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business models

ARM and IP

by Andrew Watson on 17 February 2009

Great article in the Times yesterday about ARM, including an interview with CEO Warren East: Warren East: ARM believes its strength lies in sharing. ARM is doing well, despite the current economic crisis, largely due to thinking well ahead in terms of the next generations of product. ARM relies heavily on R&D and licensing as part of its business model:

ARM has no plans to get into the manufacture or sale of semiconductor chips. Mr East said: “The unique thing about ARM is the combination of the business model and the technology. We have the lowest-power microprocessors there are and, rather than trying to be an Intel and rule the world, we share our revenue. We believe it is better to have a small slice of a big pie.”

That pretty much sums up what it means to be an R&D business with a tight IP strategy.

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Consulting firms and IP

by Andrew Watson on 18 November 2008

Last week I was having an informal conversation with some colleagues who also happened to be from a consulting business (but not IP or legal consulting). Over an excellent pub lunch on a rainy London day, we got to talking about IP (naturally enough when I’m involved in a conversation) and its role for consultants. The question came up about the importance of intellectual property for consulting firms, as this line of work almost always involves transferring any formal IP rights to the client. I thought that IP could play a strong role, but needed some time to further develop my thoughts (hence this post).

The consulting business in a nutshell:

  • Clients pay for applied knowledge that achieves some sort of result (new sales, restructuring management, IP strategy, reports, training, etc);
  • Consultants create or transfer the knowledge requested by the client (often in person or through reports);
  • The client then requires the rights to the knowledge (licence or assignment of copyright in reports, licensing of know-how, etc) so it can actually use what the consultant produced to achieve its goals.

So that’s more or less it: Consultants have a bank of knowledge and skills that clients then pay to use on specific matters. They certainly create knowledge (and IP), but then have to turn around and transfer it (in whole or by licence) to their clients

As a formal matter, the concepts of foreground IP and background IP come into play here. Generally, background IP consists of the core skills and knowledge (and their legal protections) that consultants can apply to any client. Foreground IP consists of all knowledge generated around this particular client’s specific problem and often will be exclusively licensed to that client. There is a technical legal discussion here that I want to acknowledge but move past: I’m not concerned at the moment with how you structure the legal aspects of the consultant/client relationship but rather on the core of IP and consulting.

So what stays at the core — inside the consulting business — that can be protected by IP and used to build the business?

ConsultingPulse has been thinking about the same problem, and in an interview with Paul Collins of Equiteq LLP highlights what I also see as key reason to take this issue seriously:

[Y]ou must demonstrate that your services are built upon intellectual property that belongs to the firm, rather than just the combination of the individual skills of your consultants.

Without this, Paul points out that consulting firms will find difficulty in getting higher valuations upon sale or merger. I’d also add that building up the structure around the firm (as opposed to the individuals) will also lead to higher revenues along the way. But these points address why consultants should build up an IP structure around the firm but not what they should build it on.

I think that the answer is to:

  • write it down – get as much information about the practice area out of the consultants heads;
  • manage it – use tools to manage that knowledge effectively, such as using a wiki or other Knowledge Management (KM) tools; and finally
  • protect it – examine all the ways that you can protect that knowledge as an asset of the firm.

The answer to the last point may be through IP such as copyright, database rights, trade secrets, and even patents or through other means such as employment law (non-compete agreements) or simple physical security (need to know access backed up by encryption and access controls).

IP and building value is of course a major theme of this blog, but in light of Andrew’s post last week about the IP consulting services market I have a final parting thought. As legal consultants, we need to combine best practices from both law firms and from management consulting firms. I think many IP services tend to come at their business from a law firm perspective, and tend to ignore some of the key intelligence from the consulting community. As we all hopefully grow together (and grow the market for our services), I’d like to see more from the consulting perspective as part of the conversation.

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