The purpose of a good intellectual property strategy is to obtain for the Corporation the sustainable advantaged business position. The keywords 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 a 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 a 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 competition (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.
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).