Financial Aspects of Intellectual Property

Relocating Financial Aspects of Intellectual Property

2009-04-29T02:55:00.001-07:00

Greetings everyone,

This is just a quick note to remind the readers of "The Financial Aspects of Intellectual Property" blog, that we have relocated it to www.innovation-asset.com/blog.

The entire archive of postings related to Intellectual Property Management, IP Strategy and the Chief IP Counsel has been copied to that location. All new postings in the future will be made there too.

Best regards,
Innovation Asset Group

Chief IP Counsel and CIO: New Best Friends

2009-03-19T17:41:00.000-07:00

By Ron Carson
Vice President of Marketing
Innovation Asset Group

Lester Thurrow, author and former dean of MIT School of Management, has written that the "only remaining source of true competitive advantage is technologies that others do not have." Since intellectual property is the legal vehicle for protecting such technologies, it's clearly the key strategic asset for maintaining competitive advantage.

This is not a new concept for the typical corporate IP attorney, and even the C-suite has become aware of the topic through mainstream business publications. But it's difficult to change corporate behavior and begin to manage IP as a strategic asset. Many IP professionals have told me that cost pressures are becoming more intense, and they are being asked to do even more with even less.

Intellectual Property: It's Not Just for IP Departments Any More

But IP attorneys may have an emerging ally in the fight against corporate inertia. In recent months, I've noticed that the topic of IP's strategic importance has spread from IP-related publications, to business-related publications, and now to IT-related publications. With attention being raised in CIO circles, now is the time for the IP department to align with and gain the support of the IT department.

A recent report related to intellectual property from Gartner, Inc had the following recommendations:

Most IT organizations should make formalized IP management a standard operating procedure, particularly because evidence shows that recessionary economic conditions will increase the risk of legal action.
CIOs must play a central role in supporting the organization's IP strategy. This should be done by investing in tools to support whole-of-company IP management processes, and by making sure their own operations are not exposing the organization to legal risk.

Your New Best Friend: The CIO

If you're a corporate IP attorney or IP department head, it's time to meet with your CIO to discuss your mutual objective of capturing, protecting and leveraging your intellectual property. To get the CIOs perspective, check out the blog post over on CIOInsight.com: “Why Intellectual Property Matters for CIOs.”

“To fully realize the potential of IP--and its correlation to knowledge management--CIOs and business executives need to harness the brainpower of their employees.

That's easier said than done. Individuals are naturally reluctant to share their ideas (or credit for them) with others, so they tend to horde them inside their own heads. When that happens, the company loses out on competitive advantages.

Enter CIOs. It's not like they don't have enough to worry about these days, but now they need to become true stewards of the information housed within their company--and their employees' brains. In other words, truly live up to their title of chief information officer.

CIOs have a role to play in ensuring the intellectual assets of the organization are identified, gathered, categorized, rated, ranked and properly protected."

Hmmm... where have we heard ideas like that before? Oh, yes -- in most IP publications, not to mention this blog. This post goes on to say:

Today CIOs have a new charge: to convert intellectual assets into IP so it can be converted to competitive advantage for the company.

Granted, not all information within a company is valuable or unique. So a big part of the job is to manage the entire library. But more important than that, CIOs and their teams need to install the tools [read: IP Management Software] and processes that decipher what's actually advantageous.

You could easily substitute chief IP counsels for CIO in these paragraphs. I think it's an indication that the IP department may have an emerging ally in the IT department. So go ahead, corporate IP attorneys, reach out to your CIO, buy them a coffee and put your heads together to develop a plan to ensure your company's competitive strength by implementing the necessary IP management software tools and processes.

Intellectual Property will be America's Main Source of Competitive Advantage in the 21st Century

2009-02-27T05:17:00.000-08:00

by Ron Carson
Vice President of Marketing
Innovation Asset Group

As the new administration seeks ways to guide the U.S. out of recession, it would be well advised to pay attention to innovation and intellectual property. A press release I recently found on MarketWatch discusses the position of strength the U.S. has in the area of intellectual property and why the Obama administration must focus on strengthening IP ownership rights. There are some interesting ramifications for countries and companies competing in the global knowledge economy.

In the release, Mark Blaxill and Ralph Eckardt, two experts on innovation and intellectual property strategy (and authors of an upcoming book), argue that America's most valuable asset is its innovation and IP reserves, and that these will likely become the main source of U.S. competitive and economic strength in the 21st century. Importantly, the authors warn that these advantages are easily endangered by overzealous attempts to drive patent reform too far and misguided calls to weaken the rights of patent owners.

Backbone of Competitiveness
According to Blaxill and Eckardt, America's vast storehouse of IP reserves form the backbone of the country's global competitiveness. While business people and policymakers may undervalue and overlook these reserves, they are the fuel that powers the economy in good times and helps it bounce back from bad times. The story goes on to say:

The American IP sector, all by itself, provides one of the strongest surpluses in the country's balance of trade accounts: In 2007, America's IP exports (i.e., royalties and license fees) were $62 billion -- three times larger than Japan's IP exports, which came in second at $20 billion.

America's IP surplus in 2007 was eight times the size of Japan's and twice the size of the combined surplus of every other country in the world that reported an IP surplus.

Harsh Realities
With the U.S. in a position of relative strength in terms of intellectual property power, proper management at a national and corporate level should help the country come out of the recession faster and perhaps farther than other countries. A hopeful scenario, to be sure, but U.S. companies are now faced with weak quarterly earnings, declining revenues, lower stock values, forcing budget cuts –that sometimes come at the expense of protecting valuable IP assets.

Do More With Less
While companies have to function within economic realities, it is equally important for them to preserve and enhance their future competitive advantages. For obvious reasons, this blog has advocated the need for an integrated approach to business-IP strategy (and indirectly advocated the IP management software one might use to facilitate this integration), we also believe that firms can do both at the same time. (In fact, we’re recently published some studies that suggest an opportunity to achieve a positive ROI from IP management software in less than 12 months -- while at the same time, laying the IT foundation for longer-term strategic IP management.)

Start Doing It Now
While corporations in North America and Europe struggle with these competing demands, on the other side of the world, countries and companies continue to make significant investments in their innovation foundation. A recent article in the Oregonian entitled, “China chips away at our high-tech advantage” should help executives and politicians become aware of the growing competitive threat (in the purest, capitalist sense) from that country:

China's expansion into the world of innovation will test America's reputation and know-how. To peek inside China's largest free trade zone, Tianjin, is to glimpse the country's carefully calculated destiny: high-tech industries, cutting-edge research institutes and ambitions to become home to the world's most innovative companies. China no longer wants to be the world's factory for cheap products. Under pressure to create better-paying jobs and to clean up its environment, the nation is trying to snag blue chip companies by vowing to crack down on intellectual property theft and schooling a new class of managers.

THIS Is Strategic Alignment of Business and IP
China is well positioned for the future as well, as their IP ambitions are aligned and consistent at the national level and at the corporate level. At one level there are politicians such as Premier Wen Jiaboa, who stated in 2004: "The future of world competition will be for intellectual property rights." And on the corporate level there are executives such as Michael Jemal, president and CEO of Haier America, who recently stated that innovation and patents were his company’s "life blood." "Haier applies for two patents every single day, every day of the year. In fact, it's more than that."

For those of you who haven’t heard of Haier, I bet you will come to recognize the name in the near future. When it entered the U.S. market nine years ago, the company sold three products. Now it sells 3,000. You name it, Haier makes it, everything from little dorm refrigerators to air conditioners, washing machines to flat screen TVs. "Haier is the number one brand in China," Jemal said. "In Asia, we're in the top ten. The objective here in the U.S. is also to build a market share, to be in the top three in the U.S."

So What’s a New Administration to Do?
We’ve discussed what businesses can do better manage their IP in multiple entries to this blog (here for example). So for now, let’s stick with the issues on a national level. Going back to the press release on MarketWatch:

Blaxill and Eckardt argue that: "Today, the chief export of the U.S. economy is innovation. American inventors have built a strategic reserve of intellectual property rights that is every bit as strategic as our domestic energy reserves.” The U.S. national interest demands that we safeguard these strategic reserves, according to the authors:

"Unlike American multi-national companies, which can innovate anywhere in the world, the U.S. economy itself needs domestic innovation to thrive," they say. (In many cases, the interests of the U.S. economy and multi-national companies have actually separated.)

The incoming administration must defend both the volume and price of domestic American IP assets on the global market.

Aggressive development of innovation and IP assets will improve both the balance of trade and terms of trade for the U.S.

Policy Recommendations for Maintaining Innovation
According to Blaxill and Eckardt: "In practice, IP rights are the incentive that brings markets, talent and invention together to monetize our innovation and deliver benefits to the nation. For much of its history, the American economy has had a unique ability to put all these pieces together to create value from its innovations."

They argue that, "At this time of great national distress, we need to fall back once again on the spirit of American innovation, and as we have in the past, we must look to the foundation of American invention to pull ourselves through this latest crisis." They recommend a national "innovation policy" that includes:

Protecting the U.S. patent system and the renewable strategic reserves that it generates.
Sustaining America's terms of trade and defending the pricing of America's invisible assets through regulation and legislation.
Adapting the USPTO to the needs of the modern patent development process.
Building talent locally through quality science and engineering education.
Providing incentives for inventive talent to live and work in the U.S.
Making science and engineering financially rewarding careers.
Supporting returns on invisible asset investments.

Let's hope the gang in Washington is going to act along these lines.

IP Management for Superior Shareholder Returns

2009-01-22T06:08:00.000-08:00

Ron Carson
Vice President of Marketing
Innovation Asset Group

Intellectual Property is a strategic business asset and in many cases is the most valuable asset a company owns. Many times in this blog and in our newsletter we have discussed the strategic importance of IP and numerous perspectives from which to view it.

We have looked at the strategic importance of IP from the perspective of the IP Value Chain. We have looked at the importance of IP using various innovation metrics as a proxy for IP, including the S&P Global Innovation Index . We have discussed the importance of portfolio management, and related it to stock price appreciation in the Ocean Tomo patent index. We have looked at it in the context of under-reported royalties related to IP causing revenue to literally leak out of corporations. We've discussed the fact that countries from China to the Barbados have national IP strategies.

And at the moment, we're preparing to release a study that quantifies the potential cost savings to a company through the implementation of a comprehensive IP strategy and management infrastructure. (Contact us if you'd like to know more about the study when it becomes available.)

I recently came across an excerpt of a study done by the folks over at Steel City Re. Over the course of several years, they have correlated superior IP management at companies with above average return to shareholders. I haven't looked at the details of the study, but it seems that it should be a powerful tool for IP departments to help justify budgets, resources and head-count with executive management.

For every chief IP counsel, officer, strategist or attorney currently getting squeezed between the demands of properly managing their IP portfolio and ongoing budget cuts, the research over at Steel City Re may help steer the conversation away from IP as a cost center to IP as the basis for superior shareholder returns.

"Steel City Re has amassed a significant amount of empirical data from this index showing that superior managers of corporate intangible assets (reputation) reward shareholders with above average equity returns. The data, viewed retrospectively, show that companies whose index rankings place them in the top 25% of the 2,483 companies studied during the 28 month period from Dec 2005 to Feb 2008 rewarded their shareholders with an average (portfolio) return of 18% which is about three times the market return of 6%. Moreover, companies whose IA management was very good and who continued to improve, delivered outstanding returns.

Among the companies whose average index ranking was in the top 25%, those whose index rankings did not decline during the 28 month period, numbering 290, rewarded their shareholders with an average (portfolio) return of 50% which is about three times the group average.

Companies whose index rankings declined, numbering 331, rewarded shareholders with average (portfolio) returns of -6%.

In an ongoing series of studies, our data consistently show that superior stewards of intangible assets reward their shareholders with returns that are on the order of three times greater than their peers."

The next time your corporate budget committee treats the IP department as a mere cost center and asks you to absorb yet another round of budget cuts and head count reductions, remind your executives that they have an obligation to shareholders to equip the IP department with adequate resources and the solutions they need to help manage the company to superior shareholder returns.

Innovation Will Overcome Recession - Is Your IP Department Prepared?

2008-12-18T08:48:00.000-08:00

Ron Carson
Vice President of Marketing
Innovation Asset Group

There is a lot of negative press about the economy. Too much. In addition to not reading the statements from my investment accounts, I may soon have to give up reading the news as well. Enough with the doom & gloom. It is time to look forward to, prepare for, and take action to bring about a prosperous future. Regardless of your political affiliation, you have to admire the quote from a radio talk show host here in the U.S. It went something like this: "I refuse to participate in this recession." While financial reality for many of us is likely different than its for a multi-millionaire, nationally syndicated radio talk show host, I admire the sentiment.

The Glass is Half-Full
There is a great article from the Washington Post entitled: 5 Myths About Our Sputtering Economy. It reads: "For months now, the nation's economic obituary has been splashed across the front pages of nearly every newspaper in the country. Journalists and pundits alike have warned that America's long-running global dominance has come to a screeching halt, eclipsed by growing markets in such places as China and India and frittered away by our own mismanagement, excesses and myopic approach to the future. We're long past due for a reality check. The United States and the incoming Obama administration face formidable challenges, but the country is by no means on its last legs. Here are a few key myths that need to be dispelled."

Further, it is not as though we're all idly standing by waiting for the next piece of the economic sky to fall. There are stimulus packages already in place and even more on the way to help jump start the economy. There is an interesting piece in BusinessWeek called “The Innovation Economy.” It describes how the incoming administration should build the innovation economy by focusing on entrepreneurship, innovation, and creativity.

"The Obama Administration should ignite new company formation as the vehicle to create tens of millions of new jobs. These new businesses should take on the nation's greatest challenges in renewable energy and the environment, health care, education, transportation, and global peace." The article goes on to spell out a series of seven steps to help spur innovation.

The Europeans Aren't Standing Still
While those of us in the U.S. wait for the new administration to take office, the European Union isn't waiting around to see what the U.S. does to recover. The European Commission is proposing a coordinated response to the EU’s deepening economic crisis. The Commission is proposing €200bn in measures to boost purchasing power and generate growth and jobs. The Europeans are seizing this as an opportunity to shore up their innovation infrastructure and global competitiveness in a knowledge economy. "By jumpstarting the economy with investment in infrastructure, green technology, energy efficiency and innovation, the package aims to accelerate the transition to a knowledge-based, low-carbon society. It encourages more partnerships between government and business."

Several EU countries (including the UK, France and Germany) have already announced their own stimulus packages. The commission is now calling on all nations to follow suit, under an umbrella of European coordination. Governments would spend this money in the way best suited to their own economy as different countries face different challenges. Similar economic stimulus packages are being considered or implemented in most developed nations around the world.

This Too Shall Pass
The stimulus packages in the U.S., the European Union and in other countries just may provide the elusive economic catalyst we are all hoping will kick in soon. There is a great piece at Forbes.com that describes how this is likely to happen -- how we will collectively make it happen.

"As long as human beings attempt to better themselves and improve standards of living, and as long as policymakers don't compound problems, the natural course of growth will return."

And for the IP Professionals
And finally, on a topic that hits a little closer to home for most readers of our newsletter and blog, here is a great post by Tryon Stading at Innography. According to his research: US patent filing and IP litigation markets have experienced significant growth during recessions. The flip side of this increase is that companies may be facing increasing litigation costs as they defend their products and market positions. I guess either way, IP professionals have a good chance of being kept busy through the recession and subsequent recovery!

So What Are You Doing About it?
The recession will not last. The innovative spirit of people everywhere will eventually lead us to the next profitable market cycle. Where there is innovation there is IP. Now is a good time to look within your company to determine what you can do today to be better positioned in the future. Are you still capturing all of the new patentable ideas within you company, or are you cutting back in that area? Are you cutting back on patent filings? What are you doing to ensure you are filing the most business-critical patents? Are you trying to offset costs by licensing non-core patents? Although your corporate budgeting process may not agree with this sentiment, now is not the time to be haphazardly trimming expenses around your IP portfolio. Now is the time to be smart with your IP, and to tightly align it with the growth strategies of your business.

IP Management & Budget Cuts: Have Your Cake and Eat it Too!

2008-11-20T08:11:00.000-08:00

by Ron Carson
Vice President of Marketing
Innovation Asset Group

Unless you've been shipwrecked on a remote island in the South-Pacific, you are probably aware that we've got somewhat of a global economic downturn on our hands. While no one really knows how long it will last, I think we can all attest to the fact that it is having an effect on what had become a fairly comfortable state of "business as usual." Already we are seeing the all too predictable rounds of budget cuts and layoffs at many companies in a multitude of industries.

IP departments and the portfolios they manage are often perceived as matters of legal expense and are often the target of corporate cost cutting measures. In the economic downturn they are being asked to contribute even greater expense reductions to the corporate good. While it is easy for a corporate finance department to arbitrarily allocate a 20% budget cut, it is not always easy for the IP department to implement those cuts. Should the cuts come from allowing certain patents to expire? What if they are core to a revenue stream of the company? Should the cuts come from applying for fewer patents? What impact will that have on the future competitiveness of the company? I suggest that cost savings can be realized AND that companies can strategically manage their IP portfolios at the same time – i.e. be more efficient in the short term, without sacrificing competitive advantage in the long term.

In these tough economic times, IP departments are caught between a rock and a hard place: asked to spend less (cut your budget by 20% please), but ensure future revenue streams are protected (you better not let anything slip through the cracks). The more I think about it, the “rock-and-a-hard-place” analogy is probably not harsh enough. A more applicable analogy is one of being caught in a vice: on one side the need to lower expenses is pushing in. On the other side, the need to protect the company's business strategy and future revenue streams is squeezing in the opposite direction. There is constant pressure. The effect of the economic downturn is to apply a few additional twists to the vice, squeezing IP departments even harder.

But I suggest it is possible to do both: reduce expenses (and be more efficient), and be strategic with your IP portfolio at the same time. In fact, some of our own research points to the possibility of being able to reduce IP expenses, while freeing up resources to focus on more strategic IP issues. (We'd be happy to share aspects of this research with readers who are interested – just contact us through our website.)

Lesson from the Past

When companies sought efficiency from CRM solutions, they didn't focus solely on cost reduction at the expense of losing valuable customers. They took a strategic approach that included being more efficient and saving money. For example, they used the exercise as an opportunity to focus appropriate resources on the most valuable customers, and consciously decided it would be okay for other non-core or non-profitable customers to leave the fold.

IP management should be handled in a similar manner. IP departments should become more efficient and reduce costs, but not at the expense of the competitive advantage their business derives from its IP portfolio.

Reduce IP-related expenses: streamline communication with outside counsel firms, say good-bye to the multitude of partial-hour billing line items related to administrative overhead & communication, prioritize invention disclosures so only the most important inventions evolve to a patent application, allow unused patents to lapse.

Be more efficient: automate the more repetitive tasks & workflows, keep more files electronically in the database of your IP management solutions so they are easily accessed by those who need them. Free up your employees to focus on more value-add activities such as mapping patents to products, business units, technology segments, etc. (There are a few good pointers on Duncan Bucknell's blog on this topic.)

Be more strategic: analyze the results of your portfolio mapping, assess relative areas of strength and weakness, rate & rank patents by relevant business grouping, set & measure progress against patent production goals that align with the growth plans of the company, profile competitive IP portfolios, patent for strategic advantage in your market.

I don't know who originally penned the thought, but I've heard it said recently that no company has ever saved its way to success. Successful companies invest their way to growth. They invest in innovation, they invest in business process and infrastructure and they invest in their people. The companies who invest in IP and their ability to strategically manage their IP portfolios will benefit from cost savings in the short term and competitive advantage in the long term.

In the Midst of a Global Financial Meltdown, Smart Companies will Increase Strategic IP Management Efforts

2008-10-16T12:04:00.000-07:00

By Ron Carson
Vice President of Marketing
Innovation Asset Group

In the midst of the turmoil in financial markets and what appears to be an inevitable global economic downturn, companies will face increased pressure to cut costs. This may very well lead to decreased budgets and reduced headcount in areas related to innovation and intellectual property.

However, Innovation is the basis for competition in a global knowledge-based economy and intellectual property is the vehicle through which innovation is protected and monetized. To cut costs in the areas of innovation and intellectual property would have an adverse effect on the competitiveness and profitability of companies in the future.

Now is not the time to scale back investments in innovation, intellectual property and monetization activities. By scaling back the organizational infrastructure -- the people, processes and tools engaged in the IP value chain, companies will a) negatively impact future growth, competitiveness and profitability; and b) may actually increase the cost to develop, protect and leverage IP in the future.

Now is the time to ensure focused attention in key areas of the Intellectual Property Value Chain™ to lower costs in the short term, while positioning for a stronger competitive position in the long term.

Innovation
Innovation is a top priority for company executives, and well it should be. Studies have shown that more innovative companies tend to have more favorable stock price performance over time. For example, historical data show that the S&P/BusinessWeek Global Innovation Index companies outperformed S&P Global 100 Index companies by more than 7% in 2007 and have done 5% better since the middle of 2005.

Other innovation related indices, such as The Innovation Index(TM) has beaten the broader market and was up 9% in 2008 through September 19th vs. a 15% loss for the S&P 500.

I would argue that now is the time for companies to turn their attention towards closely aligning innovation with the strategic business direction of the company. Set innovation targets in key technology areas, deploy a web-based invention disclosure form for the entire employee population, implement a common invention scoring system, prioritize inventions for patenting, reward inventors for innovations deemed worthy of patent protection, and report on progress against targets.

This focused approach will help ensure that R&D expenditures are properly targeted, that the innovations are properly protected and that the company is better positioned to leverage its innovations in the future.

Portfolio Management
In regards to the importance of maintaining an intellectual property portfolio, numerous studies indicate that companies with a large number of high quality patents also benefit from enhanced market valuations. For example, the OT300 Patent Index – which tracks companies with the most “valuable” patents, based on a proprietary Ocean Tomo algorithm – has consistently outperformed the S&P500 in recent years.

Even though your company may not be a member of the OT300, now is the time to use your enterprise intellectual property asset management system to map or categorize you IP portfolio in terms of products, business units, technology areas and any other business-relevant category need. Unused assets can be allowed to expire to lower costs. Assets that have perhaps become irrelevant to your business and are still in the prosecution stage can be allowed to lapse to save even more money.

Look to your IP management solution to implement a paperless office. Efficiencies gained can be used to allocate internal resources to more strategic management issues instead of administrative ones, reduce headcount, or negotiate lower fees with your outside counsel firm. The IP Think Tank blog had some other practical ideas for your reading enjoyment.

Commercialization
I found an interesting post describing the opportunity to offset the effects of the financial crisis by out-licensing IP and generating new revenue streams in the form of royalty payments. "Is the financial crisis taking its toll on IP monetization?"

IP Commercialization or monetization through licensing agreements sounds like a viable way for a company to generate incremental revenue. However, studies have shown that royalty agreements tend to be mismanaged to the extent that 88% of all royalties are under collected and almost half of all royalty agreements are under reported by 25% or more. Billions of dollars are being wasted.

For companies just starting out on an IP Commercialization effort, as well for companies who have more established programs, now is the time to stop the revenue leakage associated with IP licensing programs. The current market environment is a great opportunity to implement a system to manage license agreements, dates, milestones; and of course royalty payments. If the studies mentioned above are indeed accurate, even a small licensing program that generates $100M in revenue, has the potential of recovering an additional $20M over the life of the licensing contracts.

I admit to the possibility that I am somewhat biased in my views on these topics, as my company develops software that addresses the issues and opportunities raised in this blog post. But it seems to me that today is a great time to look at and capitalize on a number of cost saving and revenue generating opportunities across the IP Value Chain.

The Wonder of IP Profits at Universities

2008-09-17T20:47:00.000-07:00

by Peter Ackerman
CEO, Innovation Asset Group

Janet Rae-Dupree posited recently in the New York Times in a piece entitled “When Academia Puts Profit Ahead of Wonder” that “in trying to power the innovation economy, the Bayh-Dole Act
turned America’s universities into cutthroat business competitors, zealously guarding the very innovations we so desperately want behind a hopelessly tangled web of patents and royalty licenses.” She points out that the fundamental mission of universities - “discovery for its own sake” - has been distorted, and that they now function more like “corporate research laboratories” driven by considerations of market potential over “blue-sky” experimental research.

She might have a point. Certainly intellectual property is now viewed as a key value driver for businesses, private and public labs, universities and entire emerging economies among others. Universities had previously felt constrained in their ability to create wealth out of their government-financed innovation before Bayh-Dole “liberated” them.

The Bayh-Dole Act, of course, was a U.S. initiative that granted ownership of inventions to publicly funded research institutions and contractors. The goal was to provide incentive to researchers to innovate while balancing other policy objectives. Other countries followed suit with similar programs (e.g., Japan’s "Special Measures for the Promotion of Industrial Revitalization;" and China’s “Regulation on the Management of Intellectual Property Rights Generated by the State Science Research Project”).

My sense is that university technology commercialization offices are in constant search of an optimal model that leaves room for mad scientists and innovators within the realm of scientific disciplines that markets are interested in (or for which markets are waiting to be created).

In any event, I asked Peter Slate what he thought. He’s the President & CEO of International Orthopedic Alliance, Inc. (IOA) and was the founder and Chief Executive Officer of Arizona Technology Enterprises, LLC (AzTE), the IP management and technology transfer organization for Arizona State University. Here’s what he had to say:

“I disagree with the article on a number of points:

As a general matter…..while I have heard these types of arguments many times, I still have not heard an argument with any teeth that is more than conjecture regarding the negative effects of tech transfer. Patent protection, a system that pays for innovation, competition…..if these are truly the route of innovation evil I need more facts to be persuaded.

Blue sky research being set aside for research that is more utility-focused (and dare I say…may produce profit) is probably more a result of what public agencies will fund rather than university tech transfer. It might be better to take it up with the NIH and NSF, not university Presidents, if people have complaints. I believe they have a suggestion box somewhere in Washington.

Most tech transfer offices don’t break even and only 13 universities make most of the money (according to the article)….it is hard to believe that tech transfer is having such a broad sweeping negative effect given these statistics.

I believe that all markets are evolutionary…in this case we have universities that are just getting their arms around a system they are not familiar with. Smarter licensing, ties with corporate innovators (remember that many of them came from universities way back when), and a better understanding of how to work with the business community will ultimately yield significant benefits to our system of innovation and competitiveness overall. For example, if universities had more experienced licensing managers with better resources to manage their IP, they would not lock up their technology with one company that cannot exploit technology in all markets. Instead, they would engage in a more segmented licensing strategy.”

Weigh in if you feel strongly one way or the other….or not.

Intellectual Property Management to Preserve National Economic Vitality

2008-08-27T05:45:00.000-07:00

I came across this thought provoking article entitled “Coming Soon: A Post-American World.” It discusses the spectacle of the Beijing Olympics as a signal to the world that China is becoming more than just an industrial powerhouse, but a technological and innovation powerhouse as well. (The underlying message to the rest of the world: You’d better Get your Assets in Gear (tm)!)

The article starts off: “They're putting the world on notice, that they are players playing to win, and not just Olympic gold. They want you to know that China is a power to be reckoned with, and proud of it, that it's bearing down on the United States … fast”

It goes on to say that the size of the Chinese economy will surpass the United States by 2035. What is important to note, is that this growth is not simply from the growth of low-cost, labor intensive jobs outsourced from the U.S.; but this growth is going to come from technological advances, innovation and even brands.

The article continues:

“Take the iPhone. The idea, the genius, was American. But the phones themselves are made in China, where the government is determined that the next generation of geniuses will be Chinese.

"Actually, that's a stated national policy. They have a medium- and long-term science and technology policy, 2006-2020, and in that policy one of the statements, one of the parts is to establish global brands, with indigenous technology, with Chinese technology behind those brands." “

Furthermore, Chinese companies absolutely understand the importance of IP. Take the following quote in the article from the CEO of Chinese-owned Haier (which is trying to buy GE's appliance division by the way):

“innovation and having its own patents is the "life blood" for Haier. Haier applies for two patents every single day, every day of the year. In fact, it's more than that."

I suppose as vendor of IP Management software, I’m somewhat biased in my opinions about the importance of strategic IP management. But after reading this article – especially the quote about innovation and patents being the lifeblood of one of the largest Chinese consumer appliance manufacturers – I am surprised by the number of companies I talk to who still equate IP management with docketing, annuity payments and cost containment. It really is time to get our collective Assets in Gear!

Improve Venture Capital Returns with IP Portfolio Management

2008-07-29T07:29:00.000-07:00

By Ron Carson
Vice President of Marketing
Innovation Asset Group

For all of the glamour and allure surrounding the Venture Capital industry, one would expect the investment returns from VC funds to be significantly higher relative to other investment vehicles that are more widely available. However, industry research indicates that over time, venture capital returns have been roughly equal to the stock market in general. Indeed, over half of all venture capital-backed companies fail and roughly the same 50% of all money invested in venture capital funds is lost. This blog post discusses how a comprehensive IP management strategy could help VC firms lower their risk and increase the return in their respective funds.

According to some conversations I’ve had with people in the VC industry, the statistics above don’t tell the full picture. In addition to half of the venture funded companies that fail, there are those that are described as the “walking dead” – companies that neither go out of business, nor ever provide the substantial returns needed to satisfy typical VC models. One panelist I saw at a venture conference last year suggested that for their financial model to make sense, they needed at least 1 out of 10 companies to provide a 20x return on their investment. This could be especially troubling for the industry, given the emerging trend towards fewer and lower valued liquidity events.

But what if a venture fund could extract incremental investment returns from their portfolio companies, including the failed companies and from the so-called walking-dead companies? I believe a comprehensive cross-portfolio IP management strategy could provide increased returns to venture investors.

IP Due Diligence to Lower Business Risk
VC’s typically invest in companies at the earliest stages of their respective life cycles. At the point of making the investment decision, the venture capitalist is placing his or her bet on the business idea, the management team; and whether they know it or not, they are also placing a bet on the IP which underpins the business.
It is critical that VC firms perform proper and adequate due diligence in support of their investment decisions. Sorry, but simply having a list of patents and applications is not enough. Investors need to understand whether or not the patents are strong patents, with adequate coverage for the business and the technology in question. The following quote sums it up better than I can:

“In particular, before you invest in a new business idea for a new venture, why wouldn't you want to know whether you can own the business idea in the long term or whether you have minimal opportunity to innovate freely in relation to that business idea? Or, why wouldn't you want to know whether another firm has invested $100K or more in patent rights alone in the new business idea that you are investigating?”

These all-important questions should be answered during the investor’s due diligence. Be warned however, that topographical patent landscape maps or other abstract visualizations do not represent a sufficient level of analysis. They may be an improvement over a simple list (although some might argue that point), but a proper analysis must involve a detailed examination of patent claims in the context of the business and of the technology in question. There are a bunch of good blog posts on this subject on the IP Asset Maximizer Blog.

IP Portfolio Management to Lower Costs & Increase Margins
Although most of the portfolio companies financed by a given venture fund will be relatively small, and have a relatively small portfolio of patents, it may be worth it for the VC to look across the entire IP portfolio in aggregate.

I did a quick analysis of a couple regional VC firms – with relatively small portfolio’s of companies, these firms had an invested interest in over 300 and 600 patents. By corporate standards, these are sizeable portfolios. I would expect to find even larger portfolios with larger venture firms.
In businesses with portfolios of this magnitude, it is important to understand the portfolio in multiple dimensions. For example, IP professionals, marketers and business leaders want to know what IP assets support which products. Knowledge of these relationships can allow a company to block competitors, lower costs, raise margins and ultimately increase returns to investors. In addition, they will want to categorize their patents by the markets and technology areas they serve, as it helps them understand if their patents align with the business focus.

Bringing this discipline to IP Portfolio management has the added benefit of revealing patents that are not core to the business of the company. With this knowledge in hand, a typical company will seek to lower costs by letting patents expire, or they may seek to sell or out-license their non-core patents, thus creating a new source of revenue.

IP Licensing to Increase Returns
Patents that are not core to the business of the owning company may still be valuable to other companies and other industries. There are some well-known examples of companies who have been able to generate significant revenues from their non-core patents through active licensing programs -- Companies like IBM and Qualcomm come to mind. However there are a number of other companies that have generated significant returns by monetizing their non-core IP assets. Mindspeed and AMCC are two recent examples:

“Mindspeed Sells Non- Core Patents For $10 Million”

“AMCC Sells Patents”

In the case of a VC portfolio of companies, each company may only have a small number of non-core patents. But across the portfolio of companies, the venture firm may have rights to a significant number of patents that may be valuable to other companies/industries.

We can extend the concept of monetizing non-core assets of the top companies in the venture portfolio to the “walking-dead” and even the defunct portfolio companies (although with these latter two groups, we may worry less about the distinction between core and non-core patents). In many cases, the business model and the due diligence supporting the original investment in these were probably sound, but the business failed due to execution or market timing issues. In many cases the underlying IP assets may still be fully valid, valuable and available for entry into a focused licensing and monetization program.

A multi-million dollar licensing revenue stream would nicely compliment the periodic liquidity events in today’s VC market.

The Chief IP Counsel, the CEO and Business Strategy

2008-06-24T17:13:00.000-07:00

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

2007-12-19T05:18:00.000-08:00

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

2007-11-15T09:58:00.000-08:00

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

2007-09-25T15:06:00.000-07:00

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?

2007-07-27T15:49:00.000-07:00

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?

2007-07-20T14:19:00.000-07:00

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?

2007-05-31T13:18:00.000-07:00

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.

The New Era in the IP Assets Market

2007-04-25T09:51:00.000-07:00

by
James E. Malackowski,
President & CEO, Ocean Tomo, LLC

This year may turn out to be a watershed moment for intellectual property in the U.S. Relative to recent years, there are better prospects for patent reform legislation and a noted appetite at the Supreme Court for patent cases. At the same time, the market is witnessing the prospect of increased IP regulation in the form of new accounting rules and expanded review of patent-related business transactions. In addition, there is widespread and growing appreciation that enhanced competitiveness is inextricably linked to IP. Against this backdrop, the time is ripe for the development and widespread use of private sector mechanisms to cure inefficiencies in the IP marketplace.

The Supreme Court’s current interest in patent cases coinciding with momentum building for a patent bill indicates an activist Court seeking to influence the scope of patent legislation. The Court’s timing is impeccable. The private sector now has an opportunity to widen the application of patent pools and IP securitizations, participate in the development and use of secondary markets for IP transactions, and explore new avenues for IP asset monetization and commercialization. With Congress and the Supreme Court taking up IP issues, a level of urgency surrounds private sector activity.

The IP debate has revolved around promoting innovation and American competitiveness in the global markets. While the public dialogue extends to new technologies, new legislation, and new business models leveraging IP assets, there has been less attention devoted to the marketplace mechanisms and infrastructure necessary to make IP assets liquid and transferable at low cost. Yet the maturation of the IP marketplace is critical and necessary. First, corporate IP management stands to benefit from marketplace innovations. Second, efficient market mechanisms create benchmarks for the courts to recognize in IP infringement damage awards. Third, private sector innovations can cure market inefficiencies, thereby influencing the shape and scope of legislative remedies. Examples of recent marketplace innovations include public auctions of IP and emerging patent valuation standards.

It is a momentous time for the IP markets as 80% or more of a public company’s market value resides in its intangible assets, and this dependence continues to increase. Business models are emerging to more efficiently acquire, enforce, and monetize IP assets. Small and large corporations with IP portfolios will benefit from widespread adoption of the newly available IP marketplace mechanisms. A new era is dawning with efficiencies ready to be exploited by IP-rich companies. For example, the ability to buy and sell patents and patent portfolios in a liquid market changes the IP management options at a company’s disposal. Greater transparency in IP-based transactions and the development of a secondary market for IP assets are welcomed by investors and policymakers. Use of the new IP marketplace mechanisms supplies IP assets to a market with pent-up demand. The time is ripe for the private sector.

Last week on April 19th, Ocean Tomo held its Spring Live IP Auction, where total floor sales reached $11,429,000, including sales of $3,025,000 and $2,860,000 setting the world’s record for highest selling prices for patents at a multi-lot live IP auction. The auction had a 51% transaction success rate; 55% of the sellers who participated in the auction successfully transacted their patents; and the average selling price per lot was $336,148.

About Ocean Tomo: The next Ocean Tomo Live IP Auction is set for June 1, 2007 at The Dorchester in London, England. The Catalogue, now accessible online at ww.OceanTomoAuctions.com, provides information regarding the 600+ IP assets to be offered. Sellers include top multinational companies such as PCTEL, Inc., Air Products and Chemicals, ABB Research Ltd., MeadWestvaco Corporation as well as small to mid-sized companies, professional inventors and investors.

Field-of-Use Licensing

2007-04-18T09:30:00.000-07:00

by Sandra L. Shotwell, Ph.D.

Managing Partner, Alta Biomedical Group, LLC

Field-of-use licensing provides the licensor with greater control over the use of its intellectual property, while maximizing the use and value of the technology. In order to maximize the use of a given technology, managers will have some additional work to do as they identify, negotiate with, and manage more than one licensee. Special issues related to multiple licensees in distinct or overlapping fields will have to be handled with forethought and a balancing of interests.

When is field-of-use licensing worth the extra effort? When more than one company is needed to fully develop a technology’s potential, when different licensees are needed to address different markets, or when field-of-use licensing has the potential to significantly increase the financial return from a technology. In all of these situations, field-of-use licensing can produce better results for everyone involved.

Shotwell, S.L. 2007. Field-of-Use Licensing. In Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices (eds. A Krattiger, RT Mahoney, L Nelsen, et al.). MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at iphandbook.org.

We Are All Financial Institutions Today

2007-04-13T10:01:00.000-07:00

by Nir Kossovsky, MD
CEO and President, TOPCAP

For years, financial institutions led their peers in corporate risk management. Always facing credit, market, and operational risk, any one of which could produce a catastrophic outcome that could precipitate the demise of the corporate enterprise (e.g., EF Hutton, Anderson, Enron, Drexel, Barings), financial institutions have always been under the gun to improve their control, mitigation, and management practices.

With intangible assets comprising upwards of 80 percent of the market capitalization of traded companies, the value of intellectual properties and other intangibles in the 21st century economy is indisputable. Companies and investors are rapidly coming to understand how the convergence of human capital and intellectual assets are their greatest source of both strategic risk and financial reward.

If we focus on the risk side, it appears that we are all financial institutions today. We are all exposed to precipitous losses in enterprise value of the basis of impaired intangibles. Consider Jet Blue’s recent reputational hit due to poor IT investments; BP’s decline due to poor safety practices, or Vonage’s collapse in the face of patent litigation – all body blows to enterprise value arising from a catastrophic loss of (intangible) asset value.

Because TOPCAP is an intangible asset management consultancy, and we help clients at the C and board level identify and take practical steps to mitigate risk, we are seeing this awareness evolving. One of the key aspects of the new risk agenda we are seeing is the increased emphasis on functional alignment – where the risk team, the finance team, and the capital management teams work together. We're also seeing the incorporation of lines of business and IT that need to be linked into the finance, risk, and capital teams.

But when is all said and done, a company is still exposed to fortuitous risk because
%$#!& happens. And in practical terms, this is why equity holders get higher returns because they currently hold that corporate risk. This past fall, the Intangible Asset Finance Society (http://www.iafinance.org/) surveyed the intellectual property community with the question: In IP-rich companies, who bears (or should bear) the ultimate risk in IP litigation, IP M&A or technology transfer - shareholders, outside counsel’s E&O insurance, the company’s law department, the company’s D&O insurance or professional IP risk bearers?

At the operational level, executives and legal advisers acknowledged that certain events could put a company at mortal risk. The emerging question: is whether shareholders will wish to continue bearing catastrophic risk or will demand that companies find a more efficient vehicle for risk transfer?

Nokia Pays Up

2007-04-09T11:12:00.000-07:00

by Doug Pollack

As reported earlier this month, Nokia made a "$20MM quarterly payment to Qualcomm based on its own valuation of patents covering Nokia handsets that use the WCDMA" (WSJ 4-06-07). The general counsel at Qualcomm stated that "they have no right to do that....what they have done is they have simply made up a number."

This tactic represents an effort by Nokia to reduce its current royalty rate paid to Qualcomm, which is estimated to be around 4.5% of the cost of the cellphone. They are arguing that they should be paying a lower royalty rate to Qualcomm for WCDMA technology than on early generations of technology.

Nokia contends that the $20 million figure that they paid as estimated quarterly royalties as a "good faith" estimate of the value of Qualcomm patents it expects to be using after their current agreement expires. It would be instructive to see the methodology that was used by Nokia to determine the value of these patents.

ValleyWag on Technology Patents

2007-04-09T09:23:00.000-07:00

by Doug Pollack

Valleywag, the self-described tech gossip rag for Silicon Valley, weighs in on patent law. An interesting view relating to tactics used by the "old guard" in the technology and communications industries for using patents to protect their position in emerging, highly competitive markets.

Their recent article follows:

America's crazy patent law

"Verizon's legal persecution Vonage -- which resulted in the internet telephony company being told by a judge today to stop stigning up new customers -- is yet another demonstration of the perverse effect of US patent law. Patents are supposed to protect inventors, and encourage innovation. Instead they've been co-opted by lumbering corporate giants such as Verizon to stifle competitors; or by failing entrepreneurs who hope to salvage some of their losses by suing a nimbler competitor; or by trolls who collect patents simply to shake down successful companies. Vonage is not a popular cause; it's no longer at the forefront of innovation; and the business press is relishing the drama of the New Jersey company's decline. Vonage may fail, but, if it does so, it should not be for patent infringement. Verizon's inventions would have stayed in a drawer had not the telecom incumbents had to deal with cut-price internet telephony. The law, once seen as a cornerstone of American capitalism, now stands in the way of technological progress. "

HP Uses IP Aggressively Against Acer

2007-03-29T16:10:00.000-07:00

by Doug Pollack
As reported below by Reuters on March 28th, HP has sued Acer the number 4 worldwide PC manufacturer, for patent infringement. The HP lawsuit seeks unspecified monetary damages but requests the removal Acer products from US markets, where Acer had revenues last year of around $1.6 billion.

The patents in question are very narrow and technical in nature, and include a technology for improving power consumption known as processor "speed stepping". This technique is commonly used in many of today's laptop computers, not to mention in microprocessors. The patents in question were issued between 1997 and 2003.

It is interesting to see HP use their patent portfolio in this type of competitively aggressive manner, especially in the PC business. Their behavior reflects a growing and somewhat disturbing trend in the technology industry where large companies with rich IP portfolios will use a small number of highly technical patents to disrupt the market momentum of a successful and threatening competitor.

In recent memory we've seen similar disputes between Broadcom and Qualcomm the the cellphone market, and Verizon and Vonage in VOIP service. In each case, the aggressor will delve deeply into their IP portfolios to identify patents where a credible case, albeit belatedly, can be made for infringement by a key competitor with a mainstream market offering. The potential that the infringement may have been inadvertent or a result of broadly adopted techniques being irrelevant.

What is disturbing about this practice relates to timing. HP didn't make the effort to identify the specific patents in question and note their alleged infringement by Acer until after Acer designed the technology into dozens of their PCs and reached a US market size in annual revenues of $1.6 billion and growing. At this point, if the HP position was upheld and Acer was required to cease shipments of infringing PCs in the US, they could arguably lose $1 billion in revenues and by the time they re-engineered their entire product line may never regain their lost market momentum.

Now of course one can argue that the design engineers at Acer purposefully used technology that they knew was patented by HP. And because of this behavior, Acer's infringing products should be removed from the market. However, it is somewhat more believable that computer design engineers do not actively monitor the landscape of thousands of patents held by companies like HP, IBM, Sun and the like, to ensure they sidestep this minefield of competitor's patents.

Unless something substantial changes, companies will need to become more regimented and diligent about monitoring and analyzing their own and their competitors patent portfolios. And then find ways to provide guidance to their R&D teams to avoid potentially infringing designs. Until then, I suspect we'll be seeing more news on lawsuits such as this one from HP.

LOS ANGELES/TAIPEI (Reuters) - Hewlett-Packard Co. said it had sued Taiwan computer maker Acer, Inc. for patent infringement, pressuring Acer shares.

Goldman Sachs analyst Henry King said the lawsuit, which aims to stop Acer from selling some products in the United States, could pressure Acer's already-slim profit margins there.

"Acer has become a threat that leading PC vendors cannot afford to neglect," he said in a research note. "We understand why competitors would desire a halt to Acer's expansion in the U.S. market."

Shares in Acer which is due to report earnings later on Wednesday, were down 2 percent to T$63.00 at 0425 GMT on Wednesday, underforming the benchmark TAIEX index, which declined 0.92 percent, although MSCI's index of IT stocks, down 1.4 percent, indicated a broad sell-off in the sector.

The lawsuit, filed in a Texas federal court on Tuesday, seeks to stop Acer from selling some products in the United States, including desktop and notebook computers, and media centers and related products, because HP alleges they use its patented technology.

The five U.S. patents listed in the lawsuit were issued between 1997 and 2003.

HP, the world's top PC maker, said in a statement it "is taking necessary action to protect its intellectual property against unauthorized use" by Acer the world's No.4 PC maker.

The patents relate to optical data storage, circuits and methods for reducing computer system power consumption, multiple processors in computer systems, and an improved method for attaching devices to a digital serial bus, which allows communication between electronic systems.

Joint LES & Oregon Bioscience Assocation Meeting March 2007

2007-03-19T17:32:00.000-07:00

by Doug Pollack

This past week, there was a joint meeting between the Oregon Bioscience Association and the Licensing Executives Society Oregon/SW Washington Chapter. The presentation was structured as a "mock negotation" over a hypothetical negotiation of license terms for a new medical device.

Sandy Shotwell of Alta Biomedical and Keith Jones from the Washington State University Research Foundation represented the licensor's interests, while John Villa from HP and Mike Cohen a lawyer from Schwabe, Williamson & Wyatt represented the interests of the licensee.

The entire video of the presentation/negotiation, which runs around 40 minutes, is available to be viewed by clicking below.

It was most helpful that the participants handed out a draft terms sheet for the license agreement, illustrating the general areas and some example levels for royalties, prepaids, minimums, and the like.

The licensors noted that a key requirement for them in the agreement is some limitation on exclusivity, so that the university does not have its "academic freedom compromised". Notwithstanding this, the university also requires the licensee to assume all liabilities for using the IP. They also indicated that it is typical to provide for some reserved rights -- for instance for federal use (especially if the research was funded with federal dollars), non-profits, or for humanitarian purposes. They noted however, that the licensee will typically be averse to enables the licensor access to improvements that they may make to the technology.

HP indicated that they will typically request a very broad grant (all fields of use, worldwide, for use in all products), and that they will also prefer that their is a low initial entry fee for the license with some sharing of profits on the backend of the agreement once products based on the IP are in the market. They also indicated that they will typically like to negotiate sublicensing rights, since they may not have a good sense of whether a particular technology will be central or tangential to strategic product efforts in the future.

The licensee lastly indicated that they typically would negotiate the agreement term to persist for the life of the patents. This lines up with them paying royalties for the period of time for which value is being provided by the IP. The exception to this is if the licensor is providing "know how" that provides for more longstanding value and benefit to the licensee past the life of the patents.

The Challenge of Creating Innovation Networks

2007-03-19T10:06:00.000-07:00

by Scott Weingust
Director, FTI Consulting

This innovation challenge is daunting, with organizations currently expected to innovate not just in products and services but in virtually all functions throughout their organizations. The outcomes of such innovations are the intellectual property assets (patents, trade secrets, trademarks, copyrights, etc.) that provide competitive advantage to their owner. A number of different studies have shown that successful innovation is one of the most pressing challenges that CEOs are facing today.

It is my belief that most organizations’ internal capacity for innovation is increasingly insufficient to meet the demands for competing in today's ever more complex innovation environment. Innovation can no longer be thought of by managers solely as a core internal competency constrained by the assets and resources available within their own organization’s walls. Rather, companies must expand their externally-available innovation resources and relationships. Corporate managers must alter their perspective on sources and methods of innovation and equally consider, without prejudice, both internal as well as external sources of innovation. They must create their own “Innovation Networks” combining internal and external innovation resources (Forrester, “Innovation Networks," June 17, 2004). This new perspective creates an almost limitless capacity for innovation if a company can successfully manage and leverage its Innovation Networks to provide the most efficient blend of internal and external innovation resources.

There are some current examples of companies and other organizations that are systematically making forays outside their organizational walls to identify opportunities for new innovations. Proctor & Gamble, IBM, Kraft Foods, NASA, and many other organizations are embracing the concept of “Open Innovation” (Open Innovation: The New Imperative for Creating and Profiting from Technology Henry Chesbrough, 2003) to assist them to develop their Innovation Networks. For these companies, licensing, co-development, sponsored research, joint ventures and other “partnering” relationships are helping to generate and otherwise provide access to valuable intellectual property that supports new products.

Unfortunately, few companies have the perspective, internal resources, knowledge, and relationships to develop effective Innovation Networks that will achieve its goals, especially when it comes to identifying creative opportunities outside of their core industry or product area.

Based on my experience working with, and knowledge of, organizations that are trying to develop Innovation Networks, the primary challenges for companies are numerous and include:

Identifying appropriate sourcing, internal vs. external, for each step in the innovation process
Knowing with whom, when, why, and how to collaborate
Identifying required skills and areas of invention needed for successful growth
Implementing the right structures to build low risk, but high output innovation relationships

But most importantly, organizations will need to shed their “not invented here” cultures to embrace the concept of Innovation Networks and pursue the benefits of leveraging external innovations. This last challenge will require bold leadership that is willing to direct their organizations into uncharted territory that may not initially be supported by many employees who are uncomfortable working so closely with other companies.

Which companies will adjust to today’s new environment and which will remain set in their ways? Which organizations will simply talk about Open Innovation while their competitors spend time and resource developing infrastructure and methodologies to create Innovation Networks? The answer to these questions may very well lead us to understand which companies will emerge as industry leaders in the future.

Scott Weingust. Scott is a Director at FTI Consulting and provides technology and intellectual property management services based out of Chicago. He has spent the last 10+ years providing consulting services for many Fortune 500 and smaller companies, and has helped corporations, universities, and other organizations to create, acquire, manage, protect, and extract value from their intellectual property.

Vonage Verizon Value

2007-03-16T15:26:00.000-07:00

by Doug Pollack

Last week a federal jury said that Vonage owes Verizon $58MM in damages and a royalty on future revenues for infringing on 3 Verizon patents that have to do with internet calling. Verizon had asked for $197MM in damages and is requesting a 5.5% monthly royalty of future revenues.

Vonage has countered that the Verizon patents aren't valid anyway, and that in any case, they don't infringe on the patents. It appears that Verizon has chosen to target Vonage because at least partially because as was reported in the Wall Street Journal recently that Verizon has lost hundreds of thousands of customers to Vonage over the last couple years.

There are several interesting aspects of this situation. One is why Verizon targeted Vonage rather than possibly a company such as Skype (now owned by E-Bay) which was one of the first movers in providing voice over IP (VOIP) internet calling services to the masses. While Skype is more well known for computer-to-computer calling, which it provides for free, it also provides for computer to standard telephone line calling, which was stated as an area of infringement in the Verizon-Vonage case. But Skype has a different business model from Vonage in that it charges an annual fee of $29.99 per year for calling any phone line in the US or Canada.

Another interesting aspect of this is the choice of a 5.5% royalty rate. This would represent around $33MM a year in royalty payments based on Vonage's last year's $607MM in revenues. It would be helpful to see the financial justification that led to the request for 5.5%. Especially because so much of the value of Vonage has been based on their effective marketing and brand building, as opposed to any unique distinction of their flavor of VOIP technology. It seems like the Verizon patents have only taken on value because they (Verizon) failed to capitalize on the use of a technology that they are claiming to have invented. But in that case, still, why 5.5%?

There is of course the "rule of thumb" for patent licenses which suggests a market rate of between 3% and 10%. And 5.5% is right in there. But is there any quantifiable economic analysis that ties the value of the contribution made to the overall offering by Vonage that the Verizon patents make that would result in $33MM or so a year?

Welcome New Contributors

2007-03-14T10:49:00.000-07:00

I'm very pleased that several prominent members of the broader community of
interest around intellectual property have agreed to be contributors to this blog. The financial side of IP is such a rich area for discussion, I am certain that you'll find their comments and insights good reading.

These individuals include (in no particular order):

Scott Weingust. Scott is a Director at FTI Consulting and provides technology and intellectual property management services based out of Chicago. He has spent the last 10+ years providing consulting services for many Fortune 500 and smaller companies, and has helped corporations, universities, and other organizations to create, acquire, manage, protect, and extract value from their intellectual property.

Dr. Baruch Lev. Dr. Lev is a Professor and Director of the Vincent C. Ross Institute of Accounting Research and the Philip Bardes Professor of Accounting and Finance at NYU Sterns School of Business. He has been recognized as one of the top 100 Most Influential People in the accounting profession. He is the author of several books including Intangibles: Management, Measurement, and Reporting, Financial Statement Analysis: A New Approach and Accounting and Information Theory.

David McFeeters-Krone. David is President of Intellectual Assets and a technology and licensing consultant. He has a strong background in licensing, gained through 10 years of experience with industry, government, and academic institutions.

Jim Malackowski. He is the President and CEO of Ocean Tomo, LLC, an integrated intellectual capital merchant bank providing valuation, asset and risk management, corporate finance and expert services. Jim is an internationally recognized leader in the field of intellectual capital equity management as well as a noted expert in business valuation and intellectual property strategy.

Dr. Nir Kossovsky. Dr. Kossovsky is CEO of Technology Option Capital, LLC, which provides business solutions at the interface of alternative risk transfer, intangible asset value and finance. He is author of more than 180 technical papers and book chapters, and is the named inventor on 20 pending and issued patents in medical therapeutics, nanotechnology and intellectual property business systems. He is also executive secretary of the Intellectual Asset Finance Society.

Dr. Ednaldo Silva. Dr. Silva currently President of RoyaltyStat LLC which provides transfer pricing consulting services to accountants, attorneys, and corporate clients. He has a Ph.D. in Economics from the University of California at Berkeley. He taught at the Graduate Faculty of the New School for Social Research in New York for over eight years (1982-1990). After academia, Dr. Silva became senior economic advisor at the IRS Office of Chief Counsel and then chief economist at Shearman & Sterling.

Dr. Michael Kayat. Dr. Kayat is President of UTEK Intellectual Capital Consulting. He has more than 20 years of business development success at a senior executive level in a wide range of industries in US and international markets. He received a Ph.D. in Physics from the University of Leicester (UK) and an M.B.A. from Pepperdine University. Dr. Kayat is a member of the Intellectual Property Owners Association, the Licensing Executives Society (USA & Canada) and the Association of University Technology Managers.

Our thanks from Innovation Asset to all of these individuals for their participation in this forum. We're looking forward to this blog providing an exciting and stimulating dialog on IP and its financial aspects.

Value of the iPhone Trademark

2007-01-15T17:46:00.000-08:00

Unless you've been on a desert island, you're probably aware that Apple launched its eagerly anticipated iPhone (tm) this past week at Macworld. Unexpectedly and immediately following the announcement, a trademark infringement lawsuit was filed by Cisco Systems against Apple.

There has been a lot written about the genesis of the lawsuit and the discussions that occurred between the companies in the weeks leading up to the launch. What is crystal clear here is the amazing level of value that the companies are attributing to the iPhone trademark.

On a Cisco blog, Mark Chandler, Cisco's SVP and General Counsel states:

"At MacWorld, Apple discussed the patents pending on their new phone technology. They clearly seem to value intellectual property. If the tables were turned, do you think Apple would allow someone to blatantly infringe on their rights? How would Apple react if someone launched a product called iPod but claimed it was ok to use the name because it used a different video format? Would that be ok? We know the answer – Apple is a very aggressive enforcer of their trademark rights. And that needs to be a two-way street."

Some IP law experts cite that Cisco may have let their trademark of iPhone lapse last year. Whatever the facts of this situation turn out to be when all is known, this dispute highlights the importance for companies to be highly diligent in the maintenance of their trademark portfolio. While it is likely that this particular case will be settled, imagine the angst of Cisco shareholders if it were to be found that the company mistakenly missed a filing deadline that may have threatened their ownership of a trademark arguably valued in nine figures.

I'm looking forward, if the case is not resolved quickly, to see exactly how Cisco will assess the value of the trademark and exactly what their claims as to value may be.

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

2006-12-15T10:12:00.000-08:00

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.

Russell Parr Presentation on Royalty Rates to the Licensing Executives Society

2006-12-15T09:44:00.000-08:00

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 booklet@innovation-asset.com.

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.