Blog: Financial Aspects of IP

By Peter Ackerman
President &  CEO
Innovation Asset Group

I’ll take some license to sew a stitch between this blog’s topic, “Financial Aspects of Intellectual Property” and a more macro issue. It was around Q4 2008 when the vortex of the global economic downturn kicked up so much dust that “uncertainty” became the word of the day. It’s a word you still hear a lot. An overly simplistic and unscientific search on Google of the string “uncertainty in the economy” – adding 2008 and subtracting January through August yields almost 45,000 results, and more than 10,000 year to date in 2009. Lots of uncertainty.
So what were companies to do? There were plenty of prescriptions. I don’t think many people you’d expect to “get it” actually got it – that the aftermath is a new day requiring a new way; there’s no going back. The game is changing and new rules are being written. All you can really do is stay calm and focused; execute with clarity and courage. Let the winds go around you.
I want to pay forward the “random thoughts” of one of the best thinkers and human beings I know – Dave Chen. I could show the broad bio, but just take his own description from his Twitter page: “dad, investor, vintner, sustainability focused, plate-spinner .” I will tell you he’s also co-founder of Equilibrium Capital. These are excerpts from Dave’s message to his team at Equilibrium at the tail end of 2008:

In 2008 Equilibrium Capital went out into the market, formed its personality, worked through its strategy, and established its market position. I wanted to celebrate 2008 and the team’s great work.
Looking ahead, we are about to jump from the frying pan into the fire below…there is no question that 2009 will be a challenge in so many visceral respects. We will see the impact in our families, our friends, our businesses and our nerves.
Unlike 2002, this will be a long recovery. we do not have the fuel of appreciating home prices ballooning consumer wealth-effects and driving GDP growth. This time around, recovery is hampered by both system changes and a re-building of inter-institutional trust.
The credit crunch is as much about:
(1) Structural changes in the financial services system
- i-banks becoming banks,
- leverage ratios cut by an order of magnitude,
- entire portions of the global capital base no longer in existence. More than merely a re-pricing…ie, the global economy is smaller. This is not re-valuation; this is destruction and evaporation.
(2) Entities not trusting each other
- bank-to-bank
- bank-to-company
- company-to-company
each layering in their respective risk management & fudge factor.
Pop culture, hi-tech, and the media often throw around the term paradigm. paradigm is about how you view the world. the framework or rules deep in your “reasoning” that you use to view and interpret the world. I’m still pondering if there is a “rule” change taking place. I think there is.
This all translates to time…decisions get elongated…don’t bet on it getting done quickly. throughout 2009, time only favors the buyer. Decisions that are simple (involving as few moving parts as needed) will get done. Control and trust is everything. simple benefits get understood and bought. Simple ideas win.
2009 is the year where clarity of objectives will drive everything…the system noise is going to be intense. The resulting distraction will be huge…confidence in your clarity is the only tactic.
Great fortunes will be made & there is huge oppty to lead in the “re-rule making” (defining the paradigm) —> defining a way-of-operating wherein conscience and commerce link to consequence.
In good times, many people and many teams are able to create great results. In bad times, only the good teams can get you through. All the more reason that I cannot imagine a better team to go into that fire with than you.
See ya next year.

I checked in with him recently – halfway through 2009. They’ve stayed in that zone and so their summit is that much closer.
So what’s the stitch between this and IP value? Well…seems to me that in the midst of uncertainty, decisions still have to be made. Focus & execution to your core aren’t theories anymore. Adapt to the new world and innovate to the new beginning. That’s where the value will be.

packerman

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 CIO’s 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.    The 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.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… Rank: wait… Traffic: wait… Price: wait… C: wait…

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rcarson

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.

rcarson

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.

rcarson

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.

rcarson

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.

rcarson

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.

rcarson

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.

rcarson

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!

rcarson

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.

rcarson