Devising a Smart Strategy - ITL Corporation Pty. Limited
ITL Corporation Pty Limited is an Australian company which commenced its operations in 1994. From 1994 until 2003 it has grown from a company with two founders and no staff, to a company with over 150 staff in four countries. It has some 20 staff in Australia, over 130 staff in Malaysia, and marketing staff in the United States and the United Kingdom.
ITL is an innovator, designer, manufacturer, and commercialiser of medical devices and health care products. It exports its products to over 30 countries. It has over 100 patents granted in some 12 patent families. It has 11 trade marks registered in over 25 countries.
This case study describes how ITL grew from a company with 2 founders, to over 150 staff, in nine years, and the role that its intellectual property played in its growth and success.
The company's name itself indicates the importance of its intellectual property: ITL stands for Innovation, Technology, Licensing.
As its name indicates: Innovation is at the core of the company's business, as is the creation of Technology assets, and its exploitation, through Licensing and otherwise.
ITL's IP assets have been of critical importance to the company's success.
The Joint Managing Directors of the Company are Bill Mobbs, who was a computer consultant, and Jag Dillon, who was a research scientist, and an official in the Therapeutic Goods Administration (the equivalent in Australia of the United States Food and Drug Administration).
They met while both were enrolled in university undertaking a Masters of Business Administration. They decided that the business that they wanted to form needed to be:
3. innovative, and
Identifying the need
Through 1993 and 1994 the risk of AIDS and Hepatitis C infection was receiving global attention. Healthcare professionals such as doctors and nurses were particularly concerned about the risk of accidental infection, given that they daily dealt with needle devices that could be contaminated with any infectious condition affecting a patient, that was capable of being transmitted by blood. This included syringes and blood collection needles.
These needle devices presented a risk of accidental needle stick injury. If the needle had come from a patient or blood donor infected with AIDS or any other infectious condition, there was a risk of the healthcare professional, through accidental needle stick, becoming infected.
At about this time a retractable syringe entered the market. The retractable needle was safer. It helped prevent accidental needle stick and therefore helped prevent a healthcare professional accidentally contracting any infectious condition which a patient had. It did so by encasing the needle, immediately upon withdrawal from a patient. By encasing in this way, the risk of accidental needle stick injury was removed.
Blood collection agencies such as the Red Cross were similarly concerned about accidental needle stick injury to their staff, who daily used blood collection needles when taking blood or blood products from donors.
ITL identified the need for a new product into which blood collection needles could safely be contained, upon withdrawal from the donor, in that way minimizing the risk of needle stick injury and infection.
In its early stages ITL relied upon a number of sources for its working capital. These sources included:
1. founder's equity, where the founders provided working capital from their own funds
2. investors' equity, where investors provided some working capital for ITL's needs
3. concessional loans and grants from government.
ITL informed itself of the available grant schemes and concessional loan schemes in Australia that aim to support and encourage local industry. This is not unlike similar schemes in many other countries that aim to encourage economic activity, resulting as that does in employment, and export income. Many such schemes focus on industries with protectable intellectual property, and industries with export potential.
ITL was able to demonstrate the prospect of both, having protectable intellectual property, with export potential. ITL took advantage of each scheme available to it, with the enthusiastic support and guidance of the administrators of the schemes.
Amongst the schemes that ITL most relied upon were those that assisted ITL by providing funding for the international marketing of its products. Some of these schemes were grants, without an obligation of repayment. Other schemes were concessional loans, which carried obligations of repayment, but with the interest rate being low, and the loan period being generous.
These grants and concessional loans made a critical contribution to ITL's working capital needs, and ability to pursue its international marketing strategies.
IP Strategy #1: Ownership of Intellectual Property
With the idea of a vessel into which blood collection needles could be safely housed, ITL engaged a designer. The designer was an independent contractor to implement ITL's design concepts and ideas.
An independent contractor, not being an employee, owns the intellectual property that the independent contractor creates. If ITL had done nothing about IP at this stage, the design of its product would have been owned by the designer, and the patent over the new product may have been jointly owned by ITL and the designer. Joint ownership of a patent can sometimes impede the commercialization process, since the patent laws in most countries (other than the United States) prohibit a joint owner from licensing or assigning its interest in the patent without the consent of the other joint owner.
Where the joint owners are collaborators, they manage this joint ownership. However, where the joint owners are an independent contractor and its client, ownership being shared with the contractor may impede the client's commercialisation objectives.
Similarly, sole ownership of the copyright in a design resting with an independent contractor would impede commercialisation by the client.
But ITL did not fall into any of these traps. ITL ensured that its contractors signed written agreements that recorded:
1. ITL's ownership of the Intellectual Property created for it, and
2. that the independent contractors were obliged to ITL by obligations of confidentiality.
This ensured that ITL's commercialisation objectives would not be impeded by independent contractors solely owning a critical piece of intellectual property (such as the copyright in a design), or jointly owning some other critical piece of intellectual property (such as a patent).
ITL has from the start adopted a policy that it must own the Intellectual Property that it creates, whether it is created by its staff, or by independent contracts. The implementation of this Intellectual Property Policy ensured that whenever independent contractors were engaged, that they signed a written document that recorded an assignment to ITL of the Intellectual Property that they creates in the course of their engagement by ITL.
The implementation of this Intellectual Property Policy also ensured that there were formal employment agreements in place between ITL and each of its employees, that provided for:
1. the ownership of intellectual property created in the course of employment vesting in ITL
2. employees having obligations of confidentiality to ITL, including after the ending of employment
3. restrictions on competition, aimed at ensuring that employees did not use ITL's intellectual property and confidential information should they become employed by ITL's competitors, or should they decide to commence a business competitive to ITL's business.
IP Strategy #2: Patents
In 1994 ITL applied for its first utility model or petty patent (in Australia now called an innovation patent) over its first product, the DonorCare. This utility patent was later converted to a standard patent
The DonorCare product is a vessel with a unique design into which blood collection needles are retracted upon withdrawal from a blood donor. The patent was critical, without which ITL would not have achieved the four objectives that it had identified at the outset for its business:
1. Niche: A product that was sought after, would be in high demand, and which had no competitors
2. Global: There was a worldwide need
3. Innovative: A new and unique product
4. Protectable: Patent capable of being granted in each key country, with the ability to exclude others from selling ITL's unique product.
Importance of patenting
Competitors entered the market with their own products. But they had to ensure that their products did not infringe ITL's patent with its superior design and superior functional characteristics. Products made by competitors were inferior to ITL's product. Had they adopted the DonorCare's unique characteristics, they would be exposed to infringement action.
ITL created a high profile to discourage infringers. There have not been any infringers. There are competitors, but the competing products are inferior, because of ITL's patent position. A key to ITL staying ahead and beating its competitors has been its patent position.
Patenting ensures that copy cats are eliminated, and there are no copy cats trying to copy the DonorCare product. Patents act as a deterrent to infringers. It is a myth that a patent owner spends considerable amounts in pursuing infringers - the fact that there is a patent acts to deter copy cat producers, and deters infringers.
While it is true that some patent owners must prosecute infringers to protect their patent, this is the exception, not the rule. The rule is that a patent deters would be infringers.
IP Strategy #3: Trade marks
DonoCare was the first trade mark that ITL registered. It was registered at an early time. ITL identified the need to achieve product recognition at an early date. It recognized that it needed its potential customers to be aware of its product, and to recognise its products, over any competing product. The result is that customers are loyal to ITL's products
Moreso, there is pressure upon blood collection agencies to use ITL's superior products, and that is possible because of the brand recognition brought about by its trade marks. New customers prefer the superior ITL product over inferior products, and that has been achieved by the brand recognition that has been made possible by the trade mark
Trade marks leverage
ITL's trade marks have enabled it to leverage off its patents. If ITL patented every product in every country, and registered every trade mark in every country, this would be a prohibitively expensive process. ITL's strategy has been to patent in major countries for product protection, and to trade mark in a greater number of countries for product recognition.
These two, product protection, and product recognition, compliment each other. In this way, the trade marks in countries where there are no granted patents leverage off the patents granted in other countries. This is a clever use of two different intellectual property assets.
The leverage avoids incurring patent expenses to some extent, and it creates demand and recognition for a product that in some countries does not have patent protection.
The foundation of ITL's strong business rested upon its appreciation of the importance of intellectual property assets, protecting its ownership, seeking patents, and seeking trade marks.
That is the foundation of ITL's product range which now extends beyond the DonorCare needle protector, to the Platypus needle protector, the Bladeguard stitch cutter, the Flipper Stripper which strips blood tubing, and the SampLok which creates a vacuum for blood collection.
All of these products are protected by patents, and recognised by trade marks.
Licensing to Outsourcing to Manufacturing
ITL over time changed its outlook on its business. Its name suggests that at its inception, licensing intellectual property was to be a major focus. But at an early date ITL recognized that it would achieve greater financial returns if it sold products, instead of granting patent licenses. The margins on products sold, not surprisingly, are greater than the royalties which could be earned through a license.
At an early date therefore, ITL decided that instead of licensing its intellectual property, it would outsource manufacturing, purchase products from its contract manufacturer, and sell its products to its customers.
This continued for a number of years. But the lack of consistent and reliable manufacturing contractors prompted ITL to take control of that part of its business.
ITL set up manufacturing facilities in Ipoh, Malaysia. The manufacturing facility now employs over 130 staff, and it is the facility from which all its manufacturing takes place.
Lack of consistent and reliable mould tool makers prompted ITL to set up its own toolmaking capability at its Ipoh facility. Those facilities are clean room certified, to ISO 9001 and EN46001 standard as would be expected for a manufacturer of products for medical use.
Licensing In and Contract manufacturing
With its own manufacturing and tool making capability, ITL's business expansion has included:
1. Licensing in the innovative products of others, and manufacturing and selling those products, which ITL has done for its Leuko Cart and Baby Leuko Cart, which are leuko depletion workstations
2. manufacturing mould tools for other clients
3. contract manufacturing for other clients.
More recently ITL has decided to expand its operations into the procedure kit market. Procedure kits are kits which contain all the tools, tubes, gloves, dressings etc for a particular medical procedure. Typically they are disposable, being intended for a single use.
ITL has an increasing range of procedure kits that it assembles.
ITL has been the recipient of a number of awards:
1. Winner 2002 ACT R&D Award
2. Winner 2000 Australian Design Mark - Platypus® Needle Guard
3. Winner 1999 ACT OH&S Overall Outstanding Award - Platypus® Needle Guard
4. Winner 1998 ACT "Emerging Exporter" Award.
5. National Finalist 1998 Australian Export Award.
6. Runner Up 1998/99 Australian Design Award -LeeSpec® Disposable Speculum.
7. Winner 1997 Australian Design Award - DonorCare® Needle Guard.
8. Winner 1997 ACT OH&S Prevention Award - DonorCare® Needle Guard.
1. Ensuring that you own the intellectual property that your business relies on
2. Ensuring that independent contractors assign to you the intellectual property that you pay for
3. Seeking out public grants and concessional loan schemes that will help your business
4. Ensuring that your staff maintain confidentiality, and will not compete with you
5. Taking out patents to protect your unique products
6. Registering trade marks to create market recognition for your products
7. Leveraging off your patents and trade marks.
Case study compiled by Philip Mendes, from Philip Mendes & Brad Thomas (Assoc).