Friday, December 15, 2006

Welcome by Peter Ackerman, CEO and President of Innovation Asset Group

Not enough conversation in the world….so welcome to this blog.

At a minimum it’s interesting to think about the fact that intellectual property is such a powerful value-driver. An analysis last year estimated the total value of intellectual property in the U.S. at around $5.5 trillion (more than the total GDP of any other nation in the world). That’s one approach and was pegged to the total value of U.S. equities. There are plenty of other ways to view the economic significance of IP: by licensing revenues, M&A, magnitude and effects of product and brand piracy, litigation results, shifts in jurisprudence, other national econometrics and nation state activities, corporate asset shifting and globalization, investment activity (including direct foreign investments), etc.

And obviously there is no shortage of activity in other countries, nor on the part of organizations with international membership lists, on the subject of IP and its economic significance. I’m a member of the Licensing Executives Society (LES) and marvel at the people I meet from other countries through that organization. I also clip news and receive alerts on this subject. In addition to watching core trends in Europe & Asia, I keep the stories that stick out such as the Scout Merit Badge in Hong Kong for Respecting IP Rights, the Rajiv Gandhi School of Intellectual Property Law in India, IP conferences in such locations as Jordan, Russia, Malta, Nigeria and North Korea (some of the topics at the North Korean forum held at the People's Palace of Culture in September of this year: "Intellectual property and Social Understanding;" "Role of Invention in Combining Science and Technology with Production;" "Role of Intellectual Property as a Weapon for National Development;" "Intellectual Property as a Weapon for Development, Practical Experience Gained by Selected Developing Countries”).

To me, the power to spin an idea from thin air and make something financial happen with it is fascinating. And now we’re moving from the traditional “invent, put it in a product, put it on a shelf and hang a price tag from it” to IP as a lucrative asset class of its own. A couple of years ago, Kenneth Cukier (The Economist, London) mentioned that “just as the banking system created a market for capital, and the insurance industry created a market for risk, the growth of the patent system may be creating a market for innovation.” Indeed…not to mention the creation of new liquidity for other classes of IP (copyrights, trademarks, trade secrets).

So the subject is a big deal. It deserves some stream of consciousness and discussion of detail. Issues such as:

  • How do you put a value on IP?
  • For what purpose(s)?
  • What methodologies are best to use?
  • Where should the battle be when negotiating IP: In the methods or the
    assumptions used?
  • Is it all about “technology?”
  • What are the best information sources for IP valuation and royalty data?
  • How much juice can you really squeeze out of an intellectual property asset?
  • Are there best practices for managing innovation to a value result?
  • Are standards possible for intangible asset valuation and management?
  • Are there lessons for IP from fixed asset accounting regimes?
  • What is the best way for rules and regulations to catch up with the economic reality of IP?
  • Should companies manage to numbers or value? How is that defined?
  • What are the correlations among early-stage capital availability,
    entrepreneurialism, IP asset formation, value creation and social advancement?

We’ll be talking about that and whatever else emerges.

I’m as enamored with the pure spirit of entrepreneurialism as I am with the financial potential its resultant intellectual energy produces. The former drives the latter. So I hope to stimulate some discussion about that – about some of the ways in which it all begins. “Financial aspects of IP” relates as much to diligence and investment on the front end as it does to output. We know about our “traditional” (though still emerging) innovation labs and clusters, IP transfers from universities to the private sector, corporate skunk works and idea centers, angel and vc-backed startups, etc. Plenty to talk about there. There’s also plenty to discuss around the real potential of every thinking human to convert ideas into currency, and the greater social possibilities of that.

I was impacted, for example, by this Frontline presentation about
microlending. They profiled KIVA. a microfinance organization that’s snowballing. So we know from this, other microlenders, and the notoriety around Muhammad Yunus that a few bucks can begin to support “non-traditional” entrepreneurs (in the sense of how Westerners tend to view them anyway). Yunus, of course, won the Nobel Peace Prize this year for his microlending model. In 1976 he loaned an uncollateralized $27.00 to a group of women in Bangladesh so they could purchase bamboo in order to make and sell furniture in their village. They earned enough to pay him back and buy more bamboo. As I read it, the bank he formed around this model has now loaned over $5 billion to millions of other entrepreneurs in increments of less than $300.00, lifting most of them out of poverty.

Suppose any number of those entrepreneurs were producing goods that legal regimes could protect? What if the woman who makes peanut butter, profiled in the Frontline piece, had a unique formula? What if an artist, musician or furniture maker had protectible creations? What if they were able to tap into Thomas Friedman’s Flat World and extend their reach with some of the kind of expert assistance already being provided by several organizations?

Can’t happen? Every time I hear that, I recall: "I think there is a world market for maybe five computers" - Thomas Watson, Chairman of IBM, 1943; and "There is no reason anyone would want a computer in their home." - Ken Olsen, founder and President of Digital Equipment Corp., 1977. More on it later. For now, shout back any reactions to the main point and we’ll get the conversation started.

Labels: , , , , , ,

Russell Parr Presentation on Royalty Rates to the Licensing Executives Society

As we are just launching this new blog on the financial aspects of IP, I wanted to highlight a recent event of interest to all involved with intellectual property valuation and licensing.

At the inaugural meeting of the Portland/SW Washington chapter of the Licensing Executives Society (LES), Russell Parr recently presented an overview of his just published booklet titled "Determination of Royalty Rates". This was the largest inaugural meeting for any LES chapter and it was terrific to have attracted a speaker like Russell, a luminary in the area of valuation of intellectual assets.

The booklet describes various approaches along with examples of determining royalty rates using multiple analytical techniques. These include infringement damages analysis (profit differential), comparable transactions, investment rate of return, and discounted cash flow. A copy of the booklet is available at no cost via email request to

For those of you who would like to see a video of Russell's presentation, I've included it below with a link to the entire video.

Shawn Pilkington, VP at Innovation Asset Group, is the new chairman of the Portland/SW Washington LES chapter and kicked off the meeting. It was a great night and terrific to see the spectrum of attendees from the technology, corporate, and legal communities in the Portland metro area.

Labels: , , , ,