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

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.

Are Chief IP Counsels really Chief IP Officers?

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

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

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

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

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

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

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

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

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

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

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

Who is Controlling Your Most Valuable Assets?

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


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

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


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


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

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

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

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

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

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

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

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

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

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