Smart use of fabrics - and the first-mover advantage

Written by: European Patent Office

Introduction:

INTELLIGENT TEXTILE, ENGLAND, shows that even the most basicIP can help a tiny company compete in a massive market. The successful company,a five-person operation in Surrey, sells a "smart fabric" technology toindustries as diverse as healthcare, apparel and automotive.

A few years back, company foundersStan Swallow and Asha Peta Thompson created a process of weaving electricalcircuits into fabrics such as cotton, wool and polyester. Previous technologiesinvolved fusing multiple layers of cloth. Their fabric, by contrast, is a flatpiece of cloth that looks like any other. Of course, it isn't. Woven withconductive fibres and connected to an energy source such as a battery, thishigh-tech fabric can incorporate heating elements to warm a glove, say, or usesensors that respond to pressure to make a computer keyboard from a piece ofcloth. Soon after inventing the technology, the founders patented the processand started a company.

A potentially explosive market

Intelligent Textiles is a tiny fishin a huge ocean. It started operating out of a two-room studio a half-houroutside of London. Now the company owns new premises with a fully equippedstudio. Three part-timers are employed to do technical, administrative andsales work. Its handful of customers includes an apparel company, which makes ajacket with Intelligent Textiles' technology in the sleeve to control an MP3player. The technology is also used in an easy chair that reclines by squeezingthe armrest and insoles that can be inserted into shoes and ski boots to warmfeet. The founders sell not just component parts to companies, but also theirknow-how through consulting contracts to a wide range of industries ingeographic markets including Germany, Spain, the UK, and the US. Although sales volumes remain small, the company's potential is large. Asha Peta Thompson: "Werecently won a major research contract for the Canadian Government and are setto launch our heated glove product with Tilsatec, a technical work wearcompany."

Talk of how smart fabric technologywill change our lives has been around for some time.Wearers will be able toorder milk from the supermarket at the touch of a tie, its boosters have said,or buy bed linen that warms the body as it grows cold at night. Only recently,though, have these futuristic visions become reality with IntelligentTextiles playing a key role.

The story of Intelligent Textilesprovides a window into how a tiny company armed with only a first-moveradvantage and valuable IP can position itself to be a chief player in apotentially explosive market.

The gamble paid off

For two entrepreneurs from academia,they showed considerable foresight when it came to IP issues. At the time, DrSwallow, a design engineer, was working as a lecturer at Brunel University, while Ms Thompson, a weaver by training, was a research fellow at the university,designing educational toys for disabled children. The two viewed IP as crucialenough to do much of the patent filing work themselves. Even though theuniversity supplied a patent attorney, they spent some six months drafting the30-pagepatent application, including a solid month dedicated fulltime to theeffort. They did their own novelty search for conflicting patents and asked twoprofessional providers to search too. They sought further advice from twooutside patent attorneys to be sure they were getting the best advice from theuniversity's expert. Next, they decided to secure those IP rights forthemselves.

Originally, the university owned thepatent. In 2000, Dr Swallow and Ms Thompson took a gamble and bought it backfor tens of thousands of dollars, emptying their savings accounts and borrowingfrom family and friends, to buy the patent and support their first months inbusiness. "It could have all gone horribly wrong", admits Dr Swallow. It wasnot an easy decision to make either. The university could provide furtherresearch and development, but they worried that the technology's potentialmight prove too big for the institution to handle. What they really needed wasto commercialize the product, quickly. "That is notoriously difficult to dofrom inside a university", says Dr Swallow.

Early on they received affirmation that they had done the right thing. Shortly after establishing the company, they took a road trip, approaching potential customers to seek advice. A manager in a technology development department at a major toy company told them that they were sure to end up fighting for their IP rights in a court of law. "It confirmed we were on the right track", says Ms Thompson.

As a result, they decided to file the patent more broadly. The first filing had been in the UK. They decided to expand the patent's reach by filing under the PCT and with the EPO. The filing with the EPO gave them an unexpected advantage during negotiations with their first customer. At a tradeshow, they came across a company called Australian Wool Innovation. The two companies struck up negotiations, which resulted in a contract large enough to fund further research and development, and allowed them to pay back family and friends. "It was stated in no uncertain terms that had our patent only been granted by Australian authorities instead of the European Patent Office, it wouldn't have been valued nearly as highly", says Ms Thompson. The company has been operating on cash flow ever since.

A controller unit for an MP3 player that can be incorporated into any garment.

Growing sales organically

Surprisingly, the two have shunned the path normally taken by producers of breakthrough technologies.

Ordinarily, a company would have raised venture capital by now and expanded rapidly to make sure their technology showed up in every armchair and jacket in the world. Although venture capitalists have offered money, the two have preferred to keep the business small and grow sales organically.

Being small, though, has meant having to outsource what they cannot find the time to do themselves. Although the pair literally cut, sewed and tested the first 10,000 units ever sold, today manufacturing is outsourced to an English firm. Accounting is also outsourced. A patent attorney was among the first of their external recruits. They interviewed six candidates, looking for one who knew multiple industries and would be enthusiastic about their product. In one case, they dismissed a prospect for refusing a request by Ms Thompson for a plastic pen. It had the company's logo on it and Ms Thompson collects pens. The patent attorney explained that that he would get in trouble if he gave away company property. They passed on him. "If he doesn't give you a pen, he's not going to give you a quick call back", says Ms Thompson. "He's not going to give you anything unless its on the stop-clock. He's not a giver". In the end, they opted for the patent attorney originally assigned to them by the university. They say he is enthusiastic about the technology and, because he is from a large firm, sees a wide range of industries and IP filings.

Working around the clock

Today, they own seventeen patents in two families, as well as a few trademarks. Four companies hold options to license Intelligent Textiles' technology. Not everything is patented and some know-how is kept secret. In total, more than 100,000 has been spent on IP filings and protection, not including the many tens of thousands spent to buy the patent from the university. Annually they spend as much as 40,000 on IP-related issues. IP work is still largely done in-house in part to save cash, but also because the two are reluctant to part with such a crucial part of their business. Dr Swallow says he still drafts the documents, while the patent attorney checks and files them. Dr Swallow also spends time each month scanning the EPO's database by keywords, inventor names and company names to check for infringement of his patents, the movements of competitors and for inspiration. As the market grows, policing patent infringement becomes trickier, especially in markets such as China, says Dr Swallow. Indeed, after they filed their first patent, they began to worry about competitors profiting legally or not from their invention. "As soon as you file, you have a time bomb ticking", says Ms Thompson. To date, it has been a first-to-market strategy, its IP, as well as simple good fortune that have kept the company from being swept away by larger or better-funded rivals. Giant Philips Electronics has invested in the research and development of smart fabric technology, but then backed off, say Intelligent Textiles' founders. One rival, which raised venture capital, expanded very quickly, and is now facing problems and having to restructure. Other niche players have emerged around them, but not as direct competitors that cause worry, they say. The pair, however, are not nave enough to think this situation will last forever. In the meantime, the pair (a couple who live together) work around the clock. They hope that one day they can each hire an apprentice. Even so, Dr Swallow says he would continue to keep a tight rein on IP. "Without our patents, we probably wouldn't have a company", adds Ms Thompson.

Courtesy of the UK Intellectual Property Office and the European Patent Office. More information and further case studies at www.epo.org/sme

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