Eight Species of Patent Strategy – Part 3 how intellectual property management develops from level 3 to level 4

By Bill Meade

Intellectual Property Management in a Growing Soon-To-Be-Company:

Once a growing company signs its first cross license with a balancing payment going out, or has a “near death experience” with IP litigation, and/or loses a patent litigation, IP management gains its first proposition with senior management.  The value of IP becomes intuitively obvious in direct proportion to the IP costs externally imposed on senior management.

Level 3: “Defined” IP Management

This first value proposition allows IP management, for the first time, to put in place infrastructure in anticipation of where the business is going. Figure 1 displays how growing companies catch up on IP management by building out their IP programs from the prep and process capabilities.  The litigation function isn’t a base to build an IP management program from.  And we’re not exactly sure why.  Perhaps because litigators tend to be success narcissists that are too self absorbed to design any system that can succeed without them.  Whatever the reason, we’ve only seen clients trying to build patent management by expanding out from prep and process.


Figure 1: Level Three “Defined” IP Management Maturity

A key article on IP management “Intellectual Property Management From Theory To Practice” by Steve Fox is now available on the internet as well as in Patrick Sullivan’s 1998 Profiting From Intellectual Capital.  The two key contributions of this article are: (a) envisioning IP management as a closed-loop feedback system, (b) explicitly developing intellectual property targets for IP to be invented to.   This article is a key advance in IP management because it gets the legal department thinking outside of the two default mental boxes (Prep and Process and Litigation).  Figure 2 displays the four species of patent management Fox articulated.


Figure 2: Yellow Indicates Areas of IP Management Added by Steve Fox’s 1998 Article

In fact, one could argue that Fox in addition to the yellow, articulated “Define the IP Business Model” and “Generate and Capture IP” while he was managing HP’s intellectual property.  The IP business model during Fox’s tenure was implicit: “grow the patent portfolio to reduce, then remove, the reverse the balancing payments accompanying HP’s cross licenses.”  And to generate and capture IP, Fox sponsored invention workshops.

Level 4: “Closed Loop” IP Management

Returning to the discussion of IP management levels, the point that is important, is that IP management needs some sort of funding model.  Initially a funding model is needed for the litigation and prep and process functions.  Later, as the IP managers grow in experience, sophistication, and understanding of how to produce value with the IP a company can generate, an additional funding model is needed.  The second funding model of IP management allows infrastructure and staffing to manage the six functions of IP management beyond litigation and prep and process.


Figure 3: Level 4 “Closed Loop” IP Management

Level 4 IP management is the first time since a firm’s founding, that IP management is beginning to catch up to the firm’s growth.  The reason the colored pie slices do not reach all the way to the edge of the black circle in Figure 3, is that while all eight IP management functions are being accomplished in a level 4 company, the legal organization and the “true believer” technical volunteers helping it, do not have the capacity to fully engage the entire organization.

Think about it, the legal organization has been behind and working hard to catch up to externally imposed litigation and licensing requirements for the company’s entire history.  The chances that external licensing and litigation are likely to grow the company’s legal department to just the right size to train and equip tens of thousands of employees, is zero.  Legal departments that are cost centers, are eternally cursed with always being too small to fill the potential of IP in their organizations.  Too small for the next wave of crises.  Too small for firm wide training and enrollment in IP programs.  Too small to annually restart the IP program in the firm.  And further, legal departments don’t have the correct kinds of people in them to be the sole owners of an IP management program.

To define the IP business model it is great to have lawyers and CTOs, but in addition you need finance people, you need sales people who are going to make the IP monetization stick on real licensing partners.  To target profitable IP you need attorneys and CTOs, but in addition you need to search out the “paradigm pioneers” in the organization.  The technical and marketing geniuses who are already simulating how the next wave of technology will work in their minds, who are upsetting the old guard and senior architects with their prophecies of doom and ultimatums to switch architecture before the “technical apocalypse.”   To generate and capture IP it is great to have guidance from CTOs and lawyers, but you also need evangelists, showmen, and administrative infrastructure.  To set up an excellent IP triage system you need CTOs and lawyers, but you also need decision scientists who can show patent committees how maximize effectiveness at the same time as increasing efficiency.  To manage IP, law people are necessary but not sufficient.  Same goes for for business people.  IP management is inherently a cross disciplinary collaboration.  Professionals and “un-professionals” allied in getting all eight functions of patent strategy up and running profitably.  IP management responds to the division of labor, just like any value-producing activity.

Level 5: “Profit Maximizing” IP Management

The highest level of IP management is the profit maximizing.  IBM is the current master of IP management, with published statistics in 2000 showing that IBM’s licensing revenues from its IP portfolio as funding as much as 35% of IBMs research and development.

Level 5 IP management sees profits where level 1 through level 4 IP management sees costs.  With for-profit outbound licensing well under way the inflows of revenue do a wonderful job of clarifying management’s attention on intellectual property.  In addition to profitable IP management, level 5 companies can practice IP portfolio hygiene management.  Portfolio hygiene management in IBM’s case can be illustrated with 3 very large divestitures: networking equipment from IBM to Cisco, hard drive technology from IBM to Hitachi, and finally, the divestiture of IBM’s PC business.  All of these divestitures were accomplished in large measure through the transfer of intellectual assets.  Likewise IBM buys companies like Netezza that have strong patent portfolios (21 issued US patents and 22 US applications at the time of this writing according to Delphion).


Figure 4: Level 5 “Profit Maximizing” IP Management and the other 4 levels of IP management

Concluding Thoughts:

We hope you’ve found the two analytical frameworks in this series to be interesting and illuminating.  We’ve been concept testing these frameworks on IP professionals for the past several months and have received substantial support from attorneys and patent agents alike.  The five levels of IP management framework in particular paints pictures of clients that every attorney recognizes.

The lingering question from our concept test meetings with IP professionals has been “Why are more companies not doing what IBM is doing.”  A great question for another day.  Thanks for reading!

[This post originally appeared at basicip]

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