Why do some organizations manage IP primarily as legal instruments, while others handle them like business assets?

In fact, I realize that the question is incomplete. This is because there are a whole host of other organizations that view intellectual property (particularly patents) primarily as technological artifacts. The short answer in my post was that it was an outcome of who was tasked with managing them.

I have observed over the years that when lawyers are in charge of IP, the legal perspective prevails and legal processes dominate the agenda (filing, prosecuting, defending, and asserting). When managers are in charge the focus is on leveraging, practicing, and monetizing the IP in the business operations and strategy of the company. For that matter, people with a technical focus universally seem to view patents as packages of technical achievement, and processes supporting technological achievement and innovation rule the day. I have also spent a fair amount of time with economists and business thinkers who tend to see IP as economic artifacts acting as vectors of value and innovation.

It seems that IP is one of those things which establishes its identity wholly within the eye of the beholder. It’s sort of like a Rorschach Inkblot test, where perception is heavily (if not entirely) conditioned. Of course, IP is really ALL of those things – a legal instrument, a business asset, a design or technical expression, and an economic entity. It’s no wonder there are so many differing views and interests, so much controversy, and such mystery and confusion surrounding intellectual property rights.

For me, this is a very relevant issue because this challenge confronts me on a daily basis. My work focuses on adding business processes to the management of IP. This can be easy to do when you are working with an organization that already thinks of IP as business assets to be managed and exploited like any other valuable assets. It can be virtually impossible when the organization has always viewed IP as “something lawyers do”, or even “something inventors do.”

When you look at IP, what do you see? Who do you think should be responsible for IP in an organization?

The short answer: it’s a lot of things, and a lot of people need it.

I’ll just say it… The concept of managing intellectual property is a bit elusive. For that matter, the idea of intellectual property itself is often a bit vague for many. This can make explaining what IP management software is to those with little knowledge about IP extremely challenging. But it may surprise you that it can be just as difficult to describe IP management software to people who are experts in the field of IP. Why is this? I think it’s because there are a lot of different things that various people do with IP and a lot of different people involved. My goal here is to break that down into some very simple categories to make it easier to understand what IP management is and what kinds of software you can get to support it. Before we can do that, I have to explain a few things…

First, IP means different things to different people. Just Google the term “IP Management Software” and you will see what I mean. For starters, you will see that “IP” itself has multiple meanings. For instance, to a bunch of people out there IP stands for “Internet Protocol”, and they have their own management software to help them do whatever it is they do. Beyond that you will find software for the media and entertainment industries, software for lawyers, and even software for software companies among a variety of other things. It almost feels like “IP Management Software” is a grab-bag: reach in and you never know what you might find!

Secondly, there are multiple kinds of intellectual property: patents, trademark, service mark, registered designs, trade secrets, and more. To complicate matters more, intellectual property has even become a kind of catch-phrase associated with corporate innovation and competitiveness and is often used almost interchangeably with the word “innovation”. At this stage in the computer “revolution” it should surprise no one that there is a software application for just about everything and therefore we are not surprised to find “management software” for virtually every flavor of intellectual property, as well as for virtually every role and activity associated with it.

Lawyer or No? At my company, we get a lot of calls and email inquiries about our IP management software from people who are actually looking for something completely different. I can usually tell right away which ones are actually interested in “Internet Protocol” management and happily inform them of their wrong turn. However, for a long time I had a more difficult time determining whether the rest has found the right place or not. That is until in desperation one day I seized on a simple diagnostic which I now use every day that helps immensely to organize this mess. It is a simple question that divides the IP (intellectual property) world into two major camps. I simply ask, “Are you an attorney or patent agent?” If the answer is no, then it is possible that have found the right place and a few follow-up questions will easily determine if they have. If the answer is yes, it is almost certain that they are in the wrong place.

A bit of background helps… Historically intellectual property was always primarily a legal process. It was something lawyers do. IP is a legal entity. Filing, amending, prosecuting, maintaining, litigating – these have been the processes people associate with IP for generations. Companies and other organizations have almost universally thought of IP as a legal process, and therefore responsibility for it was almost always given to the general counsel’s office. The main purpose of having IP was to protect the competitive position of the company’s products and markets.

Then, something happened: people started to make money directly on IP. Of course this was already happening in media such as music and movies and in software among others. But other people got in the game. For instance, universities started to make money licensing their patents. And their “commercialization” efforts led to the Bayh-Dole act and a lot more “technology transfer”. In industries where IP is relatively more important such as pharmaceuticals, patent licensing has become a major industry and has earned sometimes stunning amounts of money for the inventors and their employers. Small technology companies have come to see this as a viable business model in its own right. Trademark licensing is now a big and sophisticated global industry. Suffice it to say that a whole range of business processes have grown up to support making money on IP.

The 2 Kinds of IP Management Software

So, that’s how I divide the world of IP management software: it is either designed to support legal processes or it is built to enable business processes. This makes a lot of sense anyway because these processes are quite different. But, you might say, they both ultimately serve the same purposes and must be integrated in some way to be effective. This is absolutely true. It is impossible to imagine including IP considerations in the business decisions, strategies, and even business model of the organization without that having a direct and profound impact on the legal processes: which IP to obtain, what types, in what jurisdictions, how much, and so on.

However, I think it becomes clear that these decisions are precisely what the business processes of IP ought to support. Therefore, the managing IP is really just whatever the business does to make smart decisions about IP that support the organization’s key objectives and strategies. Said another way, managing IP is all about integratinge the legal processes of IP with your business strategies and objectives.

It turns out that although this is really a very simple concept, it is easier said than done. There are a number of things businesses do when they “manage” something that have historically been foreign to IP. Management requires a lot of visibility and control over the object of management. For instance, managers typically want to know things like: why do we need it, what will it cost, what has it earned (or will it earn), what business objectives does it support, who is using it and how, who else has some, and even, what it is worth? Questions like these are not easily answered by lawyers. They’ll be happy to give you their best guess of course, and they are used to doing it because so few companies can answer these questions for themselves, but it’s really not what they exist to do.

The 2 Kinds of IP Management Software Customers

From my experiences with Knowligent, organizations that are shopping for intellectual property management software generally fall into 2 categories. To determine which they are, when a customer contacts us I will always ask the following question before we even start the conversation: “Does your organization have internal patent attorneys, or do you rely on outside patent counsel?”

The reason I use this question is that almost universally the companies that have in-house patent attorneys are looking for software to support their legal processes. I don’t know exactly why, but it seems that when a company is conducting it’s own patent prosecution, this process seems to take center-stage and command the focus and attention of the organization. Or it may be the other way around. In any case I have found that companies doing their own patenting tend to think of it as primarily a legal process. There is no particular reason why these organizations don’t need to integrate it with their business decisions, but they generally don’t seem to think about it in that way.

In contrast, organizations that contact us who rely on outside patent counsel for their legal processes are almost always looking for software to better manage those processes from a business perspective, and to integrate it into their overall strategies and objectives. Sometimes they are focused on controlling or justifying the cost, and other times they are interested in increasing IP-related revenue, or (rarely) both. Whatever their goals, any organization that is outsourcing patent prosecution simply doesn’t need software for managing the minutia and legal details of IP. If they use outside counsel, it’s a safe bet they are looking for business IP management software.

It has been a consistent trend over the past decade or so for organizations to move the legal processes of patenting out to outside attorneys and agents. This may be because it has become so much more complex to obtain global IP protection, or it may be part of a larger trend toward outsourcing based on efficiencies. Either way, it means that fewer companies need legal IP management software, and more are ready to understand the value of business IP management software.

One note of caution: Most IP management software vendors will describe their offerings as containing both legal and business processes. To an extent this is true. Most IP management software contains some elements of both. However, in essence they all cater to one side or the other. If the offering is designed to support “docketing” (which is a common term for the legal processes), its other functionality will not be oriented to non-lawyers, and the reverse is also true.

In a future post I will present my own survey of the field of IP management software.

I personally think this forces all of us to think in a much more realistic and sophisticated way about what IP value is and how it is defined, created, realized, and transferred. That has to be a good thing.

I have a lot of perspectives on this myself that I will try to articulate in future posts. In particular, I have some interesting and unique data that seems to indicate that market valuations of IP are strongly cyclical – that is, they do go down in recessions. But that is for a future post. For now, I am appreciating the frank and probing conversation started by Sullivan and Kossovsky and carried on by many others. Bravo!

The 11 judge panel was split 9-2 and the most fascinating thing to me were the dissenting opinions which argued that the decision might lead to the disruption businesses or industries that rely on other such patents. I find this argument astonishingly irresponsible. Considering the significant intellectual and economic forces that are currently challenging the very foundations of the existing IP regime, I do not know how one could advance this as a justification for maintaining any kind of patent. In response, I would offer the following four points:

1. Patent decisions always disrupt businesses or plans. To argue that courts should not invalidate patents if it will disrupt businesses or industries would have much farther reaching implications. If this were a vaild standard then I would guess that there would be few invalidations. I don’t think that the degree of disruption should ever be a consideration in deciding the validity of a patent (though it may be an important consideration for the appropriate remedy).

2. The argument that entire industries are based on business method patents is questionable. However, even if it is true it would then only serve to provide further justification for even more careful consideration of the validity of these patents.

3. One of the biggest dangers with business method patents – and it is true in this specific case as well – is that the patent will embody methods or processes that are already widely in use in business. The real potential for trouble is when a business method patent disrupts existing businesses. Invalidating that kind of patent is essential. (Here is another current example.)

4. Finally, business method patents are perhaps the most controversial element of an increasingly controversial patent system. To argue that we need to maintain them primarily because invalidating them would disrupt some businesses essentially justifies the position of the opponents of IP and undermines the logic of a system for protecting intellectual property.

I didn’t exactly know what to expect with this book. I know that I was hoping for a very practical “work book” kind of thing, with specific steps that real companies could take. I also wanted something that a person could start using on their own and then expand into their team or organization. I know that there is a real need for something that could be of value to people at different levels of organizations, and even to different kinds of organizations.

Now I am fully aware that this is a very tall order, and normally such high expectations inevitably lead to disappointment (Star Wars I: The Phantom Menace comes to mind). But I know that Mark and his co-authors know more than probably anybody in the world about how you actually make disruptive innovation work in real-world organizations. So if anyone could really nail it – they could. All of which explains why I began reading this book with an unsettling combination of eager anticipation laced with an ‘expect to be disappointed’ kind of feeling.

It is fair to say that the challenge the authors faced in writing this book was significant. They set out to make disruptive innovation practical. Their objective was to provide something that companies could actually act on. In my mind, there are a number of obstacles that must be overcome to achieve that, but perhaps the greatest is simply making sure that the reader really understands what disruptive innovation is (and isn’t).

I am convinced that Christensen’s ideas of disruptive innovation, while well known, are not widely understood. Part of the difficulty just lies in the words themselves, which I feel have taken on a kind of chameleon-like ability to mean a lot of different things to different people. I have noticed that when you say “disruptive innovation” what a lot of people are really hearing is “radical technological breakthrough”, or “superior technology”, or “direct competitive assault”. While any of these may be true in some cases of disruptive innovation, they are neither necessary nor sufficient. Of course, the best examples of disruptive innovation are none of these things (think: rebar and steel mini-mills).

The authors therefore, attempt to weave the basic concepts of disruptive innovation into the fabric of the book. They are helped-along by a foreword written by Clayton Christensen himself, and their own introduction to the book, which together attempt to be a kind of disruptive innovation refresher. I actually found them to be excellent in how crisply they define the domain. However, I am not sure if, on their own, they are enough for someone that has not been exposed to the ideas of disruptive innovation through Christensen’s other books. On the other hand, if you have time for only one book on the subject, I will argue that it must be this one. The reason is that this book goes the furthest in taking disruptive innovation theory and showing how it can be put into practice.

A common complaint that I have heard about Christensen’s books on disruptive innovation is that they are somewhat academic and theoretical. To be fair, he is an academic and theoretician after all. But he is also very interested in making things work in reality, as evidenced by his work with Innosight and also by his support of this book. What makes me so excited about this book is that it really delivers on the need for an eminently practical guide to the things that every company can do to leverage disruptive innovation. The work is based on the authors’ own experience in trying to implement disruptive concepts in dozens of organizations over the past decade.

Mark co-founded Innosight eight years ago with Clayton Christensen as a way to help companies apply the principles and insights that Christensen’s research had produced and which many had read about in his books including The Innovator’s Dilemma and The Innovator’s Solution. This book is exactly the kind of volume of accumulated learnings that I have been craving.

At its core, it is a methodology for embedding disruptive innovation principles in the culture and activities of an organization. It is broken-down into four parts that take the reader through the process. It is filled with actual examples and case studies of each step and principle with companies and products that are familiar to the reader including: iTunes, Swiffer, Wii, Skype, YouTube, Google Adwords, Metro newspapers, Whitestrips, eBay, and more. These cases were probably the most satisfying part for me, and I would recommend the book for these if nothing else.

Fortunately, there is a lot more on the menu. The book is very readable, moves quickly, and doesn’t ever get bogged-down in theoretical or vague “management speak”. In fact, it is a lot like a workbook and includes a variety of templates and forms that you can copy and use right away to organize your thinking. I found these to be extremely valuable as they provide simple frameworks that allow you to translate what you are learning directly on to your own business model and situation.

In short, I was very satisfied with the book, and am recommending it to everyone. I think this is absolutely the best business book of 2008. And, for what it’s worth, I am currently starting my second read-through as I am anxious to begin following the exercises in the book in detail with my own company. Please add your comments and let me know what you think of the book. I will also be posting some videos of the interesting bits of my interview with Mark Johnson here on the blog so check back often!

This is much more serious statement than many realize. For some time a lot of people have been predicting that the web browser will supplant the traditional Operating System as the layer for which most applications will ultimately be designed. We now see that this vision has the very real potential of becoming reality. Companies such as Salesforce.com and many others have shown that industrial-strength applications can run in web browsers, and Google’s own applications which compete with Microsoft’s Office suite offer a tantalizing taste of what is to come.

But the browser itself has long been the limiting factor. Among the biggest problems with the current crop of browsers are their poor memory and process management. Sophisticated web apps can choke a browser, and the problems get worse when there are multiple windows and tabs open. Microsoft’s Internet Explorer which is used by 70% of the market has been particularly slow to evolve in this dimension and seems to have been spurred-on mostly by the competition – particularly Firefox. There is little doubt that IE wouldn’t have moved very far without the Firefox threat looming.

I think a lot of people have missed the point with Chrome. Google doesn’t really want to compete in the browser market. I believe that their intention is to move browser technology in the direction it wants to go – toward making browsers a more robust application platform. This is the reason that I would argue Chrome will ultimately turn out to be disruptive even if it never consolidates any substantial market share. Many have argued that Chrome’s new features will not be difficult for the market leaders such as IE and Firefox to adopt and that will obviate any demand for Chrome. I think that this is exactly what Google wants. They are lighting a fire under the IE development team. They may or may not want to be the new king of the browser hill – but they certainly want browsers to be capable of delivering the new generation of applications and services that they envision.

That’s why Chrome is not as disruptive of other browsers as it is of traditional software applications like Office and operating systems such as Windows and Macintosh OSX. When the browser becomes the platform of choice for application delivery, we will be able to get our software over the web, and the operating system I use (currently: Macintosh OSX by the way), will recede into the background. In fact, if I am getting my apps over the web, why should I pay a premium for a commercial OS at all when there are free alternatives that support a modern browser just fine. Chrome is disruptive without specifically needing to disrupt any particular product directly. This is because it is going to change the balance of power between traditional computing platforms and the web-based computing juggernaut on the horizon. I think Chrome will prove disruptive whether anyone uses it or not.

Sir Ken Robinson (at TED) makes the point better, and more humorously, than I every could. In this TED 2006 talk, he argues that schools are killing creativity. This has profound implications for innovation and even for national economies. Please to enjoy…

As a recent graduate of a major MBA Program, I can confirm that, not only is IP management not on the menu, it isn’t even understood among the faculty exactly what it is or why it is important to business. Naturally, there is an elective course on business law that contains a short segment (1 day I think) on patents and other IP. One of the innovation courses covered it in half a lecture. I know some schools even bring in a law professor to teach an entire course on IP. But obviously none of these has anything to do with teaching students about the importance of managing IP as a core business process.

I find it difficult to understand how IP management hasn’t become an integral part of every business strategy course, much less all of those courses on innovation and entrepreneurship that are now so popular at business schools and executive education programs. They should all be dealing with IP management as a central issue. In support of this modest proposal, I offer three very simple arguments:

1. IP is now the most valuable business asset class in the world

How is it possible that the world’s most valuable business assets receive virtually no attention in an entire MBA education?

It is astonishing that we are not talking to students about how to manage these assets, especially in light of the many, shall we say, more esoteric management subjects that receive in-depth treatment. I remember one experience in particular that illustrates this…  We were studying a specific drug market in a business economics course and the professor was engaging in his best statistical gymnastics to explain why successive waves of drugs had succeeded each other in dominating the market over a period of 40 years. Afterwards, I approached the professor and explained that specific patents and their invalidations and expirations was actually the true explanation. He was quite surprised at this as he was to learn that patents expire and that this can have a significant market impact.

2. IP is a strategic pillar of most of the companies that business students study

How can we study companies that rely on IP, and whose valuations are based mostly on IP, without ever mentioning IP?

Business students are required to delve into virtually every dark corner of dozens of different companies including their history, balance sheets, management, strategy, and finances. The goal is understanding what makes these companies succeed, fail, or otherwise. The irony is that, even though many or most of these companies have leveraged IP as a key part of their strategy or rely on it for their success, this fact never arises in business cases. It is easy to simply say that managing IP must be contained in Porter’s “five forces” – probably under “barriers to entry”. But, this is hardly the same thing as learning how to manage IP.

3. Managing IP is what’s next

Innovation, technology, and entrepreneurship have been the hot topics at business schools around the world for the past 10 years – minus the management of IP.

It would seem unlikely that the management of IP would not be among the most important subjects to address in an innovation and entrepreneurship curriculum. But, I took every possible course on these at what is arguably the best school in the world for these topics, and I can assure you that it is conspicuous in its absence. In theory at least, the top business schools are at the leading edge of management. These are the platforms on which you can gain a view of the road ahead – to see where business is going next. Unfortunately this is not the case for IP management. No only are they not making it a core part of their curriculum to prepare students to integrate IP management into their strategic and operational thinking, they were not  looking ahead five or ten years ago to the explosion of business investment and interest in IP that we are now experiencing.

Ultimately, the most important obstacle to integrating IP management into business curriculums is finding people who know something about it and can teach it. The worst thing that can happen would be for business schools to start putting IP management in the curriculum now – without any real expertise in the subject. This is of course normally what b-schools do. When entrepreneurship was hot – they added it (but not the people who knew anything about it). The result was that many existing professors suddenly became experts in the subject. The truth is that courses nominally about entrepreneurship are really about raising venture capital and worshiping sexy technology.

What the world’s universities need isn’t classes about managing IP. What is needed most are business professors in every subject who are aware of the importance and role of IP in business. Only then will students be exposed to the reality of IP as a key aspect of management and begin to see how it is integral to strategy, competition, financing, partnerships, employment, innovation and, well… business.

The second piece of innovation news was an announcement by Perth-based venture investors Braveheart of a 15-year commercialization agreement with Aberdeen University. The deal gives Braveheart first refusal rights to IP in certain areas, and appears to offer at least £5m over 5 years, with a dedicated fund thereafter that will include other investors. Braveheart also has similar deals with the University of Strathclyde and the University of Edinburgh. The stated objective is the fill the proverbial “funding gap” and accelerate Scotland’s success in IP commercialization. This kind of long-term partnership between investors and universities seems to be getting more popular.

VCs are Too Big
One problem is that many of today’s funds have simply become too large to invest in innovation. Bets on disruptive ideas or radical new technologies that are unproven tend to be smaller. Remember that being “unproven” is the attribute that both risk and innovation share – by definition. But if you have a billion-dollar fund, it’s impractical to make investments averaging less than $10m each. The sheer number of investments in the portfolio would be overwhelming to try to manage.

Performance
However, there is a more important problem, and that has to do with returns. The fact is that many VC funds of recent vintage did not perform as hoped. Too many investments that were “disruptive”, “radical”, and “game-changing”, simply turned out to be “game-ending” instead. VC’s have largely responded by moving their investments down-stream to the growth phase. Many have commented, and I think it is true, that VC’s have become just another player in the Private Equity world. That means that they invest in growth not innovation.

“De-Risking” Innovation
But the amorphic nature of the word “innovation” never ceases to amaze me, and these PEs in VC clothing continue to wield it liberally in defense of their post-innovation investments. As Weissman insightfully notes, VCs continue to talk big about investing in “innovations” as long as they have been “de-risked”. This simply means that they want to take the “unproven” out of both innovation and risk. Of course, when you do that all that remains is growth. That’s not innovation and it obviously isn’t risk.

The Funding Gap is Real
The interesting thing is that all of this seems to prove that there is a funding gap after all, which Weissman is arguing doesn’t really exist. He says it is merely an “expectations gap”. Although that may be true, that gap exists in a very important place: the minds of the investors. If there is a gap in their expectations, then I would expect that to manifest itself in their investments – which is exactly what a “funding gap” is.

I think what has happened is that the established VCs have sort-of “grown up” with their investments. I look at it as like an elementary school that changes to being a high school and then a university as their students progress, rather than admitting a new crop of kindergarten-ers. Over time, VCs seem to have lost interest in the fresh new faces. Certainly they invest in new companies, but many of them aren’t as “new” as they may appear. They invest in people they know, people that they have invested in before, or people who have a “proven track record of success”. Those are all acceptable things to invest in, but investing in your friends it isn’t the same thing as investing in innovation.

What Is Next?
I think that this has created a situation that is rife for disruption. Investors willing to make smaller investments at earlier stages are likely discover that the higher returns associated with things that are “unproven” are still out there for the taking. In fact, Weissman may be proof of that. To bolster his argument that there is no funding gap, Weissman provides his own company as evidence that VCs still make early stage bets on innovation, while criticizing other VCs for not doing so. So which is it Carl? Have VC’s mostly moved away from risk and innovation, or are they mostly like you? You can’t have it both ways. My own experience is mixed. I have certainly interacted with a lot of VCs that aren’t bashful about their departure from the rough and tumble world of early-stage venturing. But, I have also met several new VCs over the past year that are talking about filling this gap as a core part of their investment strategy. I think that the funding gap is real (as is Weissman’s “expectations gap”), but that innovation is not dead – it’s just hungry.