Robert Cote, CEO of COTE Capital and an intellectual property lawyer of more than 20 years, succinctly summarized his approach to navigating the ongoing threats of IP theft and its impacts on innovation-dependant businesses.
“Stop it where you can stop it, slow it down where you can slow it down, and, when possible, work with others – if you are building a business through sharing, you will grow faster, will make a lot more money, and you are going to be able to withstand greater challenges,” he told Medtech Insight.
Patent protection is less of a “sure bet” these days and more about buying time for any new technology or business to supplant competition. However, it needs a “multifaceted approach” – physical, legal and technological.
Physical IP protection controls who has access to what. “This mechanism is most valuable when you’re trying to keep what you do, secret,” he said. “Designs for a new piece of equipment or recipes are examples.”
“Long timeframes to enforce results in irreparable harm to innovators because the competition can launch into market and reap the benefits of all the innovator’s work – usually at a lower price point, without all the hard work – and start stealing market share” – Robert Cote
Technological protection is cybersecurity – encryption, file control, secure servers, etc.
Legal protection is more complex.
“It depends on what you are selling,” Cote explained. He gave the example of Coca-Cola, which has been able to protect its recipes – which vary by geographical location due to varying regional preferences – not through patents, but by protecting its trade secrets.
“Trade secrets mean that your physical security and your technological security protect everything you need,” said Cote. “The law requires that you take reasonable precautions to protect your secret, but you’re still able to enforce those rights in court against whoever the perpetrator is.”
Trade secrets are all well and good for products or technologies that remain inside a company. “[But in medtech] anyone can inspect these products and reverse engineer them,” said Cote. “Your only real protection here is patents – and even then, those only apply in countries where intellectual property rights are respected.”
Timely Stoppage
When enforcing patents, time, above all else, is the most important consideration for any company to make, Cote explained.
“Long timeframes to enforce results in irreparable harm to innovators because the competition can launch into market and reap the benefits of all the innovator’s work – usually at a lower price point, without all the hard work – and start stealing market share,” said Cote.
In the US, the issue of timing is one that is fairly simple to navigate. Cote said that some states are better than others for filing of cases, but said that, broadly, “timely enforcement matters most.”
When faced with international companies infringing on your IP, though, issues arise.
Companies who believe foreign competition is engaging in IP theft are able to lodge complains with the International Trade Commission (ITC). From these complaints, the ITC can issue an exclusion order, barring competitors’ goods from requested markets.
The key word is “can.” Both the issuer of the complaint and the defendant have the opportunity to submit evidence towards their cases, and although “the patent system does not care whether infringement was intentional or unintentional,” definitely proving infringement can be difficult.
And even if a complaint succeeds, it may come too late. Cote said that, typically, timeframes of 12-18 months are to be expected and that complaints are instead often used to force the infringing party into some kind of resolution.
Half Closing The Tap
Cote said that many are made due to the unpredictability of any court judgement.
IP law may seem black and white, but humans are not. “Every judge and every jury comes with their own way of seeing the world,” said Cote. “You don’t know who you will get in that box.”
“Depending on who is deciding your fate and depending on how the case unfolds, you may enter into a settlement and license agreement and allow that company, whether they’ve stolen your technology or they’ve independently developed, to take a license and pay you a revenue share or a royalty,” he explained.
“Patents are a tool that can be used in different ways. Not necessarily to prevent copying, but instead to mitigate the harm and turn that problem into an opportunity.”
But opportunities only work if you are willing to take them.
“Instead of viewing it as theft, entrepreneurs can turn lemons into lemonade and force people into license agreements that give them access to markets that they lack the capital, manpower and time to reach.” – Robert Cote
“More often than not, the CEO or entrepreneur with an idea cannot take on global markets by themself,” said Cote. “Instead of viewing it as theft, entrepreneurs can turn lemons into lemonade and force people into license agreements that give them access to markets that they lack the capital, manpower and time to reach.”
And for mission-led companies – as so many medtech start-ups are – this approach means that “anybody who’s done something breakthrough can have a greater impact by sharing what they have in the world.”
The China Question
When the words “patent infringement” get brought up, fingers are usually pointed towards China. A 2022 estimate from the US Congress put the dollar figure of Chinese IP theft at $225bn-600bn per year.
For Cote, the China is a highly attractive market for any company. “A billion plus people contained within a sophisticated market. Why do I want to be focused on the American market with 300 million consumers when there’s another seven or 8 billion around the world?”
"The paradox is that if companies share their IP, they can grow faster. Licensing enables a bunch of people who would be competitors become partners." – Robert Cote
But it also represents a challenge. “Companies need to be sober when entering it. Timing matters. Too soon and without the necessary protections and theft can become a real irreparable harm to their business globally, because now somebody can knock off what they’re doing and enter the global market, not just the Chinese... Too late and someone beats you there!”
Companies also need to work out how to maximize the rewards for any partnerships. Cote pointed out that, especially in the case of medical devices and drugs, inventors may have spent tens or even hundreds of millions of dollars to get to a working product and that, naturally, a generous return is expected.
Care About The Engine, Not The Driver
And it is this that is the essence of Cote Capital’s work. “As an IP investor, I care about the engine in the car – the IP,” said Cote. “Start-ups today need a new kind of investor, and they need to scale globally to succeed.”
“It is our job to work out how you can slow down certain aspects of copying, stop others entirely and form agreements to capitalize on others,” he explained. “Entrepreneurs are free to hold that diamond they’ve discovered in their pocket, but they have to understand that they’re stunting their growth and the value they can deliver to the world by doing so.”
Cote compared IP-based investing to more traditional, equity-based venture capital. “VC want their companies to enter a market and claim a growing, but small piece every 12-18 months before they allocate more capital, and in the end leave most entrepreneurs with little ownership in the company they’ve built.”
“This slow and steady approach used to work, but in a world where you have so much competition, it falls apart. The paradox is that if companies share their IP, they can grow faster. Licensing enables a bunch of people – more teams – who would be competitors become partners,” he explained.
