Eight Species of Patent Strategy – Part 2 Five levels of IP management and how intellectual property management develops from stage 1 to stage 2

By Bill Meade

Introduction:

In part 1 of this article series on patent strategy we derived eight species of strategy from the steps a successful/profitable patent goes through over its lifetime.  In part 2 (this article) we are going to use the eight species framework to illustrate how intellectual property management evolves through five phases over the life cycle of a successful company.  In this article, we’ll review the basic framework from part 1, and then describe how IP business processes help us develop an IP management maturity taxonomy.  Then, level 1 “boot up” and level 2 “managed” IP maturity levels will be described in terms of business processes used for each IP management function.

Framework Review:

For a full description of each species of patent strategy, refer to yesterday’s post.  Figure 1 displays the framework and Table 1 has vignette length explanations of each strategy species.

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Figure 1: The Eight Species of IP Management Business Processes

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Table 1: Short Definitions of Each IP Management Business Process Type

Levels of IP Management:

Carnegie Mellon has since 1984 worked to measure the maturity of software organizations.  This research began at the request of the US Department of Defense as software projects proved to be strategic bottlenecks in getting high-quality defense systems completed on time and within budget.  Figure 3 and Table 2 display the characteristics of organizations as they range from level 1 to level 5 in software management maturity.  The big change across the 5 levels, is how process improvement changes.  In level 1 organization, there is no process improvement, because there are no processes.  In level 5 organization process improvement has become a coequal function to the actual software specification, development, and test.

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Figure 3: CMMI Maturity Level Characteristics
Source: Wikipedia

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Table 2: Capability Maturity Model Process View of Model
Source: Wikipedia

IP management is a complex, multidisciplinary, knowledge-based process, just like defense system software development.   Individuals working in IP management, like individuals working in defense software development, are unlikely to know about the existence of maturity levels.  At lower levels of maturity in both software and IP management systems, short-run individual behavior is largely determined by the system.  As IP management maturity increases, latitude for long-term initiative and individual autonomy open up.  Reactive behavior, is largely, predictable behavior.

We believe the eight species of IP management strategy help in understanding the five levels of IP management maturity.  In the sections that follow, we describe the business processes characteristic for each type of IP management strategy for each level of IP management.

Intellectual Property Management in Startups:

When you read about startups, in say Jessica Livingston’s excellent FOUNDERS AT WORK you quickly realize that there are important problems specific to startups, and intellectual property is not one of them.  Picking good partners, finding funding, using better tools, selling, all of these are critical in startups.  But, intellectual property is not, and in many ways, can not be important.

IP is not important because startups think in terms of break even and number of payrolls that they can cover with current assets.  Optimizing a startup by capturing and managing IP as an ongoing business process is like asking a 16 year old to invest in an annuity that will mature in 600 years.  While it may be profitable, there just isn’t any way to do this within the 16 year old’s mental framework.  Like the 16 year old, people sweating firmware, releases, products, and sales, do not have the emotional space and intellect to invest in a patent that might issue in 5 years and might be licensable in 15 years.

We think the big reason that isn’t important to startups, is that the first job of every startup is to pivot its business model until it generates product market fit.  Before a startup has a product market fit, all it has is prototypes and hypotheses.  If patents are files on prototypes and the markets they are hypothesized to fit, they are likely to be wasted.  Startups have to pivot their business models over and over before they find markets.  Reading books on high tech marketing by Guy Kawasaki, Geoffrey Moore, and Steve Blank have lead us to the conclusion that  more certain management is that it knows how a high tech market will evolve, the more likely it is to be wrong.

And while patent attorneys are only too eager to write patent applications on any novel, useful, non-obvious technology, and they are eager to get started on drafting patents as soon as possible, the fact remains that patents are not worth having if they don’t protect product market fit that a startup ends up with before growing.  Protection of early prototypes and hypothesized markets is worthless.  And most startups consequently, ignore IP.  Example: We’ve known Guy Kawasaki for 20 years, and we have never been able to get him excited about intellectual property management for his startups.

So, the standard starting point in an electronics startup company is displayed in Figure 3.  That is, no IP business model, no profitable IP targets, no capture, no triage, no prep and process, no portfolio management, no litigation until they are successful, no monetization strategy.  In a startup’s beginning, there is no IP management.

Figure 3: Level One “Boot Up” IP Management Maturity

Table 2 displays the business process to IP strategy matchup of a startup pre-success.  The startup is sweating finding a product market fit, until that fit is found, there isn’t any equity for a patent troll or other patent holder to siphon from a startup.  So, most startups coast without intellectual property management until they hit a level of success that becomes widely visible.

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Table 2: Pre-Litigation-Event IP Business Process to Strategy Species

Take for example, VIZIO the TV company.  They started in 2003 and did not attract litigation until 2006 when they were selling more than US$500,000,000 a year of products.  Look at Figure 4 and guess how many patent applications VIZIO filed in 2003, 2004, and 2005.

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Figure 4: VIZIO Sales (red) Patent Litigation (blue) and Patents (green)

Figure 5 shows that the first patent application on record for VIZIO was a design patent filed in October of 2006.  This is not proof that startups ignore intellectual property.  It is just an example of one startup and its experience with intellectual property.

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Figure 5: Visio Patenting Activity 2003-2008
Source: Delphion

But everything about intellectual property management changes for the startup once it becomes a sales success and it experiences its first patent infringement lawsuit.  For VIZIO the first suit hit in 2006 (blue bar in Figure 4). The startup company finds out that it has been sued, and needs to hire a general counsel, change legal firm or add a patent litigation literate firm to existing transactions counsel, just to have an “at bat” experience in its patent litigation.

Startup companies have no IP business processes and are reactive to IP crises.  Table 3 displays the state of IP management business processes immediately after a successful small company has been sued.  While before litigation, all eight species of IP business strategy were being ignored, immediately after litigation initiation, two business processes begin to receive management attention: Litigation and Prep and Process.

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Table 3: Post-Litigation-Event IP Business Process to Strategy Species

As ugly as litigation/licensing is, it is the gateway event to put an IP management program in place.  It is a gateway because litigation is so astronomically expensive.   For a big electronics company the cost is often $1,000,000 per month. These kind of costs create an instant management justification for the successful startup to begin to manage intellectual property.

A managerial light goes on and the founders of the company realize fully for the first time, that patents can prevent other companies from suing.  Because suits are so costly, preventing litigation with patents, is … valuable!  Litigation/licensing then moves IP management being nice “in theory” and stuck in a level 1: Boot Up, to a “business expense” that gets to level 2: “Managed” (see Figure 6).

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Figure 6: Level Two “Managed” IP Management Maturity

In this article in this series on eight species of patent strategy we have covered the basic framework, and then the idea of five levels of IP management existing through an analogy with software management and CMMI work at Carnegie Mellon.  The reason to bring in the idea of IP management maturity and five levels of maturity was to illustrate how the eight species of patent strategy are helpful for characterizing IP management.

Every IP program manages eight species of patent strategy.  And they manage these with business processes.  Initially the business processes used by startups (Level 1: Boot Up) are to ignore all eight species of patent strategy.  But when startups become successful they attract licensing programs, and litigation by patent trolls as well as legitimate patent-holding businesses.

Make it Personal:

By now, you are beginning to see the eight different kinds of patent strategy.  How these kinds of patent strategy can be extended to IP strategy in general.  And how each of these kinds of patent strategy are instantiated in business processes.  Now you can apply this framework to the IP management in your company.  What are the business processes your company uses to define its IP business model?  Does your company ignore IP business model?  Is your company in “boot up” mode or are you in “managed” mode with prep and process and litigation departments in your legal department?

In Part 3 of this series, we will work through the business processes that companies develop in level 3 “defined” and level 4 “closed-loop” IP management maturity, and finally level 5 “profit maximizing” IP Management.

[This post originally appeared at basicip]

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