Strategic IP Planning

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Background for IP strategic planning processes

Harry Grinnell (Dow & Eastman Chemical) stated that “first and foremost IP is a business tool, and it must be treated as such and integrated into the business if it is to be properly used” .

IP Strategies and IP Asset Utilization over Time

As a business tool intellectual property strategy varies in its use over the product adoption lifecycle as shown in the “IP Strategies and IP Asset Utilization over Time” figure. At a very high level, IP strategies during the development phase of new products and businesses differ from those strategies in the growth and mature phases. In the development phase the strategy overall is to create and acquire IP assets. In the growth phase the IP strategy shifts to making sure the assets are protecting global markets in various regions of the world. In the maturing phase of a product or business the objective is to prune the assets to just those that are still delivering business value.

Phases of the Strategy Cycle

This viewpoint makes the process look linear. However, as noted by Mark Blaxill and Ralph Eckardt, intellectual property strategies, like all strategies, work in cycles. Company and IP strengths are built, which then hit their limits and ultimately become weaknesses. In the “Phases of the Strategy Cycle” figure the main generalized IP Strategies of control, collaborate, and simplify are shown. Most companies start with building a valuable position and then work to control it by acquiring and managing IP. This strength is interrupted over time by talent losses in accordance with Joy’s law which says that “no matter who you are, most of the smartest people work for someone else”. This change means that the IP strategy of controlling an advantaged business position moves to using IP assets to collaborate with others to create an advantaged network position. From the “Business and IP Management Hierarchy Pyramid” standpoint, the strategy moves from being focused on the lowest levels of “acquisition and freedom to operate” to the highest level of “open innovation and standards work” .

Nothing remains static however so at this point Coase’s Theorem comes into play. This says that where there are competitive markets with no transactions costs, an efficient set of inputs and outputs to and from production-optimal distribution are selected, regardless of how (IP) property rights are divided. As a business undergoes this transformation, the intellectual property strategy again starts to shift to one of optimizing the simplest and most productive set of IP assets to sustain an advantaged business position. This typically means pruning the patent portfolio and building advantaged positions through trademark and copyrighted branding.

As time moves on a company matures and the Innovator’s Dilemma sets in. The Innovator’s Dilemma is the decision that businesses must make between catering to their customers’ current needs, or adopting new innovations and technologies which will answer their future needs. This rebuilding of the whole industry based on disruptive innovations starts the cycle anew. In this case the IP portfolio needs pruning of the assets no longer relevant, and building and acquiring the ones protecting the advantaged disruptive position.

This chapter looks at intellectual property and how integrated intellectual property strategic plans can build and sustain company performance throughout the various phases of the IP Strategy Cycle. As the cycle continues IP strategy planning efforts need constant updating.

Integration of IP into Business Planning

In 2002, John Cronin noted that for most Fortune 500 companies, 95% do not have an IP strategy or even know what an IP strategy really is. Not much has changed over a decade later. Still only 5% of companies interviewed say that they have an IP Plan but Cronin believes they do not really have a strategy. At most they have a plan but with no tactics. Critical for success is to have an IP strategy that is critically linked to business planning. This means that an IP strategy must:

  • Have clever tactics
  • Have a linkage between IP strategy and the high levels of the business (Financial, Operations, HR, and R&D).
  • Have a linkage to the Vision, Mission, and Goals of the organization.
  • Have a linkage to, or consideration of, the market.
  • Have a linkage to inventors through the Invention Strategy.
  • Involve an understanding of competitor and value chain IP.
  • Involve an understanding of Human Capital (potential IP).
  • Involve the use of various IP vehicles (publications, trade secrets, know-how).
  • Have a linkage to other business processes (six Sigma, stage gate).
  • Have a linkage to, and a filter for, disclosures and maintenance fees of patents.
  • Utilize visualization tools.
  • Have a means to guide product clearance, patentability searches, and state-of-the-art searches.
  • Have a way to guide the drafting of new patent application claims.
  • Be an ongoing process of the Corporation.
  • Have a means to link the IP strategy to Information Systems.
IP Strategy Should Integrate Key Business Functions

In the “IP Strategy Should Integrate Key Business Functions” figure the way in which IP strategy is currently occurring in most companies is shown on the left as a Venn diagram. The Legal and R&D organizational elements are acting separately. Aligned companies have good business, legal and marketing interaction, but they leave the inventors out of the process. In IP driven companies business, marketing, technical, legal, operations, and inventors are all integrated with overlapping responsibilities for developing a sustained advantaged position for the Corporation.

Areas of IP Strategy Focus

By all functions working together, and as seen in the “Areas of IP Strategy Focus” figure, an Integrated IP strategy should clearly address: (1) the space “1” between the company’s products and that of its competitors patents, (2) the gray area “2” between the company’s products and competitors patents, (3) the space “3” between the company’s patents and competitors’ products, and most importantly (4) the “white” space between the companies capability and where the market and its competitors will be in the future.

Differences between Intellectual Property Management and Intellectual Asset Management

When thinking of intellectual property as a class of assets it is sometimes helpful to distinguish it from the many other types of assets a business employs. In a working paper Peter Weill and his colleagues defined for basic business model archetypes shown in the “Business Model Archetypes” figure.

Business Model Archetypes

Although their goal was to figure out which types of businesses shown in the “Business Model Archetypes” figure generated the highest shareholder return, we will use the same model to define how most R&D organizations utilize intellectual property assets. In particular in the third column under intangible assets we see four business models. In large corporations all four business models are present, but there are some organizations that participate in only one area. At the top of the column we see that inventors create the assets. Organizations that are pure plays in this space are universities and research institutes. In the second box, IP Traders use assets to form partnerships to speed R&D. This practice in particular reflects access to external technology or open innovation as used in large R&D organizations. Next in the list are Intellectual Landlords or companies holding large patent estates. They use these assets to protect or expand an advantaged sustainable business position for the products or services they directly sell. Last in this list are IP brokers that monetize the patents directly without making the product or service the list are IP Brokers. The broker process is utilized by large companies wishing to expand into foreign countries through licensing arrangements, or by patent trolls who directly sell patents (sometimes through the use of a lawsuit).

Summary of IP Elements

Moving from the business models associated with intellectual property, it is important as well to define what we mean by the term intellectual property. The “Summary of IP Elements” figure is a good summary of where information is gathered, organized and what type of intellectual property protects that information. Since we are focused on innovation management the focus of this chapter on intellectual property strategy will primarily dwell on patents, software copyrights and trade secrets. We do this because patents and other legal protections are the dominant means by which in inventors employ and capture returns. While there are industries in which patents do play a major role, and scattered examples of important patents in any industry, the general effectiveness of patents varies substantially across industries. It should be noted that all of the elements listed in the “Summary of IP Elements” figure are typically proprietary or confidential to the company and deserving of some level of corporate due diligence to protect leakage to the public.

Differences Between Trade Secrets and Know-How

One of the better definitions and distinctions between trade secrets and know-how when it comes to intellectual property strategies comes from Vertex. The terms “know-how” and “trade secrets” are often used interchangeably. However in the context of a business, the meaning of these terms can be quite different. It is critical their precise meaning is clear so misunderstandings can be avoided. Know-how describes an employee’s general knowledge and skill set as they relate to the specific field or industry of the employee. Know-how is the knowledge that the employee possesses and that is available in the public domain and therefore is available to be used by others possessing similar training and experience. For the Corporation know-how is often referred to as proprietary or confidential information. It comprises knowledge of the processes used to create, manage, and extract value from the elements described in all columns of the “Summary of IP Elements” figure.

Trade secrets are a work product that an employee creates for his employer through the application of the employee’s or corporation’s know-how. These typically include work products related to patentable inventions, discoveries, documents and drawings, manufacturing processes, computer programs and source code, databases, research results, operating in testing procedures, and product formulations. Bear in mind that in order to be a trade secret the work product and methods employed in its creation need to be adequately documented to meet the legal standard of a trade secret in the jurisdiction in which they were created. Appropriate care must be taken to identify and safeguard any trade secrets used. When employed, employees typically have given up many of their ownership rights in their work product unless there is an employment agreement to the contrary. For independent contractors, suppliers, and partners, it is important to note that the business ownership of intellectual assets must be specified in the contractual agreements.

Patents as Monopolies and Financial Instruments

The purpose of a good intellectual property strategy is to obtain for the Corporation the sustainable advantaged business position. The key words in the sentence are sustainable over time and advantaged versus competition. In extreme cases the advantage becomes that of a monopoly. The traditional view of monopolies as “asset-based” are those with natural resources, markets, products, brands, and technologies as “Choke-Points”. An example was DeBeers which had a monopoly because it owned or controlled all the diamonds in the world. The Japan Tobacco Company was a monopoly because it owned access to all smokers in Japan. It was pointed out that monopolies may also be situational. If your monopoly is only a coffee shop or grocery store in an isolated community, you have a monopoly until someone else opens up a similar store across the street. Similarly, if you have only a product in particular category your monopoly existed only until the next successful entrant came along with something close. The key point is that the product or service doesn’t have to be intrinsically unique or different. It merely has to be the only one available to a set of buyers for a period of time. This becomes the first mover advantage that R&D strives for. It is a particular set of circumstances, the situation that arises from industry and competitive dynamics, which creates the temporary monopoly asset.

Patents can thus be thought of as monopolies as holding a market space for a useful period of time. Combining all intellectual property types into a strategic intellectual property plan is important because some assets like patents have only a limited lifetime whereas others, like trade secrets, can be held indefinitely.

Patents can also be thought of as financial instruments. This view was championed by the Patent & License Exchange, Inc. Normally, the word patent conjures up the legal definition being the right to exclude others from exploiting a technology. In the financial world however a patent creates the right to a cash flow from a technology that may or may not have value in the future. Patent Brokers take advantage of this aspect of patents. The other financial view of a patent is to consider it as a call option. A call option has the right to a cash flow from an asset that may or may not have value in the future. This is the value that Intellectual Property Landlords look for in patents.


Defining an IP Strategy

Almost all of the major consulting companies have established definitions and methodologies for constructing and intellectual property plan. One of the best articulated definitions of such a plan was published by KPMG in “The Value of Ideas, A Business Process Considerations Guidebook.” Excerpting from their document, an intellectual property strategy provides the master plan for a company’s intellectual property management process. The strategy defines the major activities and processes that are required to manage intellectual property through the intellectual property value chain and generate value. An intellectual property strategy may also be one of the determinants of the appropriate organizational structure that a company should use to house its intellectual property management system and infrastructure, as well as how that intellectual property management organization relates to other departments in the organization, such as R&D, product development, law, corporate strategy, finance, marketing, manufacturing and distribution.

An effective intellectual property strategy is one that is driven by and aligned with the broad business, technology, and marketing strategies of a company. A company’s basic business strategy drives which products to produce and tactics the company will use to create sustained competitive (e.g., low-cost producer, high-quality products, technological sophistication of products, first to market, etc.). These decisions then impact the technology strategy, i.e. the types of technologies (such as manufacturing processes; or product feature-oriented technologies) the company needs to develop or acquire in order to achieve these strategic goals. Finally, the intellectual property strategy will define the activities a company must undertake to establish intellectual property positions, create a sustainable competitive advantage around those technologies, and to deploy the technologies and intellectual property to generate value for the enterprise.

Relationship Between Business and IP Strategies

One way to define an IP strategy is in context of the business and technical strategies. The “Relationship Between Business and IP Strategies” figure shows this as concentric circles. Other authors including John Cronin of IP Capital Group consider the two innermost circles to actually be a set of four interrelated strategies, as shown on the right side of the “Relationship Between Business and IP Strategies” figure. These graphics are used to relate the business world to the intellectual property world. They suggest a connection between the company’s vision and the IP execution elements required for an IP strategy are necessary for moving a corporation successfully forward.

In a general sense there are four types of IP strategies. They each cover the dominant form of monetization of technologies developed by a Corporation. These are Technologies Transfer Strategies, IP Strategies for Single Patent Products, IP Strategies for Thousand Patent Products, and Landmine Strategies.

With Technology Transfer Strategies an inventor and patent holder seeks to convince a manufacturer to purchase or license patents and bring the inventor’s new or improved product to market. This often occurs when an inventor lacks resources transfer and inventive idea into salable product in sufficient quantity to meet market demand. This is often the situation found within academic environments. The intellectual property strategy here is simple. It is to set up a technology transfer office, promote all inventions to as many interested parties as possible, followed by negotiating licensing agreements.

With IP Strategies for Single Patent Products an organization has a product that is covered by, at most, only a few patents or patent families. This is not a term of disparagement but a way to differentiate this strategy from the Thousand Patent Products strategy. Highly specialized pharmaceutical inventions, which require years of intense and expensive research, as well as relatively simple consumer-products inventions, both with fit within the class of Single Patent Products strategies. This is the most complex of the four intellectual property strategies because the intellectual property is used to create a sustained advantaged position for the organization that is often exclusive. To do so requires integrated efforts all parts of the organization. The following subsection of this chapter deals with the IP Strategies for Single Patent Products in more detail.

With IP Strategies for Thousand Patent Products an organization has a product that is covered by potentially hundreds or maybe even thousands of patents, separately owned by countless patent holders, that could plausibly read on commercially viable products. This is especially true in the telecommunications and computing devices areas. There are several contributing factors for this. Manufacturers may purchase components as commodity items, so the competing manufacturers can often each use the same or equivalent components from a common pool of suppliers. With each of those manufacturers’ engineers creating inventions based on the same limited set of building blocks, it can be easy to understand how different manufacturers could independently develop similar product designs and overlaying patents. As many entities in the industry, up and down the supply or value chain, are filing patent applications on incremental improvements that are relevant to the use of common commodity elements and components, the predictable result is a multiple manufacturers may then be inadvertently practicing each other’s patents. Cross-licensing deals among competitors are common in order to achieve patent peace and freedom of operation. Alternatively, as in the aerospace industry, competing manufacturers may choose to “not rock the boat” and have an understanding that they won’t enforce patents against each other. This is especially true for safety related items. In either situation, cross-licensing or benign neglect is the IP strategy of choice. In industries where Standard Essential Patents (SEP) are utilized, as in telecommunications standards, cross-licensing is done on a fair, reasonable and nondiscriminatory (FRAND) basis. The IP strategy here is to have a portfolio large enough in size, with just enough high-quality core patents to dissuade competitors from bringing infringement suits. The appropriate size and quality of the intellectual property required for this varies but it is typically assumed that the portfolio has to be +/-50% of the largest competitor’s portfolio to do so. Otherwise the IP strategy is to seek licenses under FRAND terms.

With Landmine Strategies the organization creating the patent has typically sold that patent to a non-practicing entity (NPE or PAE). These non-practicing entities, often with creative stretching of the patent claim coverage, assert the patent to tax manufacturers. There are some notable differences between landmine strategies and the other three classes that have been introduced. In the Technology Transfer Strategies the named inventor on the patent is one who presented the industry with a solution to a problem that the industry would otherwise have been unlikely to solve without the inventors cleverness. Essentially there is often a “but-for” relationship between the inventor’s work and the availability of the technology in the marketplace. In Technology Transfer Strategies a patent is effectively a technology roadmap, teaching the industry how to solve a problem that it would otherwise not know how to solve (thereby fulfilling the commonly touted rationale for permitting an inventor to collect monopoly profits). With Landmine Strategies, the manufacturers are surprised to learn that they have inadvertently stepped on a landmine with their own inventions and commercialized products. Often the non-practicing entity has a beneficial immunity from patent infringement and counterclaim because they are not actively manufacturing or providing the service covered by the patent. This Landmine Strategy is often practiced by what are called patent trolls. Their strategy involves searching for art in high profit industries with little IP savvy, and then purchasing dormant patents of others that are inadvertently being infringed. These are then asserted in court for damages (profit for the NPE or PAE).

Creating an IP Strategy

The strategic intellectual property process is developed by building the organization structure, the business processes, and the intellectual property methodologies to provide all that is needed to realize maximum value from intellectual property. Many of the concepts which are set out below are shown in the section “Example of an IP Strategic Plan”.

The following list of considerations is a high-level review of many, but not all, of the considerations that the strategic intellectual property process entails to ensure appropriate integration:

Understanding focus on underlying business and technology strategies

  • Products, services, markets, customers
  • Sources of competitive advantage and role of technology and intellectual
    property in creating competitive advantage

Understanding the current state of intellectual property management and intellectual property knowledge in the organization

  • Perceptions as to the importance of intellectual property to the company
  • What the company is doing to manage IP
  • What processes is the company using to manage these assets
  • What types of intellectual property does the company currently have
  • What is the weighting of the company’s strategic goals for managing IP
    • Generating additional revenue
    • How is the management of intellectual property increasing shareholder value
    • Protecting market competitive leadership and strategic position, licensing philosophy
    • Maintaining freedom to operate
    • Strengthening technological position in the industry
    • Developing and marketing intellectual property as the industry standard
    • Enhancing reputation as quality and innovation leader
    • Entering new markets alone or through partnering
    • Creating value aggressively through use of intellectual property in mergers and acquisitions
    • Considering aggressive licensing-an “everything for sale” attitude
    • Applicability of tax aggressive or conservative positions inherent in the corporate culture and strategy
    • Developing internal awareness of the importance of intellectual property to the company
  • Determining whether these are the correct goals, given the competitive environment and the company’s strategic business objectives

Defining desired future state for intellectual property management

  • What should the company’s strategic goals for intellectual property management be in the company’s future strategic plan from the following perspectives
    • Operational – processes for developing, protecting and deploying intellectual property to generate value
    • Financial – value generated from internal use, licensing revenue, strategic value in mergers and acquisitions, managing intellectual property-related costs like maintenance fees
    • Competitive – how the company will develop and use intellectual property to create competitive advantage, including patenting and trademark policies and guidelines
    • Tax – evaluating and implementing organizational and operating strategies for managing tax consequences of developing and deploying intellectual property, including holding company, franchise issues, donation
    • Legal – developing approaches for dealing with legal issues involved in constructing value realization transactions and in analyzing infringement issues
  • What processes and strategies should the company be using to manage intellectual property more effectively
  • How should the intellectual property management function be organized and staffed to maximize creation of an effectively operating “machine”
    • Centralized or decentralized
    • Law department or R&D, operating business units or specialized intellectual property management organization

Educating key management involved with the administration and operations

  • What is intellectual property?
  • Importance of effective intellectual property management in creating value from intellectual property and using intellectual property to achieve business goals
  • What other companies in the competitive space are doing to manage intellectual property-best practices adoption
  • Integration with the overall company strategy

Evaluating management support for a change in property approach

  • How can management support be gained?
  • What impact does proposed intellectual property management approach have on the major functions and departments and how they operate
  • What are the benefits and potential costs for each major function or department?

Developing strategies to drive major intellectual property management activities and processes and to drive migration from the current state to the future state

  • Inventorying of current intellectual property assets
    • What data needs to be gathered to drive management decisions about investment, protection, and value realization?
    • What data needs to be gathered to enable intellectual property assessments and measurement of the performance of the intellectual property management system
    • Sharing of information-narrow or broad; who needs access to information
  • Technical assessment and economic assessment of merit and value
    • Evaluation of intellectual property driven by both internal and external concerns
  • Level of current and future planned investment in intellectual property
    • R&D aligned with business strategy
    • Invention/innovation flow based on market-oriented strategy
    • Portfolio balance-basic research vs. product-driven, balance across business units and products, etc.
    • Buy vs. develop internally decision
    • Strategic positioning-using brands to generate customer loyalty and public image, to define and protect competitive position, etc.
    • Strategic patenting-using R&D and patents to define and reinforce the company’s competitive position and/or to invade competitors’ market space
  • Protection actions and framework
    • Providing appropriate incentives to inventors to generate relevant and valuable invention disclosures
    • Operational trade secret/know-how development and documentation
    • Trademarking and branding aligned with business strategy
    • Patenting strategy
    • Trade secret vs. patents
    • Broad or narrow claims
    • Strategic positioning
    • Enforcement-license or litigate
    • Company-wide education and communication on intellectual property and intellectual property management
  • Value realization activities
    • Internal and external options exploration
    • Tax-advantaged structuring
    • Alignment with business and technology strategies
  • Establishing initial focus of value realization efforts based on internal corporate inventory and assessment of intellectual property
    • High potential value
    • Core vs. non-core intellectual property (license competitors or only noncore applications)
    • Timing of potential value realization (time to market, maturity of assets, dependence on third-party IP)
    • Identifiable products, markets, and partners (pathway to the market)
  • Identifying strategic issues
    • Understanding potential value of the intellectual property under alternative value realization strategies
    • Possible goals
    • Quick value
    • Sustainable value
    • Cash only (sell, license, donate) or expand business (alliance, JV)
    • Protect current business or license core technology to expand market
    • Create value realization strategies and business terms to meet these goals
  • Measurement and monitoring
    • Types of metrics to be used in intellectual property management performance assessment
  • Risk management
    • Disciplined intellectual property management processes communicated and adhered to consistently
    • Asset protection (patenting, trade secret protection, publishing: trademark/brand development, promotion; domestic vs. foreign protection, etc.)
    • Asset maintenance (maintenance fee control)
    • Managing relationships with vendors, consultants, contractors to protect intellectual property assets
    • Formation of intellectual commercialization relationships which protect while at the same time leverage the value of the company’s IP
    • Administration of commercialization agreements
    • Pursuit of parties who infringe the company’s IP
    • Avoidance of infringement of others’ IP
    • IP infringement insurance coverage


IP Strategies Vary by Business Segment (R&D and IP Game Types)

R&D Game Types

When looking at the questions to be answered and elements to be included in a IP Strategy in the section above, it is somewhat overwhelming. To make creation of an IP Strategy somewhat easier, the way various industries utilize R&D and IP to create and sustain an advantaged business position can be leveraged to make IP Strategy formulation much simpler. This is accomplished by using a model of R&D Game Types that was developed by Dr. Roger Miller as part of an Industrial Research Institute’s Research on Research subcommittee on innovation. The eleven R&D Game Types related to industry sectors that compete in similar environments and typically focus their innovation methods on one class of innovation. The “R&D Game Types” figure is an adaptation of the original grid.

The key elements of this grid are in the segmentations along the two axes. The columns relate to the time it takes to create a working prototype of the new product or service from a technical standpoint. Where it takes a long time to develop a prototype, R&D is resourced, managed and leveraged for the scientific insight it is creating. This is often includes the use of a government laboratory or university partner. On the other end of this scale, where it takes a shorter time to create prototypes, because they exist in other industries or are straight-forward from a science and engineering standpoint to conceive, R&D is managed and leveraged more like typical technical service organizations.

For the rows of this matrix, the segmentation is based on the factors that affect time to market once a prototype has been created. These vary from long timeframes, because of government requirements for lengthy approval processes, to shorter times wherein it is just a matter of being sure the product prototype is refined to be something a customer quickly recognizes as desirable. Again, R&D is resourced, managed and leveraged differently depending on what timescale is needed. For industries that require government approval, R&D must contain individuals familiar with submitting the required documentation and test results. For industries that are driven by specification standards, R&D must have individuals capable of advocating their solution as the most appropriate. The R&D funding must be consistent with these various activities and timelines for bringing products to market.

Attributes of IP Landscapes Best Suited for Each R&D Game

What the Industrial Research Institute’s subcommittee on innovation found was that personnel backgrounds, training, aptitudes, and reward schemes varied by R&D game. Likewise the subcommittee also found that R&D strategic planning, project selection, project management, and metrics also varied consistent with the R&D Game Type. Such insight improved the guidance available to R&D managers. It was also found that best practices to create and manage IP vary by time to prototype and time to commercialize. Thus, a set of ideal IP strategies and environments for various industry sectors emerged when the best practices of IP management and licensing success was tabulated on the same segmentation axes as the “R&D Game Types” figure. Environments unique to the use and licensing of IP were related to the kind of business and innovation environment that existed in each industry. The resulting IP Strategy concepts are presented in the “Attributes of IP Landscapes Best Suited for Each R&D Game” Figure. This Figure highlights proposed attributes of an IP landscape best suited for each theoretical R&D game type.

The columns of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure contain the eleven R&D Game Types of the “R&D Game Types” figure. The rows of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure contain attributes a company would wish to find, or create for itself in the ideal or desired IP environment in order to obtain the most value from its investment in invention and innovation. There are fifteen such attributes that typically affect IP strategic planning, negotiation, and return on investment. Before explaining the elements of the table a few of these rows require some definition.

The first row is the overall patent density in a field. A patent “desert” is defined as a field in which there are tens of patent families present. A patent “forest” on the other hand is defined as a field in which many hundreds of patent families are present. Patent “jungles” are areas wherein lots of activity has produced tens of thousands of documents. Not all fields benefit from having the same IP density. Brand new areas of scientific inquiry are ideally devoid of previous IP, allowing the first movers to capture grandfather IP positions that can be later leveraged. This is an economic necessity in order to return the large amounts of money and risk required in such fields. This is typically an area for government, university, and high-risk venture funding of R&D initiatives that are then protected by small numbers of key patents. In contrast are mature areas such as consumer research and marketing. In these fields IP jungles are typically found and desirable. This situation occurs because both companies and individuals alike find it easy to create new technology in the field. However, when this happens competitors can typically design look-alike products quickly and without much cost or effort. Therefore the usual form of intellectual property protection is trademarked brands as opposed to patents.

The second row of the table relates to innovation and patent growth rates. “Low” growth rates are from zero to 10% change per year. “Moderate” growth rates are usually steady growth at between 20% and 80% per year. “High” growth rates are characterized by exponential growth increasing multiple times per year.

The third row in the table is characterized by the typical number of intellectual property holders. This can range from one entity as in the case of some very unique gadgets, to a large number of entities running in the tens to even a few hundred. In between this range “few” intellectual property holders is usually on the order of three to 10, “modest” numbers of holders run between 10 to 50.

The next row deals with the minimum position usually required for commercial participation in a field. This can range meeting to be the sole holder in a very competitive pharmaceutical area to merely having percentage of the total portfolio which enables cross licensing positions or participation in standards bodies.

Patent fences are use to describe the citation relationships that exist between a parent patent and the follow-on patents cited by an applicant or the Examiner. This term shows up in the row called self-citation position.

In following row called competitor citation position the characterization as an IP “predator” is used to describe an entity that has over 10% of the citing art. “Sharks” in this context are used to describe entities that have over 30% of the citing art.

In the row entitled portfolio management posture the term “building” is used to describe portfolios that are typically increasing in over 10% per year. In contrast “holding” a portfolio characterizes one in which the portfolio size is essentially flat, or going up / down less than 10% each year. “Pruning” a portfolio describes the action of reducing the portfolio size by abandoning, selling or donating the portfolio at a rate over 10% per year.

Halfway down the list of rows is the row entitled claim quality. “High” quality claims are typified by having over an 80% chance of being held up as valid and enforceable in a litigation proceeding. “Low” quality claims in contrast are those which have less than a 10% chance of being found valid and enforceable in a court of law. “Moderate” claim quality covers the ground in between these two extremes. This rating is important because in some innovation areas litigation is likely and claims are extensively challenged. In other areas the more common practice is to value IP on the basis of the quantity of claims, relying on the extensive number of patents and claims for protection, versus the eloquence of any one claim in particular.

The following row relates to the claims scope for technology and uses. In new evolving technologies and applications were the full breadth and scope of art covered by a patent is not yet known, “broad” coverage refers to claims that easily cover over half dozen different technology and uses. “Narrow” claims by contrast usually cover a single, or at most two, technologies and uses.

The following element, geographic coverage ranges from “broad” where over a hundred different countries may be covered. “Specific” geographic coverage on the other hand is oftentimes limited to a Big 8 or Big 12 countries of interest.

The third of the last row characterizes IP holders’ posture versus infringers. The term “aggressive” in this context refers to a company’s proactive search for other entities that have a possibility of offering products or services that infringe the claims of their IP. “Don’t look” on the other hand refers to a very passive approach on the intellectual property owners’ part wherein the time and expense required to look for infringers does not have a business chance of success in generating an ROI that meets the company’s hurdle rate or target internal rate of return.

The last row refers to non-practicing entities (NPE), patent assertion entities (PAE), or intellectual property aggregators, collectively sometimes called “trolls”. Because of the ROI required for this business model to succeed there has been only one R&D game type which so far has proven to be most attractive to trolls. This is in the area of “Battles for Architecture” found in the center of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure.

Having defined the jargon used in the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure, key elements in each of the 11 R&D game types from a patent standpoint will now be discussed. It is understood that for each of these R&D game types the attributes of the patent landscape are generalizations. They simplify the patent landscape found in these areas for quick, high-quality strategy decisions, though by no means is each and every industry segment represented by exactly these descriptions. It should also be noted that these landscapes are for patents; trademark and copyright landscapes will differ.

In the upper left-hand quadrant of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure, the first R&D game to be discussed is that of “Technology Races”. Recent examples of business areas participating in this R&D game type are biotech, fuel cells, artificial intelligence and nanotechnologies. From a patent standpoint, patents a company wishes to acquire or negotiate for in this area will be patents that fill out their portfolio of IP consistent with the ideal environment described. This ideal portfolio is governed by the fact that it takes a very long time to create a technical prototype because the underlying science for its development is still poorly understood. In fact sometimes the science takes so long to develop that the patents covering the underlying innovations expire before they are applied to products and services of commercial utility. It also reflects the fact that even once the technology or service is brought into existence it takes a very long time and much further work to commercialize the product or service and start earning revenues or profits from it.

For Technology Races, at the time when the companies are first understanding the science underpinning a new field, the patent density that will benefit all parties will be a desert. The field is wide open for grandfather patents to be established and dominate the few other patents in an early landscape that will act as prior art for the work that follows. The patent growth rate should be very high reflecting the incremental and next-generation work that is building on the breakthrough work of this grandfather art. The reason it’s desirable to have a large number of IP holders is that it represents large-scale investment by many universities and government funding agencies, with no one entity holding large positions. Such diversity of noncommercial entities in an early phase speaks well for the potential commercial value that will accrue to the first commercial entities in years to come.

The minimum strategic IP position that a “Technology Races” company would wish to build is: First, having the largest portfolio in the embryonic market. It’s important to build multi-generation patent fences to protect derivative and follow on next-generation or incremental work on associated new applications and uses. Parties to the negotiation must plan to fund and file patents on this derivative and follow-on work in their agreements with one another. There may be potential competitors to the company working in the field so it will be important that no other company have more than a 10% position at the time of the initial Open Innovation negotiations between the parties. The new patent velocity of the licensee should have historically been faster than average when compared to the first non-self citation times of other entities. In other words the licensee has been building the portfolio at a rate faster than others in the field. For this R&D game type patent claim quality must be very high as ultimately, when the field becomes more crowded, the original grandfather art is very likely to be subject to scrutiny and potentially litigation. The claims scope and geographic coverage should be broad because the initial use of the technology may not be well understood at the beginning of the technology and business cycles, so broad claims that allow for derivative work to fall under the grandfather art is important. Also during the Open Innovation negotiations is important that the understanding between the parties be that they will proactively file and defend the patents. They must be vigilant in looking for infringers and when they appear challenge them aggressively.

The next game type is that of “Safety Journeys”. Industries and companies utilizing this R&D game methodology typically include pharmaceutical drugs, medical equipment and aerospace. Although the technical challenges to create prototype products are still formidable these challenges are moderated as the underlying science has become more broadly available. Once a product prototype has been made in the laboratory it still takes a long time for commercialization however. As with Technology Races, government approvals and regulations are often hurdles that slow the commercialization process. The typical IP environment that companies working in this area usually find is a light forest. This is because in addition to academic entities, commercial ventures around the world have often done their first exploration of this new field. Mostly because of the increased amount of activity and the more programmatic approaches that exist, patent growth rates tend to be moderate.

There are still many participants creating IP in the field, so the advantaged IP position the “safety journey” company would like to obtain is: First, to be the sole holder of the “chokepoint” or grandfather patent that holds the low-cost high-performance position versus other technical and manufacturing approaches that may exist. This chokepoint patent should be protected by multi-generation patent fences. As before both competitors and non-competitors that are citing the key chokepoint art should have positions well under 10% of the total citations present. If an entity has a large position, for example that of a “shark” with over 30% of the follow-on citations, there is a good chance that entity has blocked some of the high value commercial routes that a licensee might have wished to have available. Because of the more modest rate of patent velocity present, the activity level by the licensee can be the average of the first non-self citation times present. Since it’s going to be key chokepoint art, the patent claim quality is very important so as to defend against potential litigation. For this type of R&D game the geographic claim coverage can now become more specific as target applications and target countries are typically known by the company, reducing patent portfolio costs. It still remains important that both the licensee and licensor in Open Innovation negotiations in this area understand that aggressive proactive defense against challenging infringers be provided for. Their relative roles and funding contributions for these activities have to be carefully defined in the Open Innovation agreements.

The third intellectual property environment shown in the top row of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure is that associated with “Asset-Based Problem-Solving”. Industries utilizing this R&D game type are typically utility power, gas, petrochemicals, mining, and regulated telecom industries. Distinct from the two previous games that have been discussed, this R&D game requires the shortest time to build a technical prototype. This is because not only is the underlying science is understood but also the underlying engineering principles by which new products or services are created. These particular industries are usually subject to government regulation because of the environmental health and societal interests that are associated with these fields, thus this game is still placed at the top of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure with the other R&D Games requiring the longest time to commercialization once the prototype is ready. Because these fields and the technologies supporting them have been developed over decades, it is not surprising that a forest environment is one that is typically found. Also because of the low R&D investment rates of these industries their innovation and patent growth rates are low. They’re usually typically many patent holders because research institutes and government agencies have all funded multiple incremental improvements to the base technology.

For the “Asset-Based Problem Solving” companies innovation plays a lesser role so the IP position to sustain an advantaged position is: First, a patent position that is about average in terms of its size is usually sufficient. Likewise because most work is incremental it is unusual to find, or need, patent fences. Building them rarely generates a commercial return on the investment. With the lower level of innovation present in the field is not surprising that predators and sharks are few. Many companies find themselves with a patent portfolio larger than they need and thus pruning the portfolio is often the activity associated with intellectual-property management in this area. The probability of litigating art in this area is low and therefore the claim quality and the claims scope is usually set at a low level. Likewise it’s unusual for patent holders to get a return from enforcing or litigating their art so little effort is put into looking for infringers and if infringers are found it is usually the case for participants in this R&D Game to settle out of court or cross license as a way to avoid commercial problems. Open Innovation agreements are difficult to reach in this area mostly because the companies’ intellectual property teams have little experience in negotiating or valuing patents.

This completes the three R&D or innovation game types in industries that have long times to commercialization once prototypes have been developed. We now move to the second set of innovation games are shown in the middle of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure. These R&D games have a medium time to commercialization once prototypes have been created. The rate limiting step for commercialization is usually the adoption of industry standards. These can be formal industry standards that are required by a government, or more typically required by consumer preferences. Underwriter Laboratories (UL) ratings are examples of such standardization. Internet standards such as MPEG3 and others are also examples. Once a prototype product has been made a company must test it to make sure that it meets the applicable industry standards because such compliance is required by the consumer as a condition of purchase of the product or service.

The first “RD&E Tools and Services” game type of this section has the longest time to prototype. Typical industries using this innovation game are drug research and discovery tools, specialty cosmetic research tools, and engineering test equipment. The long time to prototype comes from needing to discover basic scientific principles as a prelude to development of products and services. RD&E tools and services are in the same column as Technology Races because of their time to prototype, but they are in the lower row because they can be commercialized at a much faster rate and do not often have the problem of patents expiring before they become useful. In this field when looking for strategic opportunities it is best to find specific areas in which the intellectual-property density is that of a forest. This is because there are academic and government entities funding breakthrough research in these areas. For any specific commercial opportunity however the typical number of patent holders in the field is few. This is because in many areas the development cycle times require significant investments on the part of the entity bringing it to commercial fruition.

The minimum position in this area for a “RD&E Tools and Services” type company would be to: First, have at least the largest or within 20% of the largest portfolio with knockout or chokepoint patent present in that portfolio. At a minimum single-generation patent fences are desired from the licensor. Potential competitors may be present but there should be no company with over 10% of the citations of key art in the field. It would be desirable to have the licensee filing for patents at a faster than average first non-self citation times. The company should be building, or planning to build, a portfolio with high claim quality and broad geographic coverage. This is important because the geographic reach of the industries using this game model has become worldwide. To protect the significant return on investment in innovation that’s being made it’s important that both the company be aggressive in its enforcement of its patents. They need to proactively defend challenges and ensure that there are no aggregators present in the field.

The next R&D or innovation game in this sequence is called “Battles for Architectures”. Industries utilizing this game theory are typically mass software, computers, Internet and telecom services, networking equipment, and semiconductors. Characteristics of this particular R&D game type are a moderate time to prototype and a moderate time-to-market. This unique blend of characteristics generates high commercial returns on technology investments. The science needed for innovation has already been done so relatively speaking it is simply a matter of applying engineering principles to create rapid prototype products and services. Likewise once prototypes are available it is relatively quick to make sure that they meet evolving industry standards to meet customer expectations as opposed to the longer timeframes typical of government standards. Because of these time frames and lucrative markets many companies invest in innovation. They thoughtfully cover their inventions and innovations with intellectual-property and in particular patents. This creates a jungle environment in many of the industries that utilize this R&D Game type. Patent growth rates are very high, growing exponentially in the newer areas. Entities around the world actively research market trends that are then reported and analyzed in market research reports. This information provokes participation by large numbers of competitors, each with high innovation intensity.

The desirable minimum patent portfolio position for a “Battles for Architectures” company is: First, have within 20% of the average portfolio size in the field. This metric is driven from the need to participate in, if not control standards activities. Patent fences are again imperative to prevent being blocked from introducing incremental products based on original concepts. Because of the product life cycles in these areas usually only a first-generation fence is needed. Competitors are present and often times in fields utilizing the “Battles for Architectures” R&D Game Type it is found that there are trolls, predators and sharks present. Thus in creating strategies it is important to detect the presence of such threats. The desirable company position is that it has brought out new patent applications faster than the average of the first non-competitive citation times. It is likewise important for both the company be committed to building a portfolio in order to protect an advantaged competitive position from often hostile parties. Because of the high returns in this field litigation is many times required to settle differences. This, along with increasing scrutiny by standards bodies, means that claim quality and broad claim scope is usually desired from for the key patents in the large portfolio. As most of these industries are worldwide in nature the geographic coverage should also be broad. Lastly with respect to infringing art, patent holders need to be aggressive and proactively defend against challenges to their position. As trolls are sometimes present it’s also important for IP holders to consider belonging to patent pools to help ward off some of these threats. The “Battles for Architectures” game type has been the one in which cross-licensing has been most prevalent. Also, Open Sourcing, were the derivative work is also shared freely amongst participants, has its genesis in this particular R&D game. This environment has most richly rewarded companies sharing of information and cross-licensing of patents.

The third innovation game in this row “Innovating in Packs”, includes chemical products and polymers, industrial gas products, packaging materials, building materials, and pharmaceutical carriers industries. The time required to create a technical prototype in these fields is lower than the previous two. With the underpinning science and engineering known, most work in this area has been reduced to next-generation and incremental innovation. On the commercialization side, industry standards still govern the introduction of products providing a moderate time-to-market. Companies exploring opportunities in this area will typically find a forest environment. Patent portfolios are growing at a moderate rate and because of the specialty of the individual industries involved there are usually very few patent holders in any one of them. There are usually a Big Three or Big Ten worldwide that have invested continuously in next-generation innovation.

An “Innovating in Packs” company should look for a IP strategy that contains: First, having a portfolio within a standard deviation of the average size. The specialized products and services of this area attract competition and the technology underpinnings for these areas make patents a good vehicle for sustaining an advantaged position. Patent fences of a least one generation are desirable. Competitors are often present but not of concern unless one of them has a position of over 10% of the follow-on citations of the key art. Most companies innovating in this area have systematic new products and technology roadmaps and pipelines. Because these tools are used, steady innovation and new patent applications filed by the company should be at a rate at least as great as the average of the first movers’ self-citation times. Opportunities in this area sometimes exist where patents have been pruned from larger portfolios. This is because often multiple products and services enter the market in similar time frames and only the one with the most advantaged position is worthy of the continued protection from investing in maintaining patents. In areas with incremental technology innovation such as this one, the claim quality can be low and the geographic coverage specific, targeted just in the areas where competitors will manufacture or sell products. Because basic chemical and packaging products in this area are often found at the early steps of a Value Chain, the claim scope should be broad, especially with respect to diverse uses and potential consumer needs. For the few key chokepoint patents the patent holder’s position against infringers should be aggressive assertion and proactive defense of challenges. For most of the portfolios however a moderate level of competitive assessment and follow-up is appropriate. Because most patents are covering incremental innovations that create a small price premium for a few companies, this has not been an R&D Game area where IP aggregators or trolls have found value. From an Open Innovation standpoint this is been a particularly good area for exploring opportunities because the base technologies developed in these fields have such broad applicability.

The last innovation game in this row is “Consumer Research and Marketing”. This is one of the easiest to understand. Example markets and industries are automobile and mass consumer products. It however is one of the most difficult to characterize for intellectual property environments. This is because in the environments described above the characterizations fell mostly into the descriptions provided. However this particular R&D game is bimodal. There are a few key newsworthy chokepoint patents that dominate the industry/press and provide the holder a much advantaged position for short periods of time. These patents fall outside the characterization provided below. Examples of such chokepoint patents are the intermittent windshield wiper for automobiles and the Dell business and manufacturing method patents that protected their start-up company with an initial and sustained advantaged position. Examples such as these are however not the rule. More typical in this area is to find a patent jungle because a large number of inventors worldwide have the expertise and capability to come up with consumer product ideas and implement them. This results in a ripe area for Open Innovation activity, but from an IP standpoint more often than not it will be the know-how and trade secrets that are the subject of Open Innovation discussions as opposed to patents.

The IP strategy for “Consumer Research and Marketing” typically takes into account: Patent filing rates in this area tend to be low and the larger portfolios usually fall into the hands of a few key top competitors. Patent fences are rare as derivative work is protected by trade secret and know how. A key success factor in this market is to intercept or create consumer and market trends versus technical prowess protected by patents. A result is that portfolios are usually pruned quickly. Claim quality is often low, the claims narrow, and the countries covered just the world’s largest markets. With the exception of the newsworthy patents described above it is often found not worth a patent holder’s time and effort to put in place careful screens for infringing art. When art does come up the issue it is often settled with a modest license agreement or cross licensed with the other company. Brand Strategy via Copyrights and Trademarks is often more critical to a sustained advantaged position than patents.

This completes the four R&D or innovation game types for industries that have moderate times to commercialization once prototypes have been developed. The last row of the “Attributes of IP Landscapes Best Suited for Each R&D Game” figure contains four R&D games that have the shortest time to commercialization once a prototype is developed. These games are distinct from those of the previous two rows in that there is no formal review process required for a company to bring a product to market. There are no government regulations per se and no industry standards. The only requirement is that the product hopefully matches the customer’s expectations.

The first R&D game on the left-hand side of in the bottom row relates to “Unique Gadgets”. These can be specialty consumer products like the Gillette Mach 5® razor, Procter & Gamble SpinBrush® toothbrush, or the Fisher-Price Talking Elmo® doll. What is unique about these products is the high scientific content embedded in them. Often times they incorporate technologies that come straight from the science laboratory and are put into high value consumer products where there is very little risk of failure. Examples are new battery technologies, new manufacturing methodologies, or a new computer chip applied to a toy. The patent landscape associated with this game is usually a forest. The growth rate of investment and patent filing is usually a high burst (extremely rapid even compared to exponential growth) to protect the new product application, followed by a lull and very little follow-on and activity as other competitors choose not to enter the market.

Therefore the desired patent position for a “Unique Gadgets” company is: First, that of a sole patent holder dominating the landscape with only a very few, if any, focused patent fences. Because of the rapid movement in this industry there is typically no patent predator or shark present. Once the initial burst of patent activity has taken place the episodic activity dies off and as the product matures pruning the portfolio for lowered costs becomes the norm for portfolio management. Patents are used to discourage competition so claim quality is often low, the claim scope is broad, and geographic coverage specific to the countries in which the application will generate the highest returns. If an infringer does appear, the parties to the negotiations must plan for a very aggressive follow-up. Companies then usually quickly settle or cross license.

“System Design and Consulting” is the name of the next innovation game played in this row of patent environments. It is characterized by a moderate time to prototype as the needed engineering principles must still be developed. It requires only a short time to take the product to market once the prototype has been completed. Industries in this area are typically MIS (management information systems), specialized telecom systems, and enterprise solutions. It is important to distinguish between the time it takes to get the prototype ready to take to market and first sales. The industries that we see here have short times to introduce products to market, but often a long time to first revenue. This is because often times specialized telecom systems and enterprise solutions have a long sales cycle. The prototype is ready for customers but they must fully understand the solution before they are willing to purchase the product. Patent density in these industries is often a patent forest. The innovation and patent growth rates are low but have high bursts of activity that is many times associated with business method patents. The landscape itself usually has many patent holders, each with their own approach to what will bring value to customers.

For “System Design and Consulting” companies the IP advantaged position is: First, the size of portfolios under discussion be within one standard deviation of the average size. Because patents often relate to components versus system-level art, there are few fences found in these fields. Enterprise solution companies tend not to follow one another’s exact designs so there’s typically no predator or shark present after the dominant design has taken hold in the market. Most laggard companies in the industry prune their portfolios to save costs, as price is the only sales point available to these second and third tier parties. For the leaders it’s necessary to have moderate claim quality with the claim scope narrow so that if there is infringement the asserting counsel will be able to easily describe why there is a violation to the judge and jury unfamiliar with patents. Enforcement against infringers early in the market development cycle is a mistake as the most important thing during this portion of the business cycle is to build the market by everyone. Therefore a “don’t look” attitude is often taken until after the chasm described by Geoffrey Moore has been crossed. After, and only after, that point should companies then proactively defend against challenges.

The third R&D game in this row is “High Technology Craft”. Industries using this innovation game methodology include specialty food, ingredients, specialty chemicals, electronic equipment, and industrial controls. In this and the last innovation game, the technical effort needed to create a prototype is low. These are fields where from a technical standpoint it is easy to construct the prototype and quick to bring it to the market. It is also an area where there has traditionally been good collaboration between suppliers and customers. Value chain partnerships have for decades been present in these industries. In any one industry there is usually a Big 3 or Big 10 competitors present, each with their own network of suppliers. This small and tight network of companies creates a forest environment of patents. When one customer / supplier pair hits upon a solution there is usually a high burst of patent activity. Then the burst quickly dies away to nothing as most innovation is in the incremental category with follow-on work rarely needed. Again because of the value chain partnerships, the typical number of patent holders is low. When one company spots a weakness in a competitors approach they oftentimes put together R&D teams capable of encircling their competition with patent fences. Hence the presence of predators and some sharks occurs here. Non-competitors however rarely engage in this behavior.

For “High Technology Craft” companies it’s important for companies to: First, quickly build a portfolio with good claim quality that is going to keep away and discourage their closest competition. The patents must be filed broadly enough to keep competitors from doing a geographic end run. When infringement does occur its aggressively pursued and the parties will often go to court to defend their positions versus settle them out of court.

For completeness the final innovation game is mentioned. Technical innovation in this area is often quite low. It affects the “News, Clothing, and Commodity Food” areas. Companies working in this area do not use patents as a primary means of creating a sustained advantage position. Instead the intellectual property of choice is often copyrights and trademarks. These two forms of intellectual property afford good projection at a much reduced cost than patents. Where patents exist they are often design versus utility patents. As such the patent environment as that of a light forest, the innovation patent growth rates low and the number of patent holders few. It is rare to see a patent fence in these fields and even more so to find a predator or shark. For portfolio management, the eye is to continuously prune the portfolio as advantaged positions become protected by trademarks. It is not surprising that not much time or money is invested in high-quality claims or broad coverage. Companies in this area do not typically invest in the competitive intelligence needed to determine whether or not infringement is taking place.

The Benefits of IP Strategies to the Corporation

Again, excerpting from KPMG “The Value Of Ideas, A Business Process Considerations Guidebook”, the benefit of an intellectual property plan is that it allows a company to plan its intellectual property management activities, establish goals for the performance of those activities, and evaluate how well those goals are being met by the intellectual property management system. Successful accomplishment of these management goals will ensure that a maximum value is being derived from a company’s intellectual property portfolio.

Additional benefits of an intellectual property strategy are excerpted from the Delphion Industry Insight Series: Greater Value Through Intellectual Asset Management. In this white paper the authors focused on the benefits of licensing out unused corporate patents. They also mentioned lost opportunities by way of blocked business operations, infringement damages, forfeited rights, uncollected fees from royalties, and legal liability of corporate officers that may fail to responsibly manage patents is a valuable property of the business.

From a timing standpoint, they also looked at the benefits that were Immediate, Medium-Term, and Long-Term. Starting with Immediate Savings, simply identifying patents of little or no business value and abandoning them saves their maintenance costs.

Medium-Term benefits of a good intellectual property strategy include addressing the issues of licensing to everybody, including competitors, to maximize value. This strategy was masterfully executed by IBM. Licensing to a competitor results in a cost structure saving, since a competitor will be paying the license fee on every product sold. The authors also believe that tying a competitor to the firm’s technology reduces the competitor’s incentive to work around the technology, and the possibility of even superseding it with an innovation of its own. Licensing within one’s industry may enable a firm to establish its own technology as a standard, a potentially advantageous situation. Finally, medium-term use of patents includes structuring joint ventures and alliances. Companies contributing patents in exchange for a valuable interest in a venture has high leverage.

The Longer-Term benefits of an intellectual property strategy come from the creation of better and stronger patents. Managers who know how a product will be used in practice can help draft patents that are more readily enforceable. Business managers who have a stake in maximizing the value of their operations will be motivated to work with the firm’s attorneys to make patents strong. To be fully exploited patents should be utilized from the moment they are granted and planning to do so should start well before they are granted. This will be highlighted in the Strategic Patenting section below. Planning should include not only searches for uses inside the company’s own industry, but also outside it in completely different applications. In the 1990’s virtually all of Texas instruments $550 million annual royalty income came from patented technology not use in their own business. The strategic IP plan also improves competitive intelligence and strategic business vision by allowing senior management to create a business strategy playing on the strengths and weaknesses of competitors, taking into account new directions they may be investing in.

Strategic Patenting

Strategic patenting for many means creating and claiming intellectual property in targeted areas that are intended to create future industry recognized value. The early leaders in this field were Jim O’Shaughnessy at Rockwell and John Cronin at IBM. What they found is that by thinking about what the future might hold, they could invent today products that would exist in that future state. By doing so before other companies, they could create and stakeout an intellectual property position that would exclude others from entering that future space. Alternatively, the intellectual property so created could be licensed to create a revenue stream for the patent holder.

The objectives for most companies are to strengthen their patent portfolios by identifying invention opportunities in emerging parts of the market and discover needed technology developments. The objective is also to generate and claim inventions strategically located right in the middle of emerging future environments. This has proven an effective strategy for many industries including semi-conductors, memory chips, electric motors, modems, instrumentation and controls, automotive systems, consumer electronics, network technologies, wireless technologies, fiber-optic technologies, and electronic business methods.

The process is relatively simple and usually involves a First Step Workshop wherein a variety of individuals with multiple backgrounds brainstorm about a future state. In the Opportunity Identification workshop various scenarios of future states are developed and documented by the participants. The purpose is to clarify future market and technology assumptions. In these future states products and service concepts are brainstormed that consumers would find advantageous to use. These are called Opportunity Statements. What oftentimes also develop are proprietary end-user insights related to market discovery. Drawing on our previous discussion of Product Functionality, product functionality descriptions are often useful in identifying the products and services needed in the future. Thus the first step identifies and documents as Opportunity Statements those products and service concepts that would be valuable in a future business environment.

Hierarchy of Invention Framework

A useful tool for thinking about new products is a Hierarchy of Invention Framework as shown in the figure. A framework like this is used to deconstruct an innovation. It illustrates how different invention systems and elements are integrated to provide solutions to market needs. The Hierarchy of Invention Framework deconstructs a device into three aspects: functions, systems, and components. These device elements are then linked to attributes (or specifications) and relevant applications (markets served). The performance attributes form the base of the hierarchy and the applications are shown at the top of the framework. This framework is especially useful for academic research teams and technology transfer offices. It helps them visualize relationships between chemical entities or device structures, the market attributes that link to its specification(s), and potential market applications. (Note that the market attributes are equivalent to “Product Functions” used in the Technology/Product Function/Market Matrix described in Chapter 7).

The Second Step is comprised of Innovation Workshops focused on creating specific products that would exist for those Opportunities. These typically utilize the technical innovation processes defined in earlier chapters by taking the product functionality, products, and services identified in the first step and diving into how those products and services could be created. This is done from each a scientific and engineering standpoint, manufacturing standpoint, as well as a distribution and servicing standpoint. Because this work is related to the future, new-to-the-world unique and non-obvious innovations occur and are uncovered by the workshop participants. These unique innovations are then carried forward to Step Three.

Step Three involves the disclosure of the ideas in a form that would be useful for patent applications. Often before commencing directly upon drafting patent applications the ideas are first prioritized in terms of their likelihood of occurrence and economic impact / return on investment.

Companies engaging in this type of work usually found multiple invention disclosures were created, about 15 to 25 per workshop. Some prolific groups end up generating as many as 100 to 200 invention disclosures. In addition, strategic opportunities for the company are identified. This allows their competitive intelligence units to focus on clues as to which strategic opportunities are truly unfolding. This is important because as one starts to create patent applications, the corporation pursues only those applications for which the future scenario utilizing them is occurring. For those future scenarios which are not occurring, the pending patent applications are abandoned. This ensures that the patents are aligned with the strategic interests of the company.

At this point it should be noted that an IP strategy should include an element of trickery. By this John Cronin means a careful planned method: a stratagem towards a goal. He uses a word stratagem to mean trick of war for deceiving and outwitting the enemy, a clever trick or scheme for gaining an end, or skill using ruses. This is because strong IP strategy, in looking at the future and thinking about how competitors are going to respond to it, can be used to deceive by the patent and other intellectual property assets, a company’s true motives.

What Companies Do With Assets Created From
Strategic Patenting Exercises

The “What Companies Do With Assets Created From Strategic Patenting Exercises” figure shows what companies intend to do with the assets that are created. This is taken from Lee Murrah at Meritor Automotive Incorporated. For most for-profit large organizations with an existing business, this exercise preserves for them future sustainable advantaged positions in their market segments.

There are some organizations, notably small and medium-size enterprises that come up with a large number of applications that are outside the scope of their business, and thus make good prospective licensing out options for additional corporate revenue or value upon sale of a small entity. It’s noted in this diagram there are retrospective patents, that is those that are really focused on near-term states. These patents are really about protecting simple variations of current products or services and thus preventing them from being copied by others.

Example of an IP Strategic Plan

Intellectual Property Strategic Plan for “Company’s Product Line” Business

This document sets out a strategic plan for “Company’s Product Line” Business. It reviews strengths, weaknesses, threats and opportunities; presents a series of statements relating to “Company’s” vision, mission, values and objectives to provide context; sets out the Business strategies and goals to again provide context; sets out the Key IP Strategy Elements and detailed Strategic IP Action Programs.

Business Strengths, Weaknesses, Threats and Opportunities for “Company’s Product Line” Business

Strengths:

  • Track record of 50 years of innovation
  • A global brand in “Company’s Product Line”
  • Motivated staff and leadership

Weaknesses:

  • Quantity of next-generation innovation
  • Integrated advanced design software
  • Limited access to customer’s critical unsolvable problems

Opportunities:

  • Modern consumers expect digital solutions and smaller components
  • Modern customers expect real-time fault / reliability detection and alerts
  • Modern customers expect short-turn-around-time development timelines
  • Overall “Company’s Product Line” category continues to grow

Threats:

  • Competitors advance access to customers unsolvable problems
  • Shorter product life-cycles
  • Integrated Sensor options from competition
  • Potential competition from Chinese entities

The vision for “Company’s Product Line” Business in five years’ time is:

  • To be consistent with the “Company” vision to design and manufacture “Company’s Product Line” that are critical to “Company’s Industry Segment” because of our focus on innovation, quality, accuracy and reliability.
  • To be consistent with the “Company” Vision of being a market leader in the higher price / lower volume / high-performance market

The Mission of the “Company’s Product Line” Business is:

  • To be consistent with the “Company’s” Brands of being a proven innovator
  • To be able to solve unsolvable problems
  • To be continually improving

Values

  • ”Company’s Product Line” Business operates in accordance with the highest standards in all relationships with customers, suppliers, environment and the community.
  • “Company’s Product Line” Business fosters a climate which encourages innovative, diligent and trustworthy staff and rewards accordingly.

Longer Term Business Objectives of “Company’s Product Line” Business are summarized as:

  • To meet the “Company” Corporation Objective of 10% sales growth for the “Company’s Product Line” Business
  • To meet the “Company’s Product Line” Business Objective To selectively invest in selected Next-Generation and a few Breakthrough technologies to create steady growth from a market/technology leader position
  • To be consistent with the “Company’s Product Line” marketing objective of focusing exclusively on the “Company’s Industry Segment”
  • To be consistent with the “Company’s Product Line” Geographic Objective of building in existing market presence areas (North America and Europe) and watching China for indications of emerging technology / market threats therein

“Company’s Product Line” Key IP Strategies to Enable the Business Objectives of “Company’s Product Line” Business:

  • Focus on the IP Needs for the “Company’s Product Line” Business in the following order of priority:
    • Freedom to Operate
    • IP Creation and Portfolio Management to sustain advantaged positions
    • In-licensing and Cross-licensing for Open Innovation and partner developments at lower costs
    • Regulatory planning
    • Out-Licensing for Geographic Expansion or Incremental Revenues ( TBD )
  • Watch competition comprised of “Named Company Competitors” who may have or could develop IP to block “Company’s Product Line”. “Company’s Product Line” will focus on copying and incrementally improving such designs and fencing-in any patents by these competitors to weaken any of their advantaged positions
  • Support sustained growth of the “Company’s Product Line” business by protecting advantaged positions coming from new product materials, functions and capabilities with patents
  • Focus on growing business and protecting it with patents in North America, Europe. Watch developments in China to determine if and when investments in patents in that country will generate a positive ROI
  • Support sustained growth of the “Company’s Product Line” business by protecting advantaged positions of over 10% lower total costs which come from removing costs from the business with new product design and manufacturing capabilities with Trade Secrets
  • “Company” patent and trademark portfolios will provide visibility, protection and a testament to “Company” product uniqueness and high-performance
  • Maintain an R&D and IP Posture of “Offensive Short Term R&D” which requires maintaining narrow Patents & Trade Secrets as well as using Trademarks and Copyrights
  • Make R&D investment and IP filing/maintaining of patents consistent with “High Technology Craft” R&D and IP Game Recommendations

“Company’s Product Line” IP Strengths, Weaknesses, Threats & Opportunities by Business Use of IP

Key IP Strengths, Weaknesses, Opportunities and Threats

The Key IP Strengths, Weaknesses, Threats and Opportunities for the “Company’s Product Line” shown in the table to the right drive the Strategic IP Action Programs that follow below.

The Following “Company’s Product Line” Strategic IP Action Programs Will Be Implemented

  • Ensure No IP Related Surprises to the “Company’s Product Line”
    • Current FTO studies will be shared with project teams
    • Proposed Development Projects will add IP landscapes as inputs to the planning and project selection process
    • Development projects will conduct a High Level Patent Landscape searching for close art during their Feasibility Stage
    • Development projects will conduct a Software Derived FTO search for close art during the Feasibility Stage
    • Development projects will conduct a Legal Department FTO search for close art during the Development Stage
  • Ensure Advantaged IP Will be Obtained by the “Company’s Product Line”
    • Development projects will conduct a patent SWOT during the Feasibility and Development Stages, and will be audited at the Development Gate Review
    • Development projects will file patent(s), document trade secret(s), or hold as know-how at the conclusion of the Development Stage, and will be audited at the Scale-Up Gate Review
    • Development projects will utilize TM’s at the conclusion of the Scale-Up Stage, and will be audited and registration considered at the Post-Commercialization Gate Review
    • Patent Protection will be sought on materials and performance features vs. cost advantage
    • “Breakthrough” product patents will be litigation quality (i.e. complete reference citations and re-examination)
    • “Next-Generation” product patents have to dissuade honorable competitors in target markets (i.e. average reference citations)
    • Trade Secret protection will be sought on design processes and manufacturing processes where the finished product cost savings exceed 10% of product cost
    • Copyright protection will be obtained on all engineering and QA documents
    • “Next-Generation” product patents will be filed in U.S. and Europe
    • Potential “Incremental” product patents will be held as trade secret, held as confidential know-how or published for marketing use depending upon Patent Vs. Trade Secret Decision Matrix scores
  • Ensure IP Will be Appropriately Maintained or Abandoned by the “Company’s Product Line”
    • “Company’s Product Line” patents should provide market credibility (filing in “prestige” US or EU IP jurisdiction) and leveraged by Sales to enhance “Company’s Product Line” brand as a market leader
    • Current IP will be Appropriately Maintained or Abandoned by “Company’s Product Line” to reduce costs.
    • Geographic IP filing strategies should mirror medium and long term business use and plans by an annual update at the end of the “Company’s Product Line” Strategic Planning cycle
    • “Use” and “Value” Charts will be used annually to assess the “Company’s Product Line” patents to be maintained or abandoned in the upcoming year
    • Patent and TM alerts will be conducted quarterly for both competitor and similar (potentially infringing) art to “Company’s Product Line” products
  • Ensure IP Will be Licensed out to speed the “Company’s Product Line” Growth
    • “Use”, “Value”, “Comparables Charts” will be used annually to assess the “Company’s Product Line” patents, trade secrets, and know-how to be shared with preferred partners to speed market entry in the upcoming year
    • “Company’s Product Line” will share or cross-license its patents and know-how with partners in non-competing fields to obtain additional technology for “Company’s Product Line” to acquire at lower cost
  • Ensure IP Will be Leveraged for Government Regulatory and Industry Standards Use
    • “Company’s Product Line” IP Will be Leveraged for Government Regulatory and Industry Standards Use by working with key customers as sponsors
  • Ensure IP Will be Licensed out to obtain additional revenues by the “Company’s Product Line”
    • “Company’s Product Line” will not License-out patents for additional revenues as this is not a strategic business objective for “Company’s Product Line”

Sources, References and Selected Bibliographic Information

1. “Intellectual Property Strategy”, by Harry Grinnell, IP Review, Autumn 2006.
2. “IP Strategy”, by John Cronin, presentation at LES Workshop, May 2002.
3. “Business Model Archetypes”, by Peter Weill, Working Paper, May 2004.
4. “Summary of IP Elements”, by Unknown, lesNouvelles, Dec. 2005, p. 161.
5. “Asset-based monopolies”, by Unknown, Research Technology Management, September 2003, p. 35.
6. “Intellectual Property Strategies” by David Tyrrell, Vertex, Volume 7, #3, Winter 2006.
7. “The Value Of Ideas, A Business Process Considerations Guidebook”, by KPMG, White Paper, 2001.
8. “Greater Value Through Intellectual Asset Management” by Delphion, Delphion Industry Insight Series: White Paper.
9. “What Companies Do With Assets Created From Strategic Patenting Exercises”, by Lee Murrah, Presentation from Meritor Automotive Incorporated.
10. “Patent Technology Landscapes for Assessing Intellectual Property in Academic Environments”, by Joe Wyse, Ken Zinda, Greg Gerhardt, Bob Gregory and Eric Grulke, les Nouvelles, March 2014.
11. “Four Classes of Patent Licensing”, by Kelce Wilson, les Nouvelles, March 2010.
12. “Edison in the Boardroom”, by Julie Davis and Suzanne Harrison, Wiley, 2001.
13. “Value-Driven Intellectuall Capital” by Patrick Sullivan, Wiley, 2000.
14. “Profiting from Intellectual Capital”, by Patrick Sullivan, Wiley, 1998.
15. “Technology Licensing – Corporate Strategies for Maximizing Value”, by Russell Parr and Patrick Sullivan, Wiley, 1996.
16. “It’s all in the Game”, by Paul Germeraad, Intellectual Asset Management, December, 2009.
17. “Integration of Intellectual Property Strategy with Innovation Strategy”, by Paul Germeraad, Research Technology Management, May 2010.
18. “Owning the Future”, by Seth Shulman, Houghton Miffin Company, 1999.
19. “Licensing: A Strategy for Profits”, by Edward White, Licensing Executives Society, 1990.
20. “Patent Strategy for Researchers and Research Managers”, by Jackson Knight, Wiley, 1996.
21. “The Invisible Edge”, by Mark Blaxill and Ralph Eckardt, Penguin Group, 2010.
22. “Creating New Infrastructure and a New Mode of functioning for a True Knowledge Economy in Europe”, by Patrick Terroir, Caisse des depots et Consignations (CDC), 2010.
23. “Intellectual Property and Competitive Strategies in the 21st Century”, by Shahid Alkhan and Raghunath Mashelkar, Kluwer Law International, 2009.
24. “Burning the Ships”, by Marshall Phelps and David Kline, Wiley, 2009.
25. “Rembrandts in the Attic”, by Kevin Rivette and David Kline, Harvard Business School Press, 2000.
26. “Edison in the Boardroom Revisited”, by Patrick Sullivan and Suzanne Harrison, Wiley, 2011.
27. “Einstein in the Boardroom”, Patrick Sullivan and Suzanne Harrison, Wiley, 2006.
28. “Wikinomics”, by Don Tapscott and Anthony Williams, Portfolio Press, 2006.
29. “The Optimal Global Intellectual Property Strategy for the 4th Industrial Revolution“, by Rob Sterne, Focus2019 #13, April 2019.
30. ”A new IP strategy for a new era of shared innovation”, by Brad Smith, Microsoft Blog, April 2018.
31. ”Corporate Business Development and IP Management”, by Yorikatsu Hohokabe, Presentation at LES CEE Conference, Jan. 2018.
32. ”Patent Ahead of Competitors”, by Ron Grudziecki, personal communication, Dec. 2017.
33. “Annual Patent Investment Review”, by Pat-Tech Exchange, White Paper, 2017.
34. “Innovation Killers”, by Clayton Christensen, Stephen Kaufman, and Willy Shih, Harvard Business Review, Jan. 2008.