In this series of posts we wanted to give the ipVA perspective of what is an effective IP strategy?

To back up these posts we are going to post a white paper on the ipVA main site at the end of the series. This explains in fuller terms the ipVA viewpoint of key questions in this area, including one fundamental that we really should begin with—what exactly or even roughly is IP?

A community apart

In and of itself the IP community cannot seem to agree on this quite simple question. Some call IP terms that seem sensible when understood but by being proprietary, lack universal appeal and therefore adoption. Suffice to say, Intellectual Assets (IA), IP assets, intellectual capital (IC) and other such terms are designed to mean some or a part of the mix. But this small community does itself a disservice by failing to adopt a common definition.  

The compelling Craig Opperman (yes he does look like my older brother) has, to my mind, given the best explanation of why this is the case in one of my favourite expressions. I’m not sure whether this emanates from Craig’s native South Africa but this does seem to fit:

“If all you have is a hammer, all your problems look like nails”.  

So when your patent attorney says he is an IP strategist, he probably isn’t. He may be a very good patent attorney, maybe even a patent strategist if you’re really lucky, but that doesn’t mean he is an IP strategist. Surely that’s obvious isn’t it? Equally your IP lawyer (sorry USA, in Europe we have split professions between patent attorneys and commercial lawyers) are likely to be very good, if not excellent, at contractual IP law but won’t cover patents, at least not in Europe. Do I need to go on—trade mark attorneys cover trade mark filings and maybe trade mark strategy (but not somewhat confusingly brand strategy, though brand strategists will pretend to be able to manage trade mark strategies), knowledge management experts cover…I’ll stop should I? You get the general idea.

The true definition-in our bold but humble view

In ipVA we have gone as wide as we dared in defining IP. To us, IP is a colloquial term that means all of the business assets that are not tangible. Below I’ll explain why without I hope giving away too much of our own IP in the process. Why we adopted this came from looking at over 200 companies from our project experience. We came to realise that without the widest perspective, very important bits were missed out of the equation and from the responsibilities of what needs to be managed by a smartly managed IP company with a Chief IP Officer or Head of IP. At least if we pitch into a company on a project to build an IP strategy, the average CEO or fund client will put us into a box believing that we want to manage one of three things, Intellectual Property, Insolvency Practitioners or Internet Protocol. Ask for a meeting to help him/her to manage the business Intangible Assets or IC and I’ll guarantee from experience that the meeting, if obtained, will be very short.

In our perspective therefore IP means all of a business’ intangibles. To repeat it means all of a business’ intangibles.

I can’t remember where I was when I heard Jon Dudas, at that time Under Secretary of Commerce for IP and Director of the USPTO (and somewhat similar in looks to a pre body building Arnie) come out with this belter:

“IP represents 75% of the value of the S&P500”.

At the time having heard Ocean Tomo spin that self-serving line for a couple of years I thought to myself, that can’t be right can it? And after reflection I thought it might be better expressed so:

“Of the total value of the S&P 500, and indeed of any company or index nowadays, most of the value is represented by assets which are not tangible”.

A bit less sexy and reduced marketing spin (well this was I’m sure an Ocean Tomo event and those boys knew how to serve up very good champagne) but more accurate I’m sure.

The wider definition of IP

585 words into this post I hope that you’re still with me. All of the above is meant to explain that IP really means all of a business intangibles.

Which then begs the question of what are intangibles.  Now that is a good question. In our view, there are three parts to intangibles:

• Humans—individually and collectively. These things are the creative spirit in a company.
• Intellectual assets—the five formal IPRs which in and of themselves allow choice as to what to protect and how, formally, sometimes by registration and sometimes only by agreeing with each other not to tell somebody something.
• Relationships—the external manifestation of intellectual assets, in the form of corporate and consumer relationships both individually and in groups.

You’ll have to wait for the white paper to see the detail. This has taken us several years to perfect so it doesn’t come free of charge.

Why is this important as a distinction, and why you should avoid the hammer-only sellers?

On a strategy assignment in 2010, the head of R&D of a client which has been a major patent filer asked an excellent question, posing this scenario—I quote:

“I’d like to run a scenario where the business has no patents—what difference would it make?”

That question took a good 24 hours to think through. It is a very good question isn’t it? After all, patents done well take an awful lot of management and people time and effort, and no small amount of cost. And, the smartphone and other inter-galactic wars aside, do they really make that much difference?

The answer we came out with was something along these lines:

“ intangibles are a soupy mix of a lot of fuzzy assets*, all of which together make up a measure of competitive advantage or sustainability. At some point in the future someone may be able to formulate the relative value of each category for each company, but for now removing one probably important ingredient has an unknown impact on the overall taste of the soup. Better express it the other way round, if patent processes and patents are perfected, are there ways in which these  can be used to add to competitive advantage?”

*soupy mix and fuzzy assets are words and word combinations all of my own, I did sense Rob squirming at the hearing of them but, language difference aside, I think they convey the right message.

So beware your average hammer seller. He may well only have one tool whereas your machine may need someone with many more tools to build you a perfect IP machine. Somewhat cynically, watch in particular for the patent hammer seller—this is a very honourable profession but by definition the patent hammer seller only makes money if you file patents, and then take those patents to remote geographies. You may need one of these, and very good ones are hard to come by, but our advice is to be well informed yourself. Know what you want and what you need, as with all professional advisers, including IP strategists like us.

But I digress. Can’t help myself. I could and do regularly bore poor housewives at dinner parties about this.

To finish therefore on question 1, let’s summarise:

• IP is best treated as a colloquial term,
• In its true definition, it should be viewed as meaning all of a business’ intangible assets,
• All of these assets can be managed, and should be managed, indeed they are secretly managed by all of the best companies,
• If managed for competitive advantage, that is heading towards the direction of strategy.
• For which you will need an advanced hammer supplier, preferably with a multi-tooled toolbox.
• And these I’ll assure you are in very short supply worldwide.

And the quicker the business world moves to understanding this, the better for all of us.

In part 2 we will move on to defining the second question—what is strategy and what are the components of IP strategy and tactics that should be considered in your strategy discussion.

Amounts committed, or who wanted it most?

 * reported in Business Insider on 21st July to have been $2.6bn–not totally material in the context of what follows–what’s $500mn between friends?

As a proportion of cash reserves, or who needed it most though, the story is quite different. We accept that this is a highly rudimentary analysis but telling nonetheless:

We can only idly speculate about the others in the auction. Huawei seemingly joined up with RPX (odd combo though RPX’s larger members are listed above). Nothing much known or reported about ZTE, Qualcomm, IV and others. We’ll have to hack a few phones (joke I promise) or keep our noses close to the ground to find out.

In summary, Google, in terms of gross cash, probably wanted it most badly but couldn’t find enough friends to play with. Apple wanted it second most but allied even with old foes to be able to win.

Intel and RIM were prepared to commit the largest proportion of their cash reserves to win it suggesting that both needed it most.

Intel ended up choosing what looked like the wrong partner, but when viewed against the ability to negotiate the IP rights it needed in a consortium of what would have been seven, probably took the right decision to partner with Google.

RIM is a standout for us. With a meagre (relatively) $2.9 bn of cash reserves and a rapidly declining market share and (so they say) future, this is a staggering amount of money to commit. RIM really really needed it, and we wonder whether this would have been authorised but for a rather rapid ROI in the form of relief from license out-payments.

And, equally interestingly, who do we think is most affected by having to renegotiate its cross license agreements? We believe that Nokia and Qualcomm should be expecting knocks on the door in the coming weeks from Apple and RIM seeking to renegotiate their current cross license terms. Nokia is likely the largest loser unless and until it can benefit from a license to the Nortel portfolio from, most likely being acquired by, new best friend Microsoft.

In short, lots and lots of behind the scenes dynamics, both direct and indirect.

Winners

Company  & Executive Summary of Auction Performance	Benefits
A very smart move. Played the auction very cleverly. Was not willing to bid as much as Google on its own but won by finding friends and foes with similar motivations or maybe a common motivation to stop Google winning.Is there any truth in the rumour that Bill Gates personally holds a large share in Apple?	A bigger and more influential seat at the Standards tables.The opportunity to renegotiate its current cross license deals with (probably and immediately) Nokia and others.The opportunity to redefine the way that Standards bodies operate. Less cartel, more collaborative.The opportunity to increase its cash pile, should it desire by seeking out its own license deals for the Nortel portfolio, to the extent that it is currently unlicensed.
Another very smart IP move by MSFT. Knows that product revenues alone will likely not maintain its market position. Has made the shift to high margin IP contribution inside a technology generation by hiring some of the best IP minds.	Its first seat at the Standards tables.The hedge of knowing that whichever way the markets go, it will be a net IP winner. From all product revenues to partly and growing IP revenues, MSFT will be a net winner. It has learned very very fast.The ability, unless constrained by the private agreements, to sub-license to its mates, including new friend and M&A target Nokia.
Under extreme product pressure and risks becoming another Psion, loved by a few but not loved enough by the masses. We believe that its primary motivation was financial and immediate, to relieve some of the out-payments it makes under cross licenses.	An immediate ROI in terms of its ability to renegotiate several of its cross license deals.We also believe an increased seat and influence on the Standards bodies.
Seems to have got what it wanted. We would be surprised if Ericsson didn’t get a defensive license to the Nortel portfolio through its acquisition of the Nortel business units. If so, this was strategic and value-adding	A larger seat at the 3G, 4G and LTE Standards tables. Moving it away from the over-dependence on the now becoming legacy 2G essential patents.
Seems to have been a combination of IP strategic and product strategic. IP strategic like its investment in Intertrust with Philips. Product strategic as known to be due to release a folding tablet device, its first 3 &4G enabled tablet, in Q1 of 2012.	Product defence from being subject to new cross licenses when its folding tablet comes out.IP strategic in giving it a first time seat at the Standards tables.
With EMC, we can only take the reports on faith that EMC has acquired a part of the Nortel portfolio dedicated to data storage. Not a known IP aggressor but has committed a sizeable amount of cash to being part of the victory parade. More to follow.	Really not known.

For intrigue, we also wondered if the consortium has thought about how it will use its new and respective Standards seats collectively? Or indeed if this is allowed?

And the losers?

Company  & Executive Summary of Auction Performance	Benefits lost
Could not find enough friends. Wanted it badly, probably the most, but its terms of joining together were either unattractive or it is not trusted enough.	Once in a business cycle lifetime opportunity to join the IP grown ups by acquiring a portfolio. We do wonder though whether, doing the maths, Google simply maxed out the benefits it could see from the portfolio and carried out a simple cost-benefit analysis to calculate that it simply wasn’t worth it. Does anyone know by the way if Google indemnifies Android adopters against IP risk in using the platform as part of the license terms? We doubt it but it is fascinating to know.
Not enough of a cash heavyweight to win solo despite really wanting it, and probably really needing it as the world migrates from Intel chip-enabled devices such as PCs. Not able to negotiate what it really needed with the Rockstar consortium so took its chances with Google. A credible effort and well played.	Taking Eduardo Sanchez on faith, really wanted it and probably really needed it. But not weighty enough to get it.
The Chinese didn’t appear to take this opportunity seriously enough. Huawei and RPX appear to have combined but Huawei should have combined with ZTE and the Chinese government to bid.	An opportunity lost. Will now find RIM, Ericsson and even Apple knocking on their doors to negotiate old or new licenses. Should have bid seriously. Maybe did but the truth is yet to come out.
A loser despite not even being a player in the auction. Does this add even greater motivation to find itself a new home within MSFT?	Either immediately or over time will be the recipient of calls and approaches to renegotiate license deals.

Of the patent aggregation funds, we don’t see RPX as either a winner or loser. It played and played seriously enough but its members had larger strategic interests than in backing a co-bid via RPX.

And, finally, what of IV? Strangely mute throughout. Is this heavyweight losing its sparkle?  A rare opportunity to bid for Standards essential patents seems to have gone begging without a thought or even a bid. Very odd.

To reiterate a question, one I’ll post on Twitter too:

Does anyone know by the way if Google indemnifies Android adopters against IP risk in using the platform as part of the license terms? We doubt it but it is fascinating to know.

An article in the World Intellectual Property Organisation’s December 2010 newsletter here shows the massive rise in both domestic Chinese patent applications as well as patent applications filed by foreign companies in China. WIPO’s patent statistics for 2009 show that Chinese companies filed 7,906 PCT applications (5.1% of the total applications filed) and was in fifth place behind the United States, Japan, Germany and South Korea. Chinese telecommunications company Huawei was beaten into second place with 1,847 application. It remains to be seen how many of these patents will in the end be granted. We’ve taken a non-comprehensive look at some of the Chinese-originated patent applications entering the European Patent Office and have noted that the descriptions tend to be much shorter than those originating from, for example the United States or Europe. This suggest that there may be difficulties in finding fall-back positions if close prior art is found. Unlike in the United States, the European Patent Convention offers no opportunity to file continuation applications to try and capture new subject matter in the application.

The 2009 WIPO patent statistics also show the massive number of entries from PCT applications into the Chinese Patent Office in 2008 (57,641) which is in third place behind the European Patent Office and the US PTO. This clearly shows a trend for foreign applicants to file in China.

And what about enforcement? Increasingly Chinese companies are using the patent enforcement system against other Chinese companies. It’s not just foreign companies trying to protect their rights. However as my friend Paul Jones points out in a recent newsletter, the Chinese court system can be harder to navigate than in some countries. The level of evidence that needs to be provided when filing an infringement suit is substantially higher than that required in the United States or Europe. This blogger has already experienced the inability to submit further evidence when he recently took over a trademark case. The evidence originally filed would have been sufficient to at least start the case in Europe, but it was not sufficient for the Chinese court. Attempts to submit further evidence was rejected as being too late and as Paul pointed out in a newsletter, it isn’t only European companies that fail to product in China.

On the other hand – with sufficient evidence and the right facts – it is possible to avoid the fate of some German companies who lament in this BBC report that they could not defend their apparent rights. We’ve seen so often the complaint that Chinese companies copy technology. But that’s the purpose of the IP system – if you want to stop copies, then you have to put your IP in place at the right time. It’s no good complaining after the copying has taken place.

Technorati Tags:
Patent, China

I spent a lot of time talking to others in the conference about their work in nanotechnology and commercialising their efforts. A lot of the posters in the hall outlined some very basic research which is probably years from commercialisation, but there was also a fair share of small start-up companies (often from universities) who were looking for business (and often investment). The understanding of intellectual property issues varied tremendously. One conference speaker from a company based in Santander highlighted the importance of good patent protection, not only in Spain but also in other countries. She emphasised the need to get good IP advice from the very beginning.

Another speaker (who shall remain nameless) talked about the success his company was having but failed to deal with any questions about how the technology was protected. His company has no patents (at least none published on the ESPACENET database) and some of the technology seemed fairly easy to reverse engineer (but I’m only a mere Physicist and not a real Nanotechnologist). In that case one wonders how the company is protecting its long term value in intellectual assets

Walking around the exhibition and poster wall was fascinating. Some of the people I talked to really understood the value of the intellectual property developed. Others noted that they thought a patent had been filed or that they’d filed a description with a notary to protect their ideas. There seemed to be little appreciation at the conference of the need to identify and review the intellectual property developed and the most appropriate form of protection.

A patent application is only of value if it really protects the business model of the company. Filing a patent on a process so that competitors receive full details of the process (as one company has clearly done) without thinking through and protecting use cases, licensing programmes and business opportunities is often a waste of money and resources. Traditionally some companies had filed details of their ideas with a local notary and relied on these deposits to “prove” that they have prior rights to an invention. That may have been a good strategy when markets are local – but in a global business strategy it has little role to play. Prior use of an idea in Spain does not protect a company from an alleged patent infringement in the United States (or even in France). And it is also not a substitute for a functioning trade secrets policy in which a company polices its disclosure of confidential information.

One research institute revealed that they had been somewhat surprised to find that a former student had put software developed at the institute into the Internet, apparently without permission. They had been looking to commercialise some of the work and if the software continued to be available free of charge there might be little incentive for anyone to take a licence.

There were a few bright spots. Rob met an old acquaintance from German-based seed company Technostart who is involved in the EU’s ProNano project which aims to take thirty ideas through to commercialisation. She’s well aware of the need to ensure that a company’s intellectual property is well-developed. I was also there in my role as Co-Chair of the Licensing Executives Society International’s (LESI) Electronics, IT and Telecommunications committee. LESI runs a number of educations programmes on the bsuiness of intellectual property which are suitable for smaller companies. Together with his friends Jose Miguel Lissen, a patent litigator at Spanish IP firm Gómez-Acebo & Pombo, and Dario Santander from Bardehle’s Barcelona’s office, we’re looking at what value membership of LESI could offer nanotech entrepreneurs in the commercialisation of intellectual property.

Now there’s a number of companies out there who are happy that their patents take a long time to come through the system. It means that there’s no need to commit oneself to one version or other of the patent claims for a long while – and hopefully sufficient time to see what a competitor is up to. And there’s the rub – the poor competitor really has difficult in trying to evaluate what is going on. What intellectual assets are going to be obtained which might hinder its business – is a licence fee payable (which is after all just a hit on the bottom line) or will an injunction follow. Ii’s unsatisfactory to investors who have to wade through the morass of competing claims and cannot be good for business. Let’s hope the issue is taken seriously soon.

Technorati Tags:
Patent Pendency, US PTO

xkcd is CC-BY-NC by Randall Munroe and at http://xkcd.com/670/

I wonder what a telco with 405m users would be worth? That is an awful lot of relationship capital to work with.

I realised that week 1 was a little ambitious to repeat week on week. If nothing else it could get a little repetitive. As a variation, I thought I’d pick up on the highlights of week 2:

1. A blog post on the Apple and Nokia spat. We have done a fair amount of work in the Standards area in diligence and gained some super knowledge. Opinionated I know but this area is just so damn frustrating for business leaders and creates competitive disadvantages across markets and suppliers. At least it is yet another good business-based IP story, our role in which is to explain it to the lay reader.

2. A new idea. Not going to say much on this for the obvious reason but on Wednesday Stephen and I put ipVA through the same methodology as we put our clients through. With some startling results. And a new path, or at least a ladder to take us a few steps forward.

3. Rosie is born. We’ve been working on a process and method for IP assessment for around 12 months and it was conceived in around May 2008 and has hardened since. Jordan and I went to see a tax partner from a Big4 firm on Monday who described it as “compelling”. And, again, it did not let us down. Time and time and time again we seem to find a way to explain the unexplainable and to decipher intangibles to the non-IP audience. So, on Tuesday, Rosie was born as our product name for our methodology. She’ll grow up and flower over time but she’s very real.

4. Ownership, ownership, ownership. This drum needs to be banged over and over again. The number of times that people simply do not IP own what they think they IP own is amazing. Our small ownership issue of last week has taken the full week to unpick and at least now we have a plan to resolve it. How many times? I see this as akin to the owner of a home who when asked if he owns his house says “of course I do” but then realises that he doesn’t own his garage and only has a 3 year lease on the fourth bedroom. “Oh”, I just hadn’t realised”.

5. Creative ways of making it easy for clients to use us. I guess this is the benefit of our model, that we can speculate at little. This week has seen this hit a peak.

6. The perfect pitch. You know the day when it simply all comes together? Well for me this week it did. Aided by the lovely Rosie we simply in the words of Simon Cowell “nailed it” on one pitch this week. How pleasing is that.

A long week again and time for some downtime this weekend. Maria trounced me 6-2, 6-1, 6-2 last weekend in tennis so I’ve some recovery work on my pride to work on tomorrow.

Client confidentiality prevents providing any giving any client details, but I thought it might be a useful exercise to give people a feel for the sort of things we do at ipVA. So here has been the last week in the life of this strategist in the week beginning 13th October. Not all weeks are like this one, this has been a little on the brutal side and has packed a lot in, but it is becoming the norm.

Monday.

A real fun day with a cleantech business we have recently started working for in the run up to a funding round with Chris and Stephen. One of the IP challenges with clean technologies and their IP is that the base technologies that they use are often pretty old. And this company is typical. A lot of work to do to create a solid IP story over the next 6-8 weeks. Assets to build, risks to decipher and explain and a governance and reporting program to implement. But we made a positive start, brought people to a common level of understanding and made a few people smile with “well I’d never thought of IP that way”. I truly love what we do. The day finishes with sending out the outputs from our meetings and a summary report and recommendations. A clear path forward we think.

Tuesday.

At a media client all day working on an open licensing strategy and options to implement it. This is hard stuff and pretty new to me. Jordan has opened my eyes to the whole open content area over the last 12 months and this project demands a shift from a closed and highly proprietary model to an open or partially open model for a new platform technology. Some good comparables to look at though but some serious research and modelling to do before the right option will become clear. Jordan has pulled out some amazing research (lots of privately known data) on the revenue models behind the iPhone as a comparable that have opened the client’s eyes. We have a short number of weeks to get the story straight but this should be enough. I’m confident we will pick up pace on this one in he next few weeks.

Few days end much before 10pm and this one closes with a few catch up items. A VC backed client needs to understand a specific risk and we speak about a program to understand this by a technical assessment. A 9:30pm call with the client we are visiting on Thursday to agree an agenda and discuss one specific area of concern and a call with Stephen to discuss yesterday’s meeting and how we can keep on making our client smile.

Wednesday.

A couple of meetings cancelled so some time to catch up on report writing. A 6am start to write a red flag diligence report (getting better at these… lots of practice) and a feedback session with the client around the end of the morning – all positive. Another diligence project we are running has thrown up a tricky ownership issue that could take a week or two to unpick. I think we can solve it though. We also picked up three new opportunities on Wednesday (the current run rate is around one per day into our funnel) from our network and an opportunity to contribute to the 100 day post investment plan of a VC investment. A really cool technology and one to watch. Even dinner with a mate on Wednesday evening doesn’t escape from some IP evangelism… he’s brought a napkin from a dinner we had 4 months ago when I drew out an IP plan for his company. I hope I’m not becoming boring. 1130 to bed and…

Thursday.

Ouch, a 4am start to fly to Europe on a new project preparing a business for exit with Dave and Rob. After an intensive first day I think we have a solid plan for the next 3 months. Poor Dave was flagging by 6pm as the business CTO looked as though he could go through the night. Rob, as ever, highly creative, drawing away. There are times, many times, when I simply love what we do and how we do it. I laughed with Maria, my wife, a couple of weeks ago, that we’d found the Rosetta Stone to help people with no IP background, understand and get IP. I know, laughable, but we do seem to make it make sense. An 11pm finish and then…

Friday.

Bugger, another early start to fly back to the UK. Writing up our project plan from the day before till lunchtime, budgets to do, priorities to resolve… feels about right. Then it’s into prepping for a fund presentation we are giving 4 weeks from now, signing off the spec on a new product we are shortly to launch and discussing a referral agreement we want to sign for a SW provider. Just time by the end of the day to talk to an excellent possible consultant to add to our team. The last 6 months has been very kind to us with the quality of good candidates out there. We are now up to 16, with 4-5 more people with whom we are in active discussions. We set out to build Europe’s best IP advisory business. Maybe, just maybe, we will get lucky. An 8pm finish and a 75 hour week. Ugly but fun.

Its a little tough to switch off something that is just so damn interesting. Even my Saturday morning tennis with Maria gets interrupted with a thought of “what if we could do that, rather than that…wow!”. I literally do tire myself out at times.

Roll on Monday. This week is quite a big week for us with a few pipeline opportunities to get over the line. We’ve also skipped our regular Monday morning planning session for the last 2 weeks because of client commitments so back to the rigour tomorrow morning. The next month to plan out. More streets to walk, doors to open… it is like a pioneering mission sometimes but so much more fun now than 12 months ago.

So it’s no surprise just by looking at the map of the IAM 250 list of IP strategists that the US leads the list for strategists-by-country. It’s a big place, a leading global economy, and one that has made IP and innovation a priority.

But it’s not clear just how much the US leads the league tables on sheer number of listed IP strategists from the map – so I made a graph:

The US leads with 195 of the listings, or 76%, with a more than comfortable lead over it’s closest competitor – the United Kingdom – at 16 listings and about 6%. With 19 countries represented, there is definitely a long tail of IP strategists, with the short head being the US.

Europe’s role

In terms of Europe, this fits with Benoit and David’s observation in their earlier post about the IP ecosystem in Europe:

IP generation [in Europe] is thus not an issue, whereas utilisation most definitely is. Traditionally, European organisations will utilise the IP they have generated either by making products based on that IP or else by licensing that IP to another party, or a combination of the two. Beyond that, other notions of utilisation are scant,

IP strategists and related IP services are about the utilisation of IP, and thus it makes sense that less utilisation (at least when compared to the level in the US) would produce less listed strategists. Benoit and David’s chart of the IP ecosystem is worth reviewing again in this context.