Intellectual Property Management (IPM) uses IP as both a legal and a business asset to generate additional revenue. As a legal asset, IP’s main purpose is to protect technology embedded in products and services. But as a business asset, IP is viewed as a value outside the product, and can be commercialised independently. In the business asset scenario, companies can look to generate additional revenue from their existing portfolio to include IP, which they may never manufacture or sell, but which may have a high licensing value.
Exploiting your intangibles
For many years, IP portfolios were viewed as remnants of research and development (R&D) spending and treated as a ‘sunk cost’. In the past 10 years, both accountants and CEOs have come to understand that intangibles are on of the last un-exploited areas of value in a corporation that can have a high degree of value. But its one thing knowing IBM makes over US$1.5 billion a year from their IP portfolio, and another judging whether your own corporation can generate additional revenue to make the effort worthwhile.
It is imperative to obtain management buy-in before embarking upon an IPM process, but the difficult question to answer is what is the buy-in for? Over the last 10 years I have worked with companies to help them judge their IPM capabilities and implement IPM processes and have found it helpful to think of IPM as a series of four strategies.
1. Reduce risk
In this scenario, corporations see IP as a legal asset that reduces their risks in the marketplace. Reducing risk procedures are usually led by legal departments. They focus on process compliance, processing product clearance and protecting technologies in the market place. Another key activity is portfolio building to avoid litigation and cross-licensing scenarios. Corporations following this strategy include GE and Sun Microsystems.
2. A path to cost reduction
In this scenario, corporations still view IP a legal asset, but are looking to maintain the effectiveness of their program at a reduced cost. This involves reducing vanity patents, tightening IP screening criteria, creating a standard country-filing list, reducing exceptions, revamping internal renewal processes, so they are more rigorous, and aligning the trademarks, products and brands. Most corporations will focus on a cost reduction phase at some point.
3. A path to value
In this scenario, corporations make a conscious decision to view IP as a corporate and business asset that can generate additional revenues. IPM activities are centrally managed, and the company begins to actively market its IP to buyers or licensees who will manufacture products in new markets or applications beyond the reach of the IP owner. Corporations that have followed this strategy include Boeing, Lucent Technologies, IBM and BellSouth.
4. A path to strategic value
In this scenario, corporations view IP as a business asset that can generate strategic value, which may or may not include revenue. IPM programs are usually spearheaded by business development departments, with support from legal. The focus is on using IP to change the nature or direction of competition, relying on strategic patenting, refocusing R&D and rethinking partnerships with customers, suppliers, or any other relevant parties. Corporations that have adopted this strategy include Microsoft, P&G, HP and Dow Chemical.
Having identified an IPM path of interest, how should corporations proceed? First they need to identify the role IP can play in supporting business strategies. Too many corporations, who are looking for management buy-in, tend to focus on revenue as the primary role. While increasing revenue is always helpful, it may not be the best use of the firm’s IP. Most companies choose no more than three primary roles for their IP.
The directions corporations choose will depend on which of the four paths to value prove most attractive. The choice will then inform which objectives to focus on – whether its litigation avoidance for reducing risk; cost avoidance for a path to cost reduction; revenue generation, for a path to value; or strategic positioning for a path to strategic value.
It's one thing knowing IBM makes over US$1.5 billion a year from their IP portfolio, and another judging whether your own corporation can generate additional revenue to make the effort worthwhile.
Aligning your portfolio
The next step is to align a corporation’s IP inventory against the identified paths to find out how far a current IP portfolio relates to a desired portfolio. Corporations starting out on this exercise for the first time frequently find that 50% of their portfolio is unrelated to their desired role. Why does this happen? Portfolios are created for a variety of reasons. Inventors sometimes file a certain number of patents to get promoted, or new corporations start out by generating a large number of patents with little regard to quality.
Regardless of how the portfolio evolved, once corporations understand the objectives they need their IP to fulfil, they grasp how their current portfolio relates to those objectives, and then they can start filling the gaps and focus their R&D efforts on moving forward.
This article first appeared in IP Review, issue 7