As promised, this is the first in what may be a few posts on projects we've terminated at EIP -- what we learned, what we'd do different next (this) time, etc. Here are the ground-rules: (1) I'm going to change names to protect confidentiality, (2) I may even change facts like categories or product-specific info for the same reason (but I'll keep the key points true to experience), and (3) I'm going to have fun and I hope you are too. Due to reality and narrative constraints, my 4-paragraph blog rule will likely get abused in these postings...
Our job at EIP is to find, transform, validate, and license promising new consumer products to branded manufacturers. The big guys have distribution, and have the resources to drive awareness, and they're increasingly hungry for new products to in-license. And trying to start up a new consumer product company is a real challenge. Hence our existence and pursuit of our Product Capitalist model. Our website has more details if you're not familiar with us.
So, Bill comes to us with a really clever product concept in a big-ass category. We're talking health and beauty here, and he's got an angle on what is essentially a spin on an anti-microbial health product that hasn't been done yet. It plays into some great trends, and makes good kitchen logic sense. Not clear from the get-go how big it can be, but gut feel is that it's meaningfully big.
Our concept test scores nice and high. Our anecdotal consumer research is thumbs up -- most people buy the storyline and several are quite excited. We're starting to believe we might have something here and we sit down to map out next steps. We're big believers in rapid, sequential risk reduction. Many BigCos at this point would form a multi-disciplinary task force and boil the ocean in parallel to solve for all sides of the early stage opportunity. We do something else -- we look for the biggest risks, and we attack those first. If the project is a loser, let's find out quickly and fail fast and cheap.
First we decide that we should make some of the product -- he's got a formula that our due diligence says is credible, but we believe very strongly in testing that a product actually does what it's supposed to do. So we find a small lab and make up a bunch of it. That's when we get interesting surprise #1: it costs a bloody fortune to make. We decide to come back to that issue later, but we do confirm it works as promised. So, unintentional caution flag is raised, but the gate of "does it work" is a success: it works.
Next risk box: do we have meaningful IP? Our review of the IP, and our discussion with our inventor and some scientists suggested that the product was meaningfully better than alternatives. But we were curious: how did the inventor come up with the idea? He answered that nicely. Then we asked about his formula since he doesn't have any scientific background. Oh, a buddy of his that knows this stuff helped him. Caution flag #2: the buddy's name is nowhere on the patent.
So we call our lawyers and have a fascinating conversation and learn two things:
1) the absence of the buddy's name is a problem - it can be fixed, but it severely weakens the patent in litigation as a valid patent requires all inventors to be named on the patent. While I knew that, I didn't know that amending named inventors after the issuance has negative consequences in litigation, even when the oversight is completely unintentional.
2) the patent claims were much narrower than we expected. When you get into chemistry, the words matter a lot. Simple phrases like "consisting essentially of" mean something very important. Like if you throw more than a few drops of something else in there, you likely are outside the patent claims. Yikes!
So, given the narrowness of the patent claims, in combination with the weakness due to the named inventor issue, we pulled the plug.
So what did we learn? I re-learned a lesson from a while back: always ask the 2nd and 3rd question - that's where the real nasty often lives. Never stop with the first answer, look for where the bad news may be hiding... In this case, if we had stopped at: "can we add Jim's name to the patent as an inventor" we would have thought we were fine. But we luckily asked the 2nd question: "and are there any ramifications of adding him?"
Same with the patent claims themselves. At first ask, "How do these patent claims look", the answer was "They're pretty good given what you're trying to do. Product seems like it's effective." The 2nd question of, "and if we were company ABC who saw this product successfully launch, and wanted to develop a competing product, where would we start getting around this patent?" led to "as your patent counsel, I'd recommend you just add a bunch of other non-active ingredients to the product mix. That gets you around this 'consisting essentially' language..."
Never be afraid to ask... And keep on asking...