The Chief IP Counsel, the CEO and Business Strategy

One of the core principles of my company and the development of our software is that IP strategy needs to be aligned with business strategy. As you might have guessed, we’ve developed our software to help companies do just that. Rather than posting another blog entry that espouses the benefits of achieving this alignment, I wanted to pass along a few other blogs I’ve found that share similar perspectives on the this topic.


Chief IP Counsel
We’ve discussed the concept of a Chief IP Counsel on this blog before. I came across a very cool post on the concept over on the e^(ip) blog. Not only does it discuss the importance of the CIPC role, but the author does a great job of describing some of the more strategically-minded business issues the person in this role needs to consider.


IP-Business Strategic Alignment
Speaking of good posts, I’ve come across a blog dedicated to the concept of IP strategy equating to business strategy by the folks over at IP-Refinery.com. There are some good posts over there. One post that caught my attention recently was on the topic of using IP strategy to reduce the inherent uncertainty in business decisions.


WIPO - A Practical Guide
I’m not sure when this entry was posted over at WIPO, but A Practical Guide to Managing IP is another good piece that outlines everything from organization alignment, education to proper oversight of an IP licensing business.

....More to follow in our next post.

Aligning IP Strategy and Business Strategy

In previous posts we’ve discussed the importance of IP and that business strategy is closely intertwined with IP strategy -- whether most companies realize it or not. (We’ve also written a white paper on the subject.) In this post, I thought I’d discuss a couple of examples in which a good IP Management System can help companies deal with real world business-level issues.

IP is important because it accounts for somewhere between 70%-85% of the value of corporations (depending on which report you read). And the value of an intellectual property asset is determined by its relationship to other things, such as its relationship to products, other IP, people and agreements. For example, a patent may have more value if it enables a key aspect of a product of the assignee or of another company. Similarly, the patent’s value can in part be derived from the licensing agreements to which it is related.

So... the value of a company is derived from the value of its intellectual property. And the value of intellectual property derived from the relationships it has with other things. Therefore, the management of intellectual property should include the management those relationships as well.

This makes sense in theory, but let’s test it on a couple of scenarios:

Mergers & Acquisitions
The value and importance of intellectual property assets are playing a greater role than ever before in terms of assets received through mergers, acquisitions and takeovers. These valuable assets include patents, trademarks, copyrights, know-how, trade secrets and domain names.

In the course of M&A due diligence, the acquiring party must not only assess the inventory of intellectual property included in the transaction, but to properly value the portfolio, they must also consider the network of relationships surrounding the IP portfolio. For example, the acquiring company must also evaluate the contracts & agreements that could affect their ownership or rights to the core IP assets. (There is an article on the WIPO site (PDF) that explains this in greater detail.)

M&A deals can completely fall apart and shareholder value can be lost due to mis-management of an IP portfolio. A round-table transcript (PDF) in Mergers & Acquisitions Magazine actually mentions a situation in which the acquirer backed out of a transaction because the target’s IP portfolio did not have coverage where they thought it did -- the acquirer would have effectively been excluded from a number of international markets due to a lack of related international patents in the patent family. To put it another way, it was not just the inventory of assets that was important to the M&A transaction, but the relationships the assets had or did not have with other things. As you can imagine, this would have a significant negative impact on the relative value of the IP portfolio in question.

It is not the issues of docketing and cost management that define IP management, rather it is the alignment of IP strategy and business strategy. This alignment is achieved by understanding and managing the network of relationships that surround the IP portfolio.

Product Launches
We frequently hear that IP Departments are looking for ways to become more strategic to the business units of their respective companies. As such, they are looking for ways to add value to important business events such as new product launches.

Product launches are one of those events that require many different business functions to come together and operate cohesively, if only for a brief period of time. In the context of intellectual property, there are the obvious considerations such as patent protection and freedom to operate in the new markets. But there are also a number ancillary IP issues that may be less obvious.

For example, there are a number of contracts and agreements that need to be in place to execute a successful launch. These include agreements for distribution, sales & marketing, service & support and others. Each of these items need to be coordinated and require collaboration between legal, marketing, business and the local teams.

Again, it is not simply the management of intellectual property in the traditional sense that ensures a successful product launch. Rather, the coordination of a number of IP assets (patents, trademarks, products) and their related contractual obligations (distribution agreements, licensing agreements, etc) that determine how well IP is aligned with the business strategy.

If not properly in place, any one of these related pieces can lead to adverse business results. A poorly executed freedom to operate analysis can result in costly legal battles. Similarly, an missing or poorly written distribution agreement can lead to unnecessary expense or lost revenue to the company.

Other
As mentioned previously: It is not the issues of docketing and cost management that define IP management, rather it is the alignment of IP strategy and business strategy. This alignment is achieved by understanding and managing the network of relationships that surround the IP portfolio.

There are other scenarios that would make good illustrative examples of the importance of managing the network of relationships around the IP portfolio. They include competitive intelligence, trademark licensing, joint ventures and others. Perhaps we'll cover some of these in future posts.


About Us
At Innovation Asset Group, we often use the concept of an IP Value Chain to illustrate the nature and importance of the relationships described in this post. We believe an IP Management System should be flexible enough to accommodate the different use-case scenarios described here. More importantly, it should be flexible enough to deal with new challenges that may arise in the future. For example, ask us about automatically analyzing your entire patent portfolio to ensure compliance with the 5/25 rules. (If they ever take effect!)

The IP Audit: Driving by the Rear-View Mirror

by Ron Carson
Regional Sales Director
Innovation Asset Group, Inc.

Previous posts have discussed the dichotomy between the importance of intellectual property (i.e. IP is responsible for >80% of the value of companies) and the degree to which it is mis-managed (70% of execs believe it is managed as a legal task, as opposed to a business asset.) This post is about what I see as a major disconnect between day-to-day IP management and the IP audit.

According to the literature I’ve read, an IP audit can be initiated for any number of reasons. The common theme in all of these reasons is that the IP audit is initiated in response to an event that requires the company to REALLY know what is going on with its IP – as though IP didn’t matter all that much before.

Unfortunately, the IP audit will tell companies about mistakes they’ve already made, or opportunities they’ve already missed, but it won’t necessarily prevent them from making mistakes in the first place.

Perhaps I’m biased because I’m a software vendor, but I suggest that the level of detail required in an IP audit represents the level of detail companies should have in their day-to-day IP management system. That’s not to say that every minute data point in an audit would need to be revisited on a daily basis, but the IP management system should capture the information through the normal course of business that would be required in an audit.

MISPLACED PRIORITIES
Companies spend millions of dollars tracking and managing their tangible assets: inventory, real estate, machinery, computers, etc – millions of dollars to manage just 15% of their corporate value. In reality, intangible assets have to be identified, protected and maintained as well. In fact, I would argue that it is more important to take these measures with intangible assets as they account for ~85% of a company’s value.

INSUFFICIENT APPROACHES
Intellectual property has business implications at many points across the enterprise, and each of these having a role to play in its management – from targeted innovation in research and development to licensing opportunities in business development to cost accounting and royalty tracking by business units. Traditional docketing systems, departmental stop-gap spreadsheets & databases to not address these interdependencies and responsibilities sufficiently.

Docketing
Docketing systems are good at helping companies to ensure that they take appropriate actions by required dates. They do not determine whether these actions are optimal for the business. For example, a company with hundreds of patents could be wasting thousands of dollars annually by maintaining patents that it does not use in its core business – but the docketing system does not care.

Spreadsheets
Spreadsheets are often used to try to make up for shortcomings in the functionality of docketing systems. Companies use them to try to track additional information about intellectual property. However, spreadsheets are error prone, difficult to share and when used in conjunction with docketing systems they can create a need for duplicate data entry. Duplicate data entry increases the opportunity for errors. Speaking of errors, a study quoted in CIO Magazine found that on average, four out of five spreadsheets contained errors. The article went on to describe a number of material spreadsheet blunders that cost the respective companies tens of millions of dollars.

Shared Directories
Shared directories on network servers are sometimes used in an attempt to overcome the inability of spreadsheets to be shared easily. Unfortunately, information kept in a shared directory requires a lot of maintenance in order to ensure that the data is current, and version control becomes a new problem. Although shared directories may be a convenient place to dump bits of information, they are severely limited when it comes to handling key relationships between IP assets and the business.

Standalone Databases
Some companies have tried database programs in an attempt to improve on the limitations of spreadsheets and shared directories. However, these databases are not geared towards sharing data with a distributed workforce. They require extensive IT resources and custom programming, and are expensive to modify as the business changes and grows.

None of the approaches or any combination of the tools described here suffices for the meaningful implementation of strategic IP management. Still, companies try to make them work: many different spreadsheets, databases and directories are deployed in different areas of the company in an attempt to address needs at departmental level. This creates a nightmare scenario of disparate data silos, each with its own risks of data inaccuracies and none with the complete business-oriented picture of the company’s IP assets.

So how do companies address this nightmare scenario of disparate data silos, each with a small piece of the overall IP picture? If they don’t have an IP management system in place already, many companies turn to the IP audit.

AN IP AUDIT
Depending on circumstances, and IP audit can have a wide range of meanings. Generally speaking, an IP audit is an inspection of the IP owned, used or acquired by a business as well as a review of its management, maintenance, exploitation and enforcement.

Seems reasonable…

Unfortunately, the IP audit is like driving a car forward using only the rear view mirror. You’ll find out about opportunities after you’ve already missed them and problems after you’ve already hit them.

What if the IP audit was not a one-off project in a reactive mode to some external event, opportunity or market shift? What if the rigor and thoroughness of the IP audit was captured during the course of business as part of day to day IP management operations? Isn’t that the way most other critical business functions (such as finance, accounting, sales, production, logistics, etc) operate? Why do most companies relegate the management of their most strategic assets to docketing systems and spreadsheets?

FROM IP AUDIT TO IP MANAGEMENT
The management of IP should be an ongoing practice and should become part of the corporate fabric. The next time your company goes through an IP audit, recognize that you have just completed the necessary data gathering to begin the implementation of an IP management system. The question is: will your company leave the results of the audit in binder on a bookshelf, or will you use it to begin to strategically manage the most valuable asset your company owns?

(For more information about strategic IP management systems, visit our website at www.innovation-asset.com.)

Business Strategy IS Intellectual Property Strategy

by Ron Carson
Regional Sales Director
Innovation Asset Group, Inc.

IP assets are increasingly recognized as key business assets. The management of IP assets is no longer a discretionary function, nor solely the domain of the legal department. It has become a pillar of corporate strategy. If you are reading this, you probably already know that IP is important.

A lot has been written about both business strategy and IP strategy. In the case of business strategy there are a multitude of models, formulas and approaches that provide a framework to assist in development of the strategy. In contrast, it seems to me, most writings about IP strategy deal with why it is important, but there is little written about how to go about developing or implementing such a strategy. In fact, most writing seems to position IP strategy as a separate concept that must be aligned with a pre-existing business strategy. In my opinion business strategy and IP strategy are at the very least deeply intertwined, if not two sides of the same coin.

IP IS IMPORTANT...
According to a number of recent reports by PWC and others:
• Approximately 90% of worldwide corporate net worth can be attributed to intangibles and intellectual property.
• Over 80% of executives believe the importance of intellectual capital to the value of their companies will increase over the next 3-5 years.

...BUT APPARENTLY MISMANAGED.
• Almost 70% of executives believe IP management is too often treated as a legal, not a strategic issue.
• Over 60% of executives believe current accounting practices understate the value of IP.
• Over 80% of royalty agreements are under reported.
• Over 60% of executives believe their companies could extract significantly more value from existing IP and IP formation if it devoted more assets and attention to relevant processes.

WHY THE INTELLECTUAL PROPERTY DICHOTOMY?
• Over 70% of executives believe a focus on short-term results inhibits the development of sophisticated processes for managing IP.
• Intellectual property is inherently more complex than tangible assets.
• Most business executives would rather not have to read the claims of a patent, let alone the claims of an entire portfolio.
• It is easier to continue to have the legal department manage these assets. (In my opinion, this is why we are seeing the legal function around IP become elevated to a more strategic position in companies, just as we have seen with IT departments in the past 10-15 years. You can read a related post about Chief IP Counsels and Chief IP Officers here.)

IP Strategy can be approached in much the same way as business strategy. In some respects, they are the same.

IP STRATEGY IS BUSINESS STRATEGY
I think part of the challenge executives have is the concept of mapping their IP strategy with their business strategy. IP strategy is simply a component of a business strategy. In fact, I think you could take a model such as the Balanced Scorecard or the Five Forces and insert an additional component for Intellectual Property.

In developing a business strategy, there are some common things to consider that apply equally well to the realm of intellectual property. Generally speaking, you want to consider the needs of your customer, the nature of the competition and your own capabilities. (For the sake of simplicity, I’ll leave market sizing and some other topics out of this post.)

Customer
Eventually, the value of the IP a company hopes to control is derived from the needs of the market. Just as a business strategy must consider the needs of customers in various segments, so too must IP strategy consider the needs of customers. Understanding these needs will drive product requirements, R&D priorities and eventually help prioritize patents to be acquired, licensed, applications to be filed or even trade secrets to be protected.

Competition
In business strategy, a company cannot chart its course without understanding its competition in terms of strengths, weaknesses, distribution strategies, pricing strategies, etc. In the IP realm, companies can look at the profile of their competitors to understand the relative strengths and weaknesses of their IP portfolios, strategies and technological directions. With this information in hand, a company can patent or acquire rights to technologies to strengthen their own competitive position.

Product
In business strategy, a company looks at its relative areas of expertise. What does it do better than other companies, how does it differentiate itself? Similarly in IP strategy, a company must consider its portfolio -- what does it have, and what does it need to add? On the business side, a company has to make the build vs. buy decision. In IP, a company looks out across the IP landscape with an understanding of the market requirements, competitive implications, and determines if it should invent (make) or acquire (buy) the necessary components to round out the portfolio.

Understanding what the market needs, the competition and your own capabilities are key elements of both business and IP strategy. With this information in hand, you can intelligently plot your course forward with all appropriate milestones and metrics.

Stay tuned for next-in-series posts that will get deeper into the ‘how’ does one go about this – at each stage of the IP Value Chain and at varying levels of IP sophistication. And please…feel free to add your insights.

IP Culture - a Political Priority?

by Peter Ackerman
CEO and President
Innovation Asset Group, Inc.

I am frequently asked to post to our blog. I’ve liked the excuse that my reflective nature requires more time. My blog blockage is cured with this. Nothing to do with political predilections. President Bush was asked about whether over-the-air broadcasters should pay performance royalties. Turned out to be esoteric from his perspective (“I have like no earthly idea what you’re talking about”). The question was asked by Al McCree, president of Altissimo! Recordings. Just an interesting subsurface alignment between the two that McCree is in the business of recording, licensing and distributing military music. His company licenses music from all of the U.S. Armed Services and their label is found in military academies, on military bases and in war memorials across the United States. It appears that, following a tour in Vietnam in which he earned the Distinguished Flying Cross, he was a constituent of Governor Bush in Texas for a time. Not that one would have expected the president to know that.

But that’s not my point. The point I want to make is that I might have preferred a response that even generically referred to the critical need to maintain a national entrepreneurial culture. I would have preferred that a question containing the key words “royalties” and “music exports” triggered the mind into gear about the competitiveness of U.S. innovation and protected creative expression. It’s what savvy political leaders do. This has nothing to do with McCree’s specific issue. And it has nothing to do with political ideology. I asked a Democratic candidate for an Oregon U.S. Senate seat about his thoughts regarding capital availability for emerging U.S. technology companies. His answer was that he felt it was a “state” issue, one for the governor to be concerned about. Great. Oregon to an extent seems to get that as I’m sure other states do. But really it’s a national issue.

It’s simply a matter of priorities and re-jiggering the A-list of mentally-parked talking points. Strikes me that so much falls out of the subject of intellectual asset formation. This is still probably the best country for giving birth to an idea and navigating it to a point of commercialization. And ultimately, an environment that nurtures good ideas is an environment capable of liberating itself from myriad ills and dependencies. But there is much more to be done, as highlighted in a piece last year in U.S. News & World Report.

Sure, I self-servingly want intellectual property issues to be on the front of everyone’s mind. But more broadly, I just want the economic reality and possibilities of a fully supported knowledge economy to be tightly packed in the minds of our political leaders. We’re getting there. eBay and Alan Greenspan among others woke a few people up. But what you read and hear about the most - piracy and patent reform - are symptoms. There’s a lot to think about on the front end of the entrepreneurial value chain. Another post for another day.

It was just a question of the president by someone whose interests would be served by a good answer. Sometimes larger thoughts can be triggered by small things.

Are Chief IP Counsels really Chief IP Officers?

by Ron Carson
Regional Sales Director
Innovation Asset Group, Inc.

Joff Wild over at IAM Magazine has an interesting perspective on the need for a senior executive responsible for the entire lifecycle of IP in the enterprise. He describes the role of a Chief Intellectual Property Officer (CIPO) and why it is a necessary function.

This runs along a similar train of thought to our CFO’s post about the role of the CFO in enterprise IP portfolio management.

We are seeing an evolution – perhaps revolution. Not just in terms of the recognition of IP as the fundamentally core asset for businesses today; but also in terms of the way in which that IP is managed (I think “where” remains the same).

Initially, IP is managed out of the legal department. In a non-strategic mindset, IP management equates to docketing in some of these companies.

As companies embrace the strategic importance of IP and understand the need to move beyond simply docketing, there is an evolution of the role of the legal department. Much the way IT departments in corporate America evolved from a cost center and service provider to a strategic enabler of the business in the past couple of decades, legal departments are making a similar evolution today.

If you picture a pyramid similar to Maslow’s hierarchy of needs, and similar to the one described in “Edison in the Boardroom,” the bottom of the pyramid represents the least sophisticated IP companies, and the top of the pyramid the most sophisticated.

I have talked to many different companies in the past year: some companies are parked at the bottom of the IP management hierarchy, others companies occupy the pinnacle of the hierarchy and many other companies are spread out across all points in between.

Although I completely agree with idea of the CIPO, in practical terms, I think the Chief IP Counsel role is evolving with companies as they evolve up the IP management hierarchy. For example, companies at the bottom of the pyramid still view IP as a legal issue only. Their idea of IP management is to consolidate their portfolio with a single IP counsel firm to help manage costs. The person in charge of IP is either the General Counsel or Chief Patent Counsel.

At the pinnacle of the hierarchy, I have spoken with companies who have sophisticated tools and strategies to manage everything from innovation targets, portfolio mapping, portfolio optimization, and licensing. The IP strategy is tightly aligned to the business strategy, the costs of the portfolio are allocated along with the revenues. In these sophisticated environments, it is still the Chief IP Counsel in charge of IP. Instead of a patent attorney focused on docketing, the Chief IP Counsel in these companies has a much more strategic role in the corporation – effectively filling the role of the CIPO.

It would be great to get a discussion going on this topic. Where is your company on the IP management hierarchy? What role/position within your company maintains control over the IP portfolio and IP strategy?

Who is Controlling Your Most Valuable Assets?

by Kathleen A. Sego
Chief Financial Officer
Innovation Asset Group, Inc.


Why do the management and protection of intellectual assets reside in the legal departments of most companies – rather than in the finance department? CFOs are charged with managing and accurately reporting the value of a company’s assets. Today, intangible assets are the largest and most valuable portion of the asset base for a majority of companies.

• PriceWaterhouseCoopers has estimated that as much as 90 percent of the value of the world’s top 2,000 enterprises consist of IP.


• In the United States alone, it is estimated that over $1 trillion of value is wasted in underutilized patent assets, to say nothing of untapped and under-managed trademarks, copyrights, and trade secrets.


• According to the Harvard Business Review, two-thirds of U.S. Companies own unused or significantly under utilized technology.

As a CFO in an intellectual property management company, I find it puzzling that many CFOs do not take a leadership role in the management of this asset category – they either delegate this to the legal department, or the legal department independently initiates a process to track intellectual property, trademarks, copyrights, and trade secrets. As Gary Bender at Ernst & Young observed last year in his article “Managing IP Risk in Accordance with Sarbanes-Oxley:”

“Responsibility for a company’s intellectual assets generally falls under the umbrella of the legal department. Unfortunately, many companies have assigned this task to one person or a very small department, not adequately recognizing the potential consequences. By understaffing or improperly controlling a company’s intellectual asset portfolio, organizations can both cut into their profit margin and put the company in jeopardy of a shareholder dispute or regulatory inquiry.”

I have observed that legal departments do a relatively good job at docketing, tracking patents, and managing the infringement of their assets – however, few, if any of the legal departments take the process of intellectual property management through the entire life cycle chain – to the financial optimization of the asset.

In this regard, the legal departments in many companies, or the executives in many companies who make decisions about legal departments do not understand the implications of IP as the set of core assets to their business.

This pattern of CFO’s not managing the value of their assets has not been lost on the IP opportunity industry. Businesses are emerging whose approach is to acquire patents (generally at a low price) and assert them against alleged infringers for royalty settlements or infringement damages.

If an active market existed today, much like the Stock Exchange, much of this value could be captured by the companies who developed the IP, offsetting the impact of disintermediating parties. The problem then develops – how does one value intellectual property on a consistent platform? What indexes would you use? How would you establish settlement?

Ocean Tomo is one example of an effort to standardize an approach to public company intangible asset market valuations. They have developed a suite of patent-based indexes and securities which provide IP benchmarks – called the Ocean Tomo 300 Patent Value Index. Additionally, they have started the first IP Auction which has created a limited marketplace for facilitating the exchange of intellectual property.

Still the problem exists as to how to capture and track all the relevant information on an asset so that its value is maximized. The combination of a total view of an IP estate with royalty rates and valuation methodologies will provide CFO’s with a tool to continuously monitor and value their IP portfolio – as well as to mange it on a day to day basis.

CFOs who do not take an active role in the management of their IP assets are not only putting their companies at risk for a shareholder lawsuit for the mismanagement of their assets, but also are not even meeting the basic requirements of their positions – to accurately report the value of the company (and its assets) and to maximize the value of the company’s assets. The market will, and has, found ways to value IP assets. CFOs now need to take control of this process.