In May, BakerHostetler’s new Digital Transformation and Data Economy (DTDE) team presented a four-part webinar series for business leaders that covered the legal implications surrounding COVID-19. Panelists, including in-house attorneys and industry experts, discussed how companies can determine where opportunities and vulnerabilities lie in managing, protecting, and leveraging digitization and data assets.
In the May 20, 2020 webinar, “Accelerate: Getting to Your North Star Faster,” the panelists discussed the issues businesses face in accelerating their digital transformation to fuel growth.
Digital transformation and data economy activities fit into three categories: pivot, accelerate and exit. In the second category, accelerating includes unleashing the business insights, operational efficiencies and new market opportunities enabled by intellectual property assets. The DTDE team helps our clients accelerate by providing intellectual property (IP), transactional and corporate formation guidance.
Common characteristics of successful accelerating companies might explain their growth. Successful accelerators secured their IP for the technologies they adopted in a right-sized fashion, leveraged their data in responsible ways and adopted technologies that made them able to adapt quickly. Accelerating companies have their IP clearly delineated and their data operationalized, and they have adopted technologies that enable agility.
Economist Lawrence Wu explained that companies with preexisting digital footprints had a leg up in preparing for the pandemic. Restaurants with online ordering were way ahead. But a digital footprint alone isn’t enough. Three other factors increase the chances of success, as illustrated by Zoom. First, companies like Zoom that can take their product and make it even more useful to customers are doing great. Zoom is providing a larger function now than just online conferencing: Zoom is being used for online schooling, social events and networking. Second, Zoom also had the ability to scale: The number of daily users jumped from 10 million to 200 million over three months. Finally, a strong organization, culture and financial foundation are necessary. Companies cannot focus on adapting their strategy to the new normal if they are preoccupied with preexisting problems. Zoom demonstrates that adaptability. Zoom’s visibility exploded with shelter in place and work from home, but then came the negative publicity arising out of Zoom-bombing and its related security problems. Zoom was able to fix these problems in a week and continue to accelerate its growth.
Companies that are accelerating have a thoughtful IP strategy that coincides with practical business plans. They have adopted versatile technologies, like 3D printing, that enable agile pivots to address rapidly changing market conditions. They have allocated resources to patent strategies that balance, on the one hand, barrier-to-entry benefits, defensive positions and potential future royalty streams that come with patents, and on the other hand, open innovation principles that leverage the power of open-source and crowd-sourced solutions to solve practical business problems. They have made wise decisions on when to preserve some innovations as trade secrets and when to pursue patent protection, particularly for protecting valuable machine learning algorithms. They have layered and overlapped their protections, paying attention to the expanding scope of copyright protection for software.
IP issues are often at the forefront of legal issues for technology companies. Division of IP ownership, such as when software platforms are developed with a vendor or when competitors co-develop technology, can affect the outcomes for all involved. IP partnerships or joint ventures can be procompetitive. They give companies a chance to grow by gaining access to new technologies. And this can mutually benefit all parties in the IP partnership.
Licensing is a big part of IP strategy. The licenses can be adapted to the particular needs of the arrangement. Depending on the circumstances, IP licensing, technology licensing or cross-licensing may be more appropriate. Straightforward IP licenses are appropriate when the business is using their own technology but need to get rights to certain underlying IP. Technology licenses generally facilitate the exchange of information needed to expand the use of some existing technology. For cross-licensing agreements, where each party licenses its IP to the other, each needs the other’s IP. Patent pools, where each party throws its IP into a pool for access to all, have advantages when the IP is complementary. One important value of the patent pool is that members of the pool can access the technology without fear of being sued for patent infringement.
Collaborations: Data and Antitrust Concerns
The business insights enabled by big data analytics constitute much of what has allowed digitally transformed companies to thrive in these times. When you ask a data scientist how much data you need, the answer is normally “more.” Housing and collecting massive amounts of enterprise data is crucial, but so is getting access to data generated by third parties, perhaps even data available from your competitors. Data pooling for use in developing testing kits and vaccines has seen an uptick, as enabled by initiatives like the Open COVID Pledge. But these things come with risks as well as rewards.
This type of data sharing is high risk, high reward. Collaborations among competitors are even more challenging because now you need rivals to cooperate. Plus, there is always the fear that you are just helping your competitor succeed. The incentives can get even more complicated when the joint venture parents compete with the joint venture itself. If the joint venture is successful, how will it affect the parent companies? Will one parent gain and the other lose? And how does it affect each parent’s interest in furthering the goals of the joint venture? Will the joint venture cannibalize one parent’s sales more than the other’s?
Antitrust issues also arise in these types of collaborations. In general, there are three types of anticompetitive risks: collusion, reducing rivalry between the parents and anticompetitive foreclosure. Collusion is a risk because the venture may be a way for the parents to exchange information or coordinate on output. This could lead to sharing key business information about the parents, like pricing, that could give rise to a collusion risk. You also want to avoid reducing competition between the parents. If two parents create a joint venture in a new market, this could be procompetitive if the parents would not have entered that new market at all without the joint venture. It would be less competitive if the parents would not later enter the new market because it doesn’t make sense to compete against its own joint venture. Finally, a new venture may plan to do business only with its parents, thereby foreclosing the parents’ rivals from getting access to the joint venture’s services. Whether this creates a competitive problem will depend on whether the joint venture has market power.