Incentives For Generating More IP Commercialization Opportunities

By Henry Fradkin

I don’t think I have to belabor the point…this is really a tough economy. Based on at least what I am seeing and echoed by others in the IP and technology commercialization business, it appears that most “licensing” deals are the result of successful patent assertions rather than what is called “carrot” licensing.  That’s not to say that deals that are friendly aren’t happening and hopefully will grow in the future as the global economy improves.

So, to get others get ready for a return to the environment of friendly deal making many of us enjoyed in the past, I thought it would be helpful if I jotted down some tactical actions to generate new or more commercialization opportunities…and that is the purpose of this article.

To start, a company or organization (and I will use “company” to cover both a company and an organization from this point on) needs to appreciate that virtually all of its technologies and business methods can be commercialized; e.g., through licensing, sale, joint ventures, etc. The only qualifier is how this commercialization fits into the company’s policies and strategies. Thus, licensing executives need to work to understand their company’s entire knowledge portfolio…ranging from intellectual property (patents, copyrights, etc.) to intellectual assets (specifications, processes, etc.) to intellectual capital (human capital…the knowledge employees have in their heads, networks, relationships, etc.).

The diagram below illustrates this knowledge portfolio. The concept was developed by the ICM Gathering, a forum of leading companies working together to identify what is company knowledge and then how best to convert this knowledge into money.

The starting point is to increase the number of invention disclosures. That doesn’t mean that every invention disclosure has to be progressed to a patent filing.  Rather, this process can be viewed as a means to ferret out all company inventions, both for internal use as well as for possible commercialization on the outside.  Based on our experience at Ford and echoed by many successful licensing-out firms, everyone in the company has the potential to be an inventor.  For example, looking at our technology commercialization team experience when I was at Ford:

• New ideas for licensing were advanced by several “unconventional” sources such as the audit office and the medical department…i.e., everyone can be an inventor.
• Increasing the flow of invention disclosures provided a means for the Technology Commercialization Office team to work with the IP attorneys to identify new candidate technologies for licensing early in the development and protection process.

I believe it is fair to say that most companies have an objective to create meaningful technologies and then be sure that they protect them with the necessary IP. At issue sometimes is the reluctance of company inventors to take the time necessary to craft invention disclosures. So, the first set of Value Extraction recommendations deals with how a company or organization can promote the increase flow of invention disclosures:

Create a reward system for the inventor or inventing teams…based on the experience of many companies, people act very positively to monetary rewards. In particular, a company should consider adopting a system that would reward inventors for (1) supporting the IP attorney(s) to create a patent application…and (2) finally receiving an issued patent. Usually, companies provide about $1,000 as a reward, split $250 for the invention disclosure that leads to a patent application and the remaining $750 for the issued patent. Nothing is paid out for only an invention disclosure, although many companies will provide a much smaller monetary reward (e.g., $500) for a defensive publication or for a trade secret.

I believe that the current practice can be improved by recognizing the value of generating new invention disclosures and then redistributing the $1,000 based on strategic wants; i.e., based on generating the idea and then supporting the real work to craft a patent application. In this fashion, I recommend consideration of the following scheme, which can be tailored, of course, for a company’s wants:

1. Pay $500 for the invention disclosure if a committee determines that it would have value to the company…defined as needed for internal use or potential for licensing-out
2. Pay $300 for supporting the IP attorney in crafting the patent application
3. Pay $200 for an issued patent.

Go beyond rewards paid for invention disclosures, patent applications and grants…the reward system discussed above can be enhanced by identifying and creating special rewards for significant inventions. For example, a company may want to consider establishing two new awards such as:

1.  “Special Inventions” where the company would recognize 10% of the inventing teams for their great value contribution—and split a relatively substantial amount; e.g., $10,000-15,000 among the team members.
2. “Exceptional Invention”—where a company’s management would recognize one invention per year and provide a larger amount; e.g., $25,000; to be split among the inventing team. Additionally, management could enhance this by giving a stock option grant to each person.This is not a “pie-in-the–sky” approach. I know one company (which has asked to remain anonymous) that implemented such a scheme and then enjoyed an increase in its people generating invention disclosures.

Create a lottery…an alternative approach to the above recommendation would be to create a lottery system where, for example, 10-15 inventions per year would be picked at random; e.g., by a drawing. The selected inventing teams then would receive a significant monetary reward, as above, to be split among the team.

Provide non-monetary incentives in addition to cash…companies have deployed a variety of rewards to encourage filing invention disclosures. For example, these could selected from any of the following:

• Award the very few, very special individuals with a special title; e.g., senior technical fellow…and provide him/her with a laboratory and complete freedom to keep on inventing.
• Promote inventors based on the merits of their accomplishments.
• Provide plaques, dinners (with the CEO presiding and available for individual contact) and other forms of recognition.
• Include a news article or section in a company newspaper citing inventor accomplishments.

Make patent filing part of a BU’s annual objectives…but these must tie into a business objective to avoid “junk” patents just to make a number.

Conduct strategic thinking workshops or meetings…Ford, or example, deployed this process with very great success to both develop new inventions and identify technologies that could be licensed out. Such a process would be led jointly by the director of the licensing or IP commercialization office and an appropriate IP attorney. They would conduct an off-site with the leading technical and business people from a selected activity to review what is in their IP (patents, copyrights and trade secrets) to determine what new inventions would be needed to maintain or establish a competitive advantage.

Conduct forward citation analysis…this is one way to identify possible candidate companies that might be interested in broadening their IP portfolio or complementing their technologies…or even for providing leads regarding infringements. Many licensing executives have used this approach successfully. In this case, licensing executives could go onto the USPTO Web site or use available tools such as Delphion to see which companies are citing your company’s patents as prior art. Alternatively, they could hire the services of an information specialist; e.g., Information Assets, Inc.; who has demonstrated expertise in this process.

Set up a special patent fund for the licensing office…similar to what I had at Ford, management of a company could provide a small budget that would be used by the director of the licensing office to prosecute a patent if it looks like he could commercialize it. This action would be taken in cases where a patent committee decided not to proceed because the invention did not appear to have in-house value.

To make any reward system work, the licensing office will need to work closely with the heads of the business and/or technical units to publicize this new opportunity system and be sure that everyone in the company knows that he/she is eligible.

And, as noted above, one important caveat is to make sure that all submitted invention disclosures are scrutinized and then progressed on merit to minimize people filing “junk” just to receive a cash reward.

[This post originally appeared at Licensing Executives Society International.]