32184_IPO:INTELLECTUAL PROPERTY OFFICE V5 23/6/09 09:32 Page 1

Protecting the marketing mix

through intellectual property rights
Introduction CURRICULUM TOPICS
• Marketing mix
• Innovation
The Intellectual Property Office is part of the Department for Innovation, Universities and
• Business expansion
Skills. It is the official government body responsible for granting intellectual property • Intangible assets
rights in the UK. The Intellectual Property Office supports innovation by granting intellectual
property rights. This is property that originates in the mind as an idea, such as a design of a GLOSSARY
car, a piece of computer software or the words and music of a pop song. Businesses take Intellectual property rights:
steps to protect their physical property, such as equipment, raw materials and buildings, but it The rights of the owner to protect
their ideas.
is just as important that they protect their intellectual property.
Knowledge economy: The use
Consider the development of a product such as a mobile phone. The manufacturer needs of knowledge technologies (such
as knowledge engineering and
physical resources such as offices, factories and machines - but what really makes the knowledge management) to
difference between different phones? The value in many products is not the physical materials produce economic benefits.
– for example, the metals and plastics that are used. Mobile phones are shaped by ideas: Patents: A legal right that
improved technology leading to, for example, faster communications, music and digital establishes for the holder of the
patent the right to be the sole user
photography, ‘cool’ designs and world-class brands. Think of the value in an iPod or a or producer of a new process or
downloadable song. Intellectual property is often more valuable than warehouses and office product.

blocks. This may be described as a knowledge economy. There are several ways in which Designs: The appearance of a
product.
the Intellectual Property Office can help a business to protect its intellectual property (IP).
Trade marks: Unique logo or
symbol displayed on a company's
products.
Patents provide exclusive rights to exploit an invention for a limited period – usually 20
years. Copyright: Legal protection for
authors, composers and artists
from having their work copied or
Designs protect the appearance of a product and can be registered for legal reproduced without their
protection. permission.

Trade marks such as brand names and logos can be registered and protected.

Copyright is an automatic entitlement to stop others copying any kind of written or

recorded material.

A company like Apple uses these safeguards to patent its inventions and register its designs.
These protections can be applied across the world. For example:
• it has registered its brand names as trade marks, such as iPod, Macintosh and iMac. This
prevents competitors directly copying these brand names
• its distinctive logo (the apple with a bite taken out of the side) is registered as a trade mark
• products sold through iTunes are also protected under copyright. The writers of each song
usually own these rights.

To see how important IP protection is in practice, this case study looks at how one technology
company, Forensic Pathways, has used these legal safeguards for a new development.

In the UK there are now over 70 million mobile phones in use. The vast majority are used
legitimately, but mobile phones are also used by criminals and terrorists. Computer
technology can now analyse calls and messages from many different mobiles at once.

A computer program that could plot, map and analyse that data so that criminal networks
could be identified would be valuable. How would the developer protect the product before
reaching the market?
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GLOSSARY
Marketing mix: A series of
variable factors (product/price/
place/promotion) used by an
organisation to meet customer
needs.
Target market: The specific part
of the population to whom a
product offering is aimed and all
marketing communication is
tailored.
Brands: Name, symbol or design
used to identify a specific product
and to differentiate it from its
competitors.
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Forensic Pathways is a highly innovative company based in Staffordshire that provides
products and services for the police and security services. It specialises in investigative tools
for crime, security and fraud. The company exploited rapidly-advancing computer technology
to develop a new product, the Forensic Phone Analyser. This allows police and security
services to search for phone numbers, SMS text messages, contacts and images, across all
the data available, not just case by case. Marketing planning showed that the product could
secure substantial sales so the company invested time and money developing the product.
If a competitor developed an equivalent product based directly on Forensic Pathways’
software, all Forensic Pathway’s work would be undermined. The company would incur the
development costs but not have the opportunity to recover those costs by being first to
market. To prevent this happening, it took steps to protect its intellectual property rights from
the beginning of the development process.
The marketing mix
Marketing is about projecting the right product at the right price in the right way to the right
customers. This is how value is added. Bringing a product to a market involves balancing
several key ingredients. This is called the marketing mix: the 4Ps of product, price,
promotion and place. Every offering will need a slightly different mix of these factors,
depending on the product itself, the target audience and the market. The logical starting point
is always the customer. A product must deliver value to customers in the target market by
meeting customer requirements.
• Forensic Pathways had carried out detailed market research and understood the needs of
its target market: the police and security agencies that have the legal right to access
mobile phone data. This research enabled Forensic Pathways to identify what features the
product would have to meet these customers’ needs. However, before investing in
development, Forensic Pathways needed to check whether such a product already existed.
By searching the patent database on the Intellectual Property Office’s website, a business
can verify that its idea is entirely new. A patent gives protection from copying or imitation
by competitors.
• Price needs to be competitive and offer customers value for money. Forensic Pathways
needs to make positive return on its investment and recoup its development costs. The
ability to protect intellectual property is crucial here. If a competitor could simply ‘take’
Forensic Pathways’ technology and software to develop a similar product, it could price
this product much lower because it would not need to recover research costs. In effect,
taking out a patent gives a company time to exploit its research in the marketplace.
• Forensic Pathways uses its specialist knowledge of the market and personal links with key
customers to promote its product. By registering the company name and the product
name, the Forensic Phone Analyser, as trade marks, it prevented other companies using
these names. This provides clarity for customers. Rival businesses cannot offer similar and
perhaps inferior products with identical names. Companies use trade names to build and
identify their brands.
• The final P in the marketing mix is place – the channels to market. This is the process that
enables customers to buy and receive the product. This can include the use of wholesalers
and retailers, the work of the sales force and direct marketing techniques. This activity can
be compromised if the product is confused with similarly named rival products. This legal
protection for product and brand identity is also important when it comes to the sales
process itself.
Product
Forensic Pathways has high levels of knowledge in electronics and computer programming.
For its new product, Forensic Pathways wanted to do far more than simply extract data from
mobile phones. It wanted to be able to alert investigators to patterns in the data. Powerful
analytical computer programs could reveal ‘pictures’ in the data that might spark new lines of
enquiry and provide evidence of criminal networks.
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The Forensic Phone Analyser was the first product of its type in a specialised but growing
market. While the Analyser was in development, its intellectual property (the specialised
combination of technical know-how and computer software) was not at risk. Only a few
trusted employees knew the underpinning technology and software. All electronic information
on the project was held on secure servers and networks. However, once a product is
launched on the market, it 'breaks cover’. A competitor might be able to unravel the finished
product, working backwards to reveal its design and operating principles. This is known as
reverse engineering. The resulting slightly different but essentially copied product might GLOSSARY
then be fast-tracked into the same market. Reverse engineering: The
process of discovering the
technological principles of a
Forensic Pathways knew the product would add real value but it would only prove profitable if
device, object or system through
it were protected with the safeguards offered by the Intellectual Property Office. analysis of its structure, function
and operation.
Capital: Money, buildings,
The first step was to patent the technology. A company can apply to patent a product machinery, equipment etc.

or a process if it is a clear ‘inventive step...capable of industrial application’. A patent Profit margin: The percentage

1
of sales value that is profit.
stops anyone else copying the invention for up to 20 years. The patent owner can
Skimming: A pricing strategy
take legal action against anyone imitating or copying the idea during that time and where a relatively high price is set
can also license or sell the patent rights. This gives the developer time and opportunity for a product or service at first,
then lowered over time.
to recover development costs.
First mover advantage: The
first company to introduce a new
product to market has the

2
The next step was to claim copyright for the software. This provides the same opportunity to extract the greatest
long term benefit from the product,
protection as copyright on books and music. Software cannot be copied, stored on a compared to that which following
computer or converted to other computer languages without the owner’s permission. companies would be able to gain.
Niche: An area of a market that
has a particular group of

3
customers with specific
Forensic Pathways could also make the visual elements of its product a “registered requirements.
design”. This prevents a competitor attempting to copy its distinctive features. Competitive advantage: A
strategic element that enables an
organisation to compete more

4
effectively than its rivals.
The company also registered the name Forensic Phone Analyser, along with its brand
and logo as trade marks.

With all these safeguards in place, Forensic Pathways was able to commit capital to the
phone analyser development with confidence.

Price
Pricing depends on the market. There are many different pricing strategies that a business can
apply. Setting a relatively low price can attract customers but reduce the profit margin. This
approach is called market penetration. It is often used in highly competitive mass markets
with large volume turnover of goods, for example, tins of beans in a supermarket.

However, Forensic Pathways operated in a very different type of market. It was targeting a
relatively small customer base – police services and security agencies – with a new product
that had no immediate rivals. This meant the company could choose to set a relatively high
price that carries a higher margin. It would allow the company to generate a realistic return
on its high development costs. This approach is called market skimming. It is often the
chosen strategy for innovative products. Reductions in price can follow later as competitors
enter the market. The company would enjoy first mover advantage, achieving
penetration of its market niche without major price concessions.

This strategy relies on IP protection to give competitive advantage over rivals, based on
the product’s technological capability and the reputation of the Forensic Pathways brand. If
other firms steal or imitate these assets, then Forensic Pathways would see slowing sales.
Worse, the competition for customers could force the company to push down prices, lowering
profit margins and reducing potential for future investment.
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GLOSSARY
Above-the-line promotion:
Direct expenditure on advertising,
such as for a TV commercial.
Below-the-line promotion:
Use of indirect promotional
methods such as public relations
and advertorials; promotional
activity other than advertising.
Balance sheet: A financial
document that shows what a
business owns (assets) and what it
owes (liabilities) at a particular
moment in time.
Assets: Something that is of worth
to an organisation e.g. people,
cash, financial claims on others,
machinery, buildings.
www.ipo.gov.uk
23/6/09 09:32 Page 4
Promotion and place
The most innovative product in the world will still fail if potential customers do not understand
the value it brings to them. The most effective method of promoting sales will depend on the
type of product and the target market. For a mass-market product, such as a new blockbuster
movie, above-the-line promotion such as internet, television and press advertising may be
appropriate. This usually has high costs and is less easy to measure the impact, except by
specialised market research.
The Forensic Phone Analyser is a specialised product in a niche market. It needed a different
approach to promotion. The company’s main strategy is to use below-the-line promotions
to contact potential customers directly. Below-the-line promotion has the advantage of being
less expensive and more under the business’ control:
• The product was showcased at trade fairs and exhibitions attended by key buyers in the
security industry.
• Emails and mail shots were sent to possible customers.
• Forensic Pathways also used its relationships with existing customers to introduce the new
product by direct mail or telephone sales.
With its product and brand identity protected within the UK by intellectual property,
Forensic Pathways could confidently promote the Forensic Phone Analyser in this market.
However, with over 2.5 billion mobile phones in use worldwide, the company also wanted to
target overseas markets. It therefore needed to protect the product worldwide. The World
Intellectual Property Office based in Geneva, Switzerland is heading the development of a
global system for protecting intellectual property. Businesses can now make a single
registration of original designs giving protection across most countries. However, the law
enforcing protection varies in effectiveness from country to country. Globally there is a huge
trade in counterfeit products and some countries are not strict in enforcing copyright. Forensic
Pathways still needs good legal advice to deal with risks. It is possible to challenge any
infringements by taking companies to court.
Conclusion
The balance sheet of most businesses still emphasises the value of physical assets such
as buildings, plant and equipment. Yet typically, around 75% of a firm’s value is in its
intellectual property, such as knowledge, copyrights and brands (trade marks). The business
writer Charles Handy calls it the 3Is - information, intelligence and ideas.
Many businesses are able to exploit their intellectual property but they need to be aware of
the risks. Ideas could easily be copied and the whole basis of a new product could be lost.
This is why the services of the Intellectual Property Office are so important.
The Intellectual Property Office offers innovators and creators protection for their new ideas
and products, without which there would be less investment in innovation and brand
development. It also enables future generation of new ideas. Although protection of a patent
remains in place for around 20 years to prevent direct copying, the knowledge content of
patents is made public after 18 months. This stimulates further innovation and competition.
Questions
1. What is intellectual property (IP)? How can a business gain legal protection for its IP?
2. Explain how IP protection can be essential to the marketing mix.
3. Analyse why protecting IP has become so important to firms such as Forensic Pathways.
4. To what extent do you think IP protection is in the public interest?