Risk Management in New Product Development

This article first appeared in the March 2006 Intellectual Property Report of The Philadelphia Business Journal.

New product development is aptly considered the transformation of market opportunities into commercial products. Successful product development seizes a market opportunity and provides a powerful business advantage. But new product development also gives rise to significant business risks. 

Every new product (or service) represents a new risk of infringing intellectual property (IP) rights of others. And this risk is especially significant when businesses expand their offerings by launching products in new arenas. Put simply, the development of new products not only creates important business opportunities but also generates significant IP risks. 

Business managers are accustomed to planning for known business risks. But late IP review of new products leaves risks unidentified and deprives business managers the opportunity to accept, avoid or manage them proactively. And unanticipated risks can cause costly business disruptions like eleventh-hour design changes, scrapped mold tooling, wasted development resources, and IP litigation. 

In view of the business reality that product development gives rise to IP risks, how can business managers build risk management into new product development? And what are the best practices for doing so?

Understanding New Product Development

Business managers and their IP counsel must first look anew at product development processes in order to build risk management into product development. In the context of risk management, it is important to recognize that new product development (NPD) processes draw input from various disciplines in a team effort and that NPD processes are frequently structured in formal stages.

In most NPD processes, the development team is formed of individuals from key disciplines (typically design, engineering and marketing) that collaborate throughout the development process. The use of such “cross-functional” teams is pervasive–about 80 percent of best performing business units use cross-functional NPD teams.

In an emerging model for NPD processes, IP review is formally integrated into the development process to ensure that products meet the requirements of traditional disciplines and pass legal scrutiny before they go to market. As a member of the development team, IP counsel works closely with the NPD team to identify IP risks early and to avoid those risks proactively. 

NPD processes are also generally structured to progress through sequenced stages such as concept generation, concept feasibility review, development of the selected concept, and commercialization. In staged NPD processes, each member of the development team is responsible for specific deliverables at each stage, and those deliverables must be satisfied before the team can advance to the next stage.

By building IP-related deliverables into the NPD process, the team is empowered to identify and manage IP risks proactively before the development process can advance. And if an identified risk is insurmountable, the project can be “killed” early so that development resources can be redirected.

Identifying Risks Early

When IP counsel is a member of the NPD team in a staged NPD process, IP deliverables are designed to spot risks early. This is accomplished by searching for and assessing the IP rights of others. 

In the concept generation stage IP counsel conducts a “state-of-the-art” search to discover general areas of IP risk, including patents owned by competitors and potential blocking patents. Later in the development stage, after a specific product concept has been defined and selected by the NPD team for further development, a targeted search is conducted to identify patents relevant to specific features of the selected product concept. 

The state-of-the-art and targeted searches identify risks early, thus eliminating inefficiencies. The timing of the state-of-the-art search facilitates early elimination of risky product concepts. Soon after the team selects a product concept, the targeted search exposes any specific risks associated with that concept.

Avoiding Risks Proactively

When general IP risks are identified by the state-of-the-art search, those product concepts that give rise to intolerable infringement risks can be eliminated early in the concept generation or feasibility review stage. By screening risky product concepts early, the NPD team’s resources can be shifted to those concepts that do not conflict with IP rights of others. This saves the resources that would otherwise be wasted developing and commercializing unsuitable product concepts.

Later in the NPD process, IP counsel facilitates a “design around” to identify modifications that reduce any specific infringement risks identified by the targeted search. By conducting any needed design around early in the development stage, the NPD team avoids the inefficiencies and business disruption associated with last-minute product revisions (eleventh-hour design changes, scrapped mold tooling). A successful design around may also save the company the significant expense and disruption associated with IP litigation. 

Product development also presents a risk of losing IP rights. IP counsel sets strategies to secure comprehensive IP protection for product concepts, considering all available modes of protection (patent, trademark, copyright, and trade secret protections). By seeking IP protection early in the feasibility phase, foreign and domestic patent rights are preserved. 

Timing IP Review Strategically 

The formal integration of IP review into staged NPD processes ensures strategically timed completion of IP deliverables. Integrated IP review also ensures that IP deliverables are completed efficiently at appropriate junctures throughout the development process. 

An NPD process with integrated IP review triggers the NPD team to complete important IP deliverables in a timely fashion. In the commercialization stage, these deliverables include establishing procedures for policing IP rights, confirming that comprehensive IP protection is in place, pursuing foreign IP protection when warranted, and preparing formal written opinions of non-infringement if needed.

Integrated IP review also encourages the NPD team to maintain prompt communication with business managers regarding IP risks and opportunities associated with the development effort. Effective NPD processes make product launch contingent upon management’s consideration and tolerance of identified IP risks.

Conclusion 

Too often IP review is delayed or bypassed in new product development, compromising the ability of business managers to identify and manage risks proactively. By integrating IP deliverables into structured NPD processes, the development team can streamline IP review to improve efficiency, minimize business disruption, and avoid delays in launching new products.

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