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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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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?
© R.H.Pitkethly 2004
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
What is Strategic Management?
Organisations have a duty to make the most of the resources under their control
5
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
What is Strategic Management?
© R.H.Pitkethly 2004
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
What is Strategic Management?
© R.H.Pitkethly 2004
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
What is Strategic Management?
10
© R.H.Pitkethly 2004
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
What is Strategic Management?
“The Resource Based View”
12
© R.H.Pitkethly 2004
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
What is Strategic Management?
© R.H.Pitkethly 2004
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?
What is Strategic Management?
Company
14
© R.H.Pitkethly 2004
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
What is Strategic Management?
© R.H.Pitkethly 2004
Competitive Value Map
The key question in most cases is how to maximise value appropriation
What is Strategic Management?
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.
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
IPRs & Strategy - IV
Using IPRs and firm resources to :
• Recognise
• Appropriate
• Control
• Exploit
the IP resources and assets of the company
IPRs & Strategy
© R.H.Pitkethly 2004
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 $100k from US Penicillin Manufacturers in 1945 to fund medical research
• Cephalosporin-C– In 1957, Abraham and Newton isolated cephalosporin-C, the first cephalosporin
antibiotic. This was patented.
– The E P Abraham Research Fund and the Guy Newton Trust, funded by royalties support medical, biological and chemical research in Oxford.
– Cephalosporin patents generated gross revenues of over £150m
If an organisation doesn’t control its IP someone else will
© R.H.Pitkethly 2004
Patent Value Distributions from Interview Data (Scherer 1997)
Pareto Plot of US Patent Values (N=222)(Scherer 1997)
10
100
1000
0.01 0.1 1 10 100 1000
Patent Value ($m)
Little worth Lots - Lots worth little
Valuation
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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….
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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...
© R.H.Pitkethly 2004
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
External IP Management
© R.H.Pitkethly 2004
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
External IP Management
© R.H.Pitkethly 2004
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
External IP Management
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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
© R.H.Pitkethly 2004
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