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.

Improve Venture Capital Returns with IP Portfolio Management

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

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


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


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


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

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

Aligning IP Strategy and Business Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

Business Strategy IS Intellectual Property Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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?