Many companies have spent the past five years looking at their patent portfolios and racking their brains for a way to reduce numbers to cut costs, but not Terry Adams. Instead, Nestlé’s ebullient assistant vice president for intellectual property (IP), has undertaken an internal campaign and training programme to actually increase the size of the company’s patent portfolio. Given Nestlé’s huge investment in innovation – it is the world’s largest food and nutrition research organisation, with more than 5,000 people and an annual budget of 1.9 billion Swiss Francs (CHF) dedicated to research and development (R&D) – Adams felt that the company’s output of patent applications (around 130 a year) was too low. So he wanted to change that.
‘The early consensus when I joined Nestlé [in 2006] was that we weren’t capturing all our inventions and potential patents,’ explains Adams. ‘It seemed to me, based on my previous experience [as senior research manager at leading global health and hygiene company Kimberly-Clark], that the output in patent filings could not be an accurate reflection of the R&D department’s work, particularly when you consider the amount that Nestlé invests in R&D.’ He has since doubled that output thanks to a successful education and awareness programme, which has ensured that IP is at the heart of the company.
That Adams came to his role from an R&D background can only have helped in this respect. A chemical engineer by training, he joined Procter & Gamble after university, progressing into a group leader role in the company before moving to the Dial Corporation and then to Kimberly Clark, where he was responsible for designing a process to assist and track inventions from initial idea to launch and then protection in the marketplace. ‘Patents were an inescapable part of that process, so I suppose you could say that I worked my way into the IP field,’ he says. A similar system exists at Nestlé, supported by a team of intellectual asset managers who bridge the gap between the R&D that creates the innovation and the IP that protects it.
Nestlé is a truly global operation, employing 280,000 people across 443 locations and managing some of the world’s best-loved brands, such as KitKat, Nespresso, Smarties, San Pellegrino, Purina and Shreddies. The company has 29 research, development and technology centres (from Abidjan on the Ivory Coast to Santiago in Chile and Vittel in France) and two science and research centres. In support of this, the IP department spans 12 time zones across three continents, with over 70 employees and more than 20,000 patent matters under its control.
Joined up thinking
As a member of the management team, overseeing that department in Nestlé’s headquarters in Vevey, Switzerland, American-born Adams’ main focus is ‘operational; basically anything that our patent attorneys, in support of our business units, require to function on a day-to-day basis’. That includes systems, paralegal support, the network of patent agents and competitive intelligence, as well as patent strategy generally and, of course, budgets.
‘When I first came to Nestlé, the IP function as it currently stands was split into two parts: there was a patent department that sat under legal and a technology function that formed part of the R&D department. We merged them three years ago to form the current IP department, which has allowed us to join up the technical interface with the legal aspects of invention,’ Adams explains. ‘The experience of the intellectual asset managers [most of whom have also come to the role from an R&D background] enables them to interface with the inventor community, but they also have [through training and experience] a good working knowledge of patents and more general legal issues. Their strength is in applying both outlooks from a business perspective. It’s not just about IP any more: you have to understand where an invention fits into a company’s wider business strategy.’
Adams says that this kind of knowledge ensures that he will be able to justify his patent budget should he need to; although that isn’t to say that cost control isn’t a key driver for his department. ‘Nestlé is close to being a CHF 100bn company,’ he explains, ‘so, when you’re spending CHF 20m on your IP portfolio, as we used to, then no one is necessarily questioning that spend. However, as we worked to increase our portfolio, we knew that costs would go up too. It was important for us to get ahead of that. So part of our strategy of expansion was about reducing costs by examining our current portfolio, but also by looking in more detail at the administrative processes involved in IP management. In a way, our cost-cutting efforts had to be bigger as we had to dig deeper to reduce spending,’ he explains.
This included allowing IP Rights to lapse if the IP team felt it no longer needed them, but Adams stresses that: ‘It was never a target to cut costs by reducing filing. In fact, the opposite was true. Our goal was to be efficient, rather than cost reduction for its own sake, which could be detrimental to the portfolio and company.’
But isn’t it a challenge to identify IP Rights that may no longer be important to a company? ‘It can be difficult to imagine the potential of an IP Right 10 years from now,’ agrees Adams, ‘or how your business may evolve. That’s just part of what you have to wrestle with in managing IP.’
For Adams, the key measure is always return on investment: ‘You need to look at the value that a patent creates for your business; for example, its value in enabling you to operate in key or new markets, to grab a share in an existing market, or to sell your product or produce at a lower cost than your competitors, thereby ensuring a higher profit margin. If it doesn’t do that, it’s not creating value. It doesn’t matter how good it looks or how many patents you say that you have; if it’s not creating value, it has no worth. This is the level of justification that has to happen when you’re making the decision as to whether to invest some CHF 300,000 to obtain and maintain that patent over its lifetime in all the different countries in which you operate. There has to be a business case to support the budget.
‘The work that we’ve done on our portfolio means that, if we really needed to, we would be able to say to our chief financial officer: “We’ve gone back over our portfolio and we’ve reduced costs where it’s possible to do so, but we really need this budget or we’ll need to get rid of patents, and that could have a detrimental effect on the business”,’ adds Adams. ‘Fortunately, we haven’t needed to have that conversation, but, if we did, we’d be able to make the case for the same or more resources.’
Knowledge is power
Key to Adams’ drive to improve patent filing and reduce spending at Nestlé has been the systems and technology that support the company’s IP operations, including the IP management software that it uses: CPA Global’s Memotech. Adams says that he can’t overemphasise the importance of good preparation: ‘It took a lot of time and effort to tailor Memotech to our exact needs, but, because of that preparation, the software is able to play a key role in our patent management strategy,’ he explains. ‘A simple docketing system can no longer meet the requirements of a busy IP department. You also need to be able to analyse what’s on the system to better understand your portfolio. If you don’t have that insight, it’s just not possible to make the kind of informed decisions that you need to.
‘Because of the data capabilities of the software, it allows the IP department to understand how the patents that we have fit into the business, the technology areas that they’re attached to (or could be used in) and their strength – whether offensive or defensive – from a legal point of view,’ continues Adams. ‘In other words, where they fit from a strategic perspective. This enables us to say with full confidence: “This is how our portfolio looks, this is how much of our portfolio that we’re actually using inside our products, this is how they fit from a business point of view.” It also means that we’re able to make the case for our patent spending and to say, “we’ve cut what we can, and if we cut any more, these are the types of IP Rights/products that we’d be cutting into, do you really want that?”
‘That’s not to say,’ adds Adams, ‘that the answer to that question is always no. It’s a choice that can be made, but it’s made with data and not just a random hacking to save money with little or no sense of the risk that you might be putting the business in.’
Adams says that the implementation of Memotech has helped Nestlé’s IP department to streamline some of its processes too; for example, in keeping track of inventions that are submitted, where they are in the process, the time that the process takes or – as Adams puts it – ‘All those things that, before, we just didn’t have a line of sight into.
’Similarly, the system also had to be adapted to fit Nestlé’s use of its patents. ‘We’re relatively integrated when it comes to implementing technology across the business,’ explains Adams. ‘So, when you say something’s for Nespresso, for example, that doesn’t necessarily mean that the technology is just being used for that product. We have other machine systems that use the same technology [such as Dolce Gusto]. On many occasions, our patents apply to several different business units, so you can’t have one business unit saying this is mine, you can’t have it, or not have an overview of what’s happening with that technology in other business units.’
Ultimately, Adams says that it’s not the software itself, but how it’s implemented that is key. ‘There are several good software solutions on the market, but they’re only worth the effort that you put in. When it comes to implementation, you really need to think about what you’re trying to accomplish. Yes, you could go back and reconfigure a system if you’ve left something out. But it would end up being much more work than if you’d just thought about it in the first place.’
Adams argues that software shouldn’t be employed just to automate key tasks, but also to improve them. He gives, as an example, the company’s legacy system for managing invoices from patent agents. ‘There used to be a lot of duplication of effort,’ he explains, ‘with numerous paralegals entering and re-entering the same information, which invariably led to inconsistency, as well as wasting time. We’d identified this as a key area for improvement when first scoping out the system and spoke to CPA Global to develop a process that would stop the need for re entry. It’s made a big difference to data integrity and reduced our workload.
‘That’s another key issue when it comes to cost saving,’ he adds. ‘It doesn’t show up in my budget, but I know I’ve saved a considerable amount of resources, because we now need to involve only one person to manage a task that used to need five people.’
There’s also the peace of mind of knowing that all your data is stored in one safe place. ‘Before we started using Memotech, much of this data used to be kept in people’s offices, on their desks or on a hard drive that wasn’t connected to the main server,’ continues Adams. ‘That’s not the way a modern business should be managing key assets.’
Profiting from technology
Indeed, Adams is keen to harness the full capabilities of the IP management software to continue to drive down unnecessary costs and repetition of work: ‘The next level is to consider how we can further automate our processes, not just in terms of our internal work, but also when it comes to interaction with our suppliers, partners and collaborators.’
Adams explains that, so far, this has led to the department outsourcing patent search and docketing to CPA Global’s India operations. ‘Because Memotech is web-based, the team in India can enter data directly into our system,’ he explains. ‘From a workload point of view, this has freed up the internal team to concentrate on more strategic and value-added activities.
‘While all IP work is necessary, it is not all equal,’ he says. ‘By sending the lower-value work to the team in India, we can not only retain the higher-value work in-house, but it also means that we don’t have to hire any additional resources,’ he adds. ‘Back in 2006, our portfolio of patents granted and filed numbered around 16,000, but today we have more than 20,000. That means the actual number of cases that our patent paralegals have to manage is 25% higher. But I didn’t want to hire 25% more people.’
Adams says that this ongoing arrangement has also highlighted areas for improvement when interacting with other external providers and suppliers. ‘We also want to automate and incorporate the work of our external counsel and agents directly into Memotech,’ he says. ‘At the moment, we’re still communicating with them by email, but that means we have to take all information and enter it into the system ourselves. I don’t see why we can’t use the same model as we do with CPA Global in India, and send our instructions through Memotech so that they can upload their output directly into the system and in real-time. This is where we have to go to next. The capability and willingness to do this has been there for some time, now we’re actively pushing for it.’
While the tools are in place to support this kind of interaction, Adams believes that the industry as a whole has been too slow in its uptake of them, mainly as a result of the inability of many IP service providers, particularly some law firms and patent agents, to adapt to their use. ‘Of course, we really value the relationships that we have with our agents. Some of them have been with us for 30 to 40 years,’ he says. ‘But, at the same time, it’s about getting a quality service at a good price and agents need to be able to evolve in line with our requirements too.’
Adams says that the IP software industry has some work to do too: ‘It frustrates me when I consider the impact it may have on our productivity because an agent is working on a system that isn’t compatible with Memotech. Consider cell phones as an example. I travel a lot, but I don’t expect to land in a new country and find that my phone doesn’t work. There are protocols and standards by which all mobile phone devices interoperate. So why can’t the same thing happen for IP management software? Why can’t we have common standards of exchange and common data fields so that the same protocol works with agents and patent offices in Chile as it does in Malaysia? We’re not doing anything that is drastically different after all.
‘The move towards this kind of standardisation is under way,’ concedes Adams. He just wants it to happen a bit quicker. Until it does, however, Adams intends to concentrate on further standardising and improving Nestlé’s own web of IP systems and collaborators. ‘Our main focus at the moment is on connectivity,’ he says, ‘which applies to our R&D department’s innovation, linking patents and business units, and also to the way in which we interact with our external suppliers and communicate our IP strategies to them.’ Nestlé’s expansion away from its core nutrition brands and into health and wellness sciences is expected to play a key role in this too. ‘As a business, we’re also growing into that important space between food and pharmaceuticals; for example, in terms of the key role that nutrition can play in the treatment of chronic diseases. It’s a high-growth area, which entails a lot of leading technology that must be protected and supported if it is to fulfil its potential. My job is to make sure that we have the systems and processes in place to ensure that we do that.’
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