Knowledge Center

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

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.

rcarson

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.)

rcarson