Organising IP Management Dr. Robert Pitkethly Handout available from : or: mast0140/RHPLECTURE.html

Organising IP Management

Dr. Robert Pitkethly

www.oiprc.ox.ac.uk www.sbs.ox.ac.uk

Handout available from : www.pitkethly.org.uk/RHPLECTURE.htmlor: http://users.ox.ac.uk/~mast0140/RHPLECTURE.html

© R.H.Pitkethly 2004

IP Tactics IP Strategy

External

Internal

Litigation TacticsLicensing Tactics

Patent Information Mgt.

Patent Application Tactics

Patent Filing IncentivesIP Awareness promotion

Proactive: Licensing Policy

Learning PolicyReactive : Litigation Policy

Internal IP Management Policy

IP Management StructureIP Management Resourcing

Intellectual Property Management :

2

IP Law

Strategic Management

Intellectual Property Management


What needs Managing ?

Management of explicit, appropriable “Knowledge” or “IP” involves IPRs

Low HighLegal Appropriability of Intellectual Asset

Explicit

Tacit

Embodiment of Intellectual Asset

Increasing importance of access to Intellectual

Property Rights (IPRs)

Increasing importance of access to

Embodiment ofKnowledge

Increasing importance of access to

Other ‘Complementary’Assets


Careers - How to set & achieve objectives

Opportunities Introductions Job Offers

OBJECTIVESRequirements

OneselfSkills, PersonalityInterests, Values

Others Competition? Cooperation?

• Strengths• Weaknesses

• Opportunities• Threats

• Environmental Factors

The same thinking can be applied to Management Strategy....

What is Strategic Management?


Strategy

“Strategy can be defined as the determination of the long run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals”.

Alfred Chandler (1962), Strategy & Structure


Organisations have a duty to make the most of the resources under their control

5


ADDEDVALUE

Added Value - Glaxo Inputs & Outputs 1990

COSTS&

ADDEDVALUE

Materials MaterialsINPUTCOSTS

Wages &

Salaries

MATERIALS

WAGES&

SALARIES

CAPITAL COSTSInterest

ADDEDVALUE

PROFITSOperating

MarginNet

OutputKay, J. (1996). Foundations of Corporate Success. Oxford, Oxford University Press.

MATERIALS

WAGES&

SALARIES

CAPITAL COSTS

REVENUEREVENUE

A key objective is the creation and appropriation of added value

Objectives?

6


The Value Chain

Research and Development / Design

Human Resource Management / Personnel

Finance , Legal, Planning, MIS, Etc.

Support

Primary

CustomerService

Sales &

MarketingDistributionProduction

Purchasing,Inventory,MaterialsHandling

M

a

r

g

i

n

Porter, M. E. (1985). Competitive Advantage. New York, Free Press.

Creation of added value requires attention to components of the “Value Chain”

Objectives?

7


Strategy does not occur in a vacuum

• Political• Changes in government• Legislation

• Economic• Business Cycles• Disposable Incomes

• Social• Demographics• Lifestyles

• Technological• New technological developments

Analysing the Environment is also critical :

8



Analysing the Environment

Bernard Dixon in his book "The psychology of military incompetence" describes how military incompetence can be characterised by a number of factors including notably (emphasis in original):

3. A tendency to reject or ignore information which is unpalatable or which conflicts with preconceptions.

4. A tendency to underestimate the enemy and overestimate the capabilities of one's own side. ………

8. A failure to make adequate reconnaissance.

Dixon, B. (1994). On the psychology of military incompetence. London, Pimlico.

Similar considerations can apply to companies….

& to Intellectual Property issues

9



The LCAG or “SWOT” model

A variant of the “LCAG Model” from :

Learned E.P., Christensen, C.R., Andrews, K.R., Guth, W.D. (1965) Business Policy Text & Cases in Mintzberg, H., Quinn, J. B. , (1996), The Strategy Process : Prentice Hall Inc., New Jersey.

External Appraisal Internal Appraisal

Threats and Opportunities in

Environment

Strengths andWeaknesses of

Organisation

Key SuccessFactors

DistinctiveCompetencies

Creation ofStrategy

Evaluationand Choiceof Strategy

ManagerialValues

SocialResponsibility

"SWOT"analysis

One needs to consider both internal and external factors


10


Industry Structure Analysis

SUPPLIERS

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

ENTRANTS SUBSTITUTES

From : Porter, M. E. (1980). Competitive Strategy. New York, Free Press.

BUYERS

Threat of new Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitutes

Perfect Competition & Eroded Profits => Search for Imperfections / Barriers

11


“The Resource Based View”

12


Resources

• Company Staff (Human resources)

• Financial resources

• Tangible assets (Buildings and equipment)

• Intellectual Property (Intangible Resources)

"Lets use IPRs as the fourth resource of business as well as People, Things and Money."

Where do the returns to these resources go?

13



The Value Net

Nalebuff, B. J. and A. M. Brandenburger (1997). The Right Game: Use Game Theory to Shape Strategy. Seeing Differently: Insights on Innovation. J. Seely-Brown (ed.), Harvard Business School Press.

Customers

Substitutors

Suppliers

Complementors

How is the value added to be divided amongst the players?


Company

14


Appropriability

Appropriability

• Legal Appropriability & Complementary Assets• Deciding the % of returns players appropriate• How much of the cake - RADIANS

Strategic Appropriability

• Ability of a given player to maximise returns• Deciding the returns a player appropriates• How much of the cake - RADIANS

& How large a cake - RADIUS

R

How can one use control over IPRs to increase the returns ? - eg by licensing IP



Competitive Value Map

The key question in most cases is how to maximise value appropriation


Pitkethly, R. (2003) “Analysing the Environment” Ch. 9 in ‘The Oxford Book of Strategy’. Oxford, Oxford University Press

16

a. Maximise Company’s added value

b. Reduce Company’s costs

c. Capture Added Value from Others

d. Reduce Others’ costs

e. Capture market share and value from Competitors & Substitutes

f. Expand markets to fully exploit resources

a.

COMPANY

BuyersSuppliers

Collaborators

Costs

b.

c.

d.

e.

Collaborators’ Added Value

Buyers’AddedValue

Supplier’s AddedValue

Competitors & Substitutes

CompanyAddedValue

EnvironmentalConstraints

f.


IPRs & Strategy - I

IPRs role in strategy involves :

• Defining resources

• “Appropriating” returns(in conjunction with complementary assets)

• TimeIPRs Impermanence & The Flow of TechnologyControlling and assisting the flow of IP

(through litigation and licensing policy)

Long Term IPR Strategy cannot be static & defensive

IPRs & Strategy


CAT Scanners

• 1967 G.Hounsfield invents the CT X-ray Scanner files first patent application• 1972 first patent granted• 1972/4 customers waiting 12 months for delivery• 1975 250 systems sold 85% in USA Sales = £20m pa 800 people

hired• 1975 GE enters market• 1977 Sales in Japan via Toshiba under licence• 1977 EMI share of US market drops to 50%• 1978 purchasing restrictions in US slow sales

EMI has applied for over 500 patents• 1979 Sales decline further, companies fail• 1979 EMI merged with Thorn Electric

G.Hounsfield receives Nobel prizeEMI Medical Electronics sold to GE

EMI needed more than just patents...

IPRs & Strategy


IPRs & Strategy - II

Appropriability is not just about IPRs

Appropriability :

IPRs are not the only means of appropriation :

• Importance of other means of appropriation (Levin et al. 1987; Mansfield 1981)

• IPRs effectiveness varies by industry (Taylor & Silberston 1973)

• Complementary Assets (Teece 1986)

• First mover advantages (Lieberman & Montgomery 1988)

• Complexity / Uncertain Imitability (Lippman & Rumelt 1982)

• Learning curve advantages

• Secrecy

IPRs & Strategy


What is the purpose of "Intellectual Property Rights" ?

• “A patent does not give you the right to do make something or to do anything except to appear in court as the plaintiff in an action for infringement” Earl of Halsbury House of Lords 20/2/85

But IPRs can :

• Protect - an invention from use by others

• Appropriate - the returns / profits from an invention by usingIPRs and any necessary complementary assets

• CONTROL - how an invention is exploited

IPRs are not just a matter of protecting IP

IPRs & Strategy


Block - Run - Team-Up

The

Innovative

Firm

Based on Afuah, A. (1998). Innovation Management. OUP.

Block

Team-UpRun

May be pursued in combinations & at different stages of the value chain.

How sustainable is the strategy?

IPRs & Strategy


IPRs & Strategy - IV

Using IPRs and firm resources to :

• Recognise

• Appropriate

• Control

• Exploit

the IP resources and assets of the company

IPRs & Strategy


Two Cases of IPR exploitation - II

• Penicillin

– Neither penicillin nor production methods were patented by

the discoverers Fleming and Florey for legal and other reasons

– Production methods were patented by scientists in the USA• Andrew J. Moyer - Method for Production of Penicillin

– US Patent Nos. 2,442,141; 2,443,989; UK Applications 45/13674-6 Etc.

– Fleming received $100k from US Penicillin Manufacturers in 1945 to fund medical research

• Cephalosporin-C– In 1957, Abraham and Newton isolated cephalosporin-C, the first cephalosporin

antibiotic. This was patented.

– The E P Abraham Research Fund and the Guy Newton Trust, funded by royalties support medical, biological and chemical research in Oxford.

– Cephalosporin patents generated gross revenues of over £150m

If an organisation doesn’t control its IP someone else will


Patent Value Distributions from Interview Data (Scherer 1997)

Pareto Plot of US Patent Values (N=222)(Scherer 1997)

10

100

1000

0.01 0.1 1 10 100 1000

Patent Value ($m)

Little worth Lots - Lots worth little

Valuation


IP Valuations

• Brand Valuations– Nestlé’s bid for Rowntree 1988

• Damages– Litton Systems Inc. v Honeywell 1996

• award of $1.2bn damages : “pure fantasy”

• External Transactions– Licensing / Purchase / Sale / Joint Ventures– Raising Finance

– Valuing IP for use as security for debt

• Internal Management– Internal IP Management Decisions

• First Filing, Foreign Filing, Examination,Renewal

IP valuations ought to be as objective as possible

Valuation


Time

% ofValue

Option Value

ConventionalDCF Value

0

100

For further details see: Pitkethly, R.H. "The Valuation of Patents : A review of patent valuation methods with consideration of option based methods and the potential for further research", WP 05/99, OIPRC Electronic Journal of Intellectual Property Rights, <http://www.oiprc.ox.ac.uk/EJWP0599.html>

The relative importance of the option value changes over an IPR’s life

Valuation


http://www.admin.ox.ac.uk/rso/policy/intpol.shtml

Intellectual Property Policy------------------------------------------------------------------------Research Services

The following documents set out the University's intellectual property policy and the procedures which are used to administer it:

* Oxford University's Intellectual Property Policy

* Procedures for the administration of this policy

Research Services staff will be pleased to help with any queries you may have regarding this policy.

Members of the University may also find it useful to browse the web site of Isis Innovation Limited, the University's technology transfer company, for further information about the exploitation of intellectual property arising from University research.

Ownership

Check Employment and Consultancy contracts to retain ownership of IPRs. …..Get it in Writing….


Direct Financial Incentives

on Filing

on Grant

on Use or

Licensing

0 20 40 60 80 100

% of Companies with Financial Incentive

Japan UK UK-IPD

Significantly more financial incentives exist in Japan - but what are the rewards?

Employee Incentives


Japanese Patent Applications

45 50 55 60 65 70 75 80 85 900

100

200

300

400

000'

s

Japan

USA

UK

National Patent Applications filed by National Applicants 1945-1994

Employee Incentives


65 70 75 80 85 90Year

0.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8

Pat

ent A

pplic

atio

n/R

esea

rche

r

('70 & '71 averaged due to law change)

Japanese Applications per Japanese Applicant

95

Japanese filing rates increased in the 1980s

Employee Incentives


IPR Training

• Involves : IP Department Professionals& R&D Staff & staff throughout the Co.

• IPR is a company wide issue

• In Fujitsu, since at least the mid-1980s, all new staff are given 2-4 hours basic training about the company’s patent operations and basic details of the patent system.

IP Training should involve the whole company

IP Department Structure

IP Awareness / Training


Communication & Patent Systems

Resolution of the Vienna Exhibition Congress of 1873:

"In consideration of the great inequality of the existing patent legislation, and in consideration of the altered means of international communication of the present time, there is great want of reform, and it is very desirable that the Governments will initiate an international understanding on the patent protection" (Coulter 1991).

Mr. Paul Hartnack (UK Patent Office Comptroller General and Chief Executive)

“Arguably the main driver of the trend towards harmonisation of the world’s patent (and trade mark and design) systems over the last 50 years has not been WIPO, or the EPC, or the GATT, massive though their contributions have been. Arguably, it has been the demands of a global market driven by the wonders of modern communications technology.” (Hartnack 1996)

Communication


Japanese companies put a heavy emphasis on developing

links between the IP department and other departments

Inter Departmental Coordination

IP / R&D liaison at Toray

IP Department Structure

Communication


Where to locate IP dept. personnel?

• Cross functional communication is key

– Facilitate formation of cross-functional teams which include IP Staff

• Balancing administrative, financial, managerial & operational efficiency

– Administratively - IP depts are easier to staff and run in a capital city

– Managerially - IP depts may need ready access to Senior Management

– Financially - Location outside a capital city would be much cheaper

– Operationally - IPR creation needs Integration with Innovation

IP Dept may need a variety of Offices - but IP and IPR creation need integration

Communication


Patent Information Management - Uses

Use related to general management strategyi) Basic analysis of technological trends& special fields

Assessment of future growth trends and developments

ii) Analysis by Companies and Technical Fields

Assessment of entrants to new fields

Assessment of strengths of competitors over time

Analysis of inventors by name and numbers

Analysis of Industry Groupings via joint applications

Use related to the research processi) Prevention of duplication of research

ii) Technology crevice strategies

(Analysis of patents may reveal room for me too products or developments)

Use related to patent applicationsi) Removal of wasted applications

ii) Improvement of patent applications by prior art searches.JIII Patent Management Research Committee

PIM is something for the whole company

Information


Who to recruit to the IP department and from where?

• Internally? Or Externally? Or Both?• Legally Or Managerially Qualified Or Both?

• Current Shortage of Patent Attorneys=> In-house training scheme - once organisation large enough to support it?

• Use of graduate training scheme - probably not sufficiently specialised• Possibility of losing expensively trained staff - compensated by lower cost of in-house staff

in training?

• Need for specialised technical knowledge=> In-house training of ex-R&D staff - benefits may outweigh losses due to leavers?

• May give specialist skills• May allow better links with former R&D colleagues and facilitate cross-functional groups.

IP Personnel


Use / Exploitation of Technology

• In-House Exploitation of technology– development and marketing of own products

• Licensing Out of technology developed in-house– for revenue

– for lack of resources to fully exploit it in-house

– to entrap licensees

– to allow use by others under patentees control

– for cross-licensing purposes

• Outright sale of technology– exit from technical field

External IP Management

Consider as many options as possible but remember their consequences...


Licensing Attractiveness

Consider Not Just : Competitive & Financial Costs/Benefits But also : Time & Learning Potential

Increasing attractiveness of Licensing In to

Licensees

LowHigh

Low

High

Low

High

High

Low

Learning Potential for

licensee

Financial Cost to Licensee Financial Revenue to Licensor

Competitive Advantage

Gained by Licensee Ceded by Licensor

Increasing attractiveness of Licensing Out to Licensors

But Licensing need not always be a zero-sum game …..Licensees want to : Pay little, Catch-up a lot, Learn a lot

Licensors want : the opposite



Cross-Licensing Attractiveness

LowHigh

Low

High

Low

High

High

Low

Net Financial Cost / Revenue

Change in Relative Competitive Advantage

between Cross-Licensees

Increasing attractiveness of Cross-Licensing

Increase in Absolute Competitive Advantage

Licensing involves Learning



Patent Portfolios are not new…...

“It seems obvious that the best defence (of market and technology position) is to… maintain such a strong engineering, patent, and commercial situation... as to always have something to trade against the accomplishment of other parties.... Ability to stop the owner of a fundamental and controlling patent from realising the full fruits of his patent by the ownership of necessary secondary patents may easily put one in position to trade where money alone may be of little value”.

AT&T's J.E.Otterson memo of 1927 (Noble, 1977)

Not just Complementary Assets but Complementary IPRs are critical



IPR Administration - some essentialsRecognising

• Close contact between Patent Agents and Inventors

• Ability to assess value of inventions and IPRs

• Being aware of your IPR environment (eg avoiding infringing other’s IPRs)

• Excellent information acquisition and dissemination

• Liaison between Patent Agents and Product managers

Appropriating

• Preserving all one’s own IPRs, not just patents (eg :don’t forget TMs & Brand Mgt)

Controlling

• Controls over licensing department and decisions

• Remembering that Licensing involves Learning

Exploiting

• Planning for both IPR Costs and Revenues

Conclusion


How might an IP dept progress as the Company expands?

• Resolving the Legal or Managerial function debate :

– Balancing Synergy via Integration / Economy via Division of labour

• Developing IP Dept’s role in the Organisation :

– Independent but Integrated

– Integration via Responsibilities, Committees/Cross functional Groups & Location

• Bring specialised, synergy offering functions in-house

• Out-source commodity functions (eg Patent Renewals, Translations, Etc.)

• Provide Incentives to produce IP

– The business depends on generating IP - provide incentives to generate it

• Clarify ownership of IPRs

– Avoid bottlenecks for IP<=>R&D communication - direct links needed

• Provide Cross-Functional IP Portfolio Management Groups

– X-Functional groups will each need to run their own section of the overall IP portfolio

Conclusion


Prioritising Issues :

Divide Issues into :– those that eat up cash and those that are cheap

– those have to be done now and those that can wait

Eat Cash Cheap

MustDo Now

CanWait

2. FIXNOW

4. FIXLATER

1. HAVE TOFIX NOW

3. CAN FIXLATER

Conclusion

Documents

Organising IP Management Dr. Robert Pitkethly Handout available from : or: mast0140/RHPLECTURE.html