value chain purchases upstream components that are made from raw materials. The example company distributes its systems into markets and after markets downstream. Typical for a company in the component or system’s area is to patent only new components or systems that they have developed. Companies that are downstream of the systems company are most likely to be customers of the company. These companies are buying product from the company, adding their own value either via the development of new applications for systems, or through new methods of distributing and selling those systems to the market. By researching and thoroughly understanding the IP of downstream companies the systems company in our example stands to gain insights into the most important issues facing its customers. This is because patents can be thought of as publicly available documentation of a company’s key technical problems and solutions to those problems. By collectively understanding its customers, the example systems company may more effectively solve downstream problems by incorporating solutions into the systems the company supplies to its customers. This potentially saves time, energy and money. With this knowledge it is also possible for the systems company to predict the new problems that will be facing its customers in the near future, and to work on solving those problems in its product set. By paying attention to the downstream IP and potential solutions to customers problems, the company can develop a stronger patent portfolio by ensuring that the patent portfolio it develops covers not only novel technical aspects of its system, but also novel uses and business methods of its downstream customers. This way its portfolio becomes broader more difficult to invent around.

Conversely the company may look upstream for leverage is well. For example companies in the raw materials and components stages of the value chain are typically vendors to the systems company. Often systems companies enter into joint development efforts with upstream companies during the course of product development. Alternatively the systems company may spend part of its internal development resources to utilize new raw materials and components in its systems. When it does so the inventions that result from novel raw materials and components may become key market differentiators for the products it produces. As there are times when upstream companies supply samples to the systems company that come from adjacent uses in other industries, the systems company may find novel ways to use the sampled materials and components, thus creating new intellectual property opportunities. When this happens, the systems company can obtain IP ownership of the uses of upstream companies materials and components. This provides a barrier to upstream companies, preventing them from selling their raw materials and components to potential competitors of the systems company.

Is an example, of how this has worked in the past, an airframe wiring company was able to obtain samples of a new polymer insulating materials from several polymer-producing chemical companies. When it was found that one of these new polymers possessed unique insulating characteristics when used in specific electrical wiring designs, the airframe wiring company patented use of the new polymer material in not just wiring, but also in other market areas were the unique design constructions would be beneficial. In so doing, when the new airframe wiring product when commercial, and pricing discussions took place between the airframe wiring company and the chemical company, the wiring company was able to get a lower price by licensing, as part of the purchase package, its upstream and downstream intellectual property which covered non-wiring applications using the new polymer, as well upstream blends and formulations of the same polymer material. In so doing so doing the airframe wiring company created an advantaged cost position for its own wiring products.