Aligning IP Strategy and Business Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

The IP Audit: Driving by the Rear-View Mirror

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Seems reasonable…

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

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

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

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

IP Culture - a Political Priority?

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

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

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

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

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

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

Are Chief IP Counsels really Chief IP Officers?

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

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

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

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

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

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

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

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

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

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

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

Who is Controlling Your Most Valuable Assets?

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


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

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


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


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

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

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

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

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

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

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

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

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

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

The New Era in the IP Assets Market

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

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

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?

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

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

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

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

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

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

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

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

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

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

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

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

Russell Parr Presentation on Royalty Rates to the Licensing Executives Society

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

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

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