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Firms with strong intellectual property strategies fare better in raising capital

Patents alone not enough, says MIT Sloan School of Management senior lecturer
MIT Sloan Senior Lecturer Joseph Hadzima Jr.
MIT Sloan Senior Lecturer Joseph Hadzima Jr.
Photo: Paul Denning

Even after the economy rebounds, firms that slashed their investments in intellectual property due to the recession may lag behind those that did maintain and properly plan their IP strategies, according to an MIT Sloan School of Management expert, who finds a clear correlation between IP and capital market success.

"The future winners will be those companies that used the rough times to put together intellectual property strategies that support their broader business strategies," said Senior Lecturer Joseph Hadzima Jr. "In tough times, people have to make more focused investment decisions, which means some firms cut back on their intellectual property investments. Unfortunately, those companies that are not strategic in this process can undercut the foundation of future growth. Companies that are not paying attention to intellectual property may very well find it more difficult to raise capital than those that are paying attention to it."

Research by Hadzima, former Global Chair of the MIT Enterprise Forum, found that companies with solid patent portfolios were far more successful at attracting venture capital. But filing for patents is not enough, he said "You also must manage them well. Think about not only what or how much you patent, but how and what you do with patents. If you do that right, you can succeed."

Patent applications have declined in the last two years, partly due to the economy as well as to the high costs and length of time associated with the process. "A Government Accounting Office study a few years ago found that for a small company, the costs to file and maintain a patent in the top 10 industrial countries was between $350,000 to $500,000," said Hadzima. "And in the United States, it takes a minimum of two years to go from filing an application to the patent being issued."

To reduce such costs, some companies have outsourced the application process to India and other countries. But the broader key to success, Hadzima said, is to tie the patent process to a well structured intellectual property strategy.

"Don't just file patent applications," he said. "Manage them based upon evidence and by making sure they fit into your current and future strategic plans."

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