Last Updated Aug 5, 2009 8:43 PM EDT
Anyone managing a business knows the importance of maximizing
the return on investments in employees, products, and equipment. But it's
easy to overlook an important asset: a company's
intellectual property (IP), or all the intangible knowledge
that makes your company tick. We're not just talking patents and copyrights here; intellectual
assets go well beyond the technology that gets baked into products to include
branding, know-how, trade secrets, and more.
Such IP is obviously valuable: Just ask a Hollywood studio or
Microsoft, which spend enormous sums every year defending multi-billion-dollar
investments in movies and software from piracy. Or consider Xerox, which href="http://www.amazon.com/Fumbling-Future-Invented-Personal-Computer/dp/1583482660">invented the mouse and the graphic
interface at its PARC research site, but failed to patent either and
missed out on untold sums as the PC market exploded. Some studies suggest that
IP accounts for almost 80 percent of the market value of the Standard &
Poor's 500 index.
The rewards for getting a handle
on IP could include new ways of differentiating your outfit from rivals; a
competitive leg up on would-be contenders; a higher market valuation; and
expanded opportunities for investment, partnership, and M&As. Here's how to get started.
Goal: Make IP work for your business
Creating an IP portfolio takes time and involves moving through
a number of defined stages, says Ron Epstein, CEO of IP consultancy and
brokerage iPotential. Most companies have barely even started to organize their
intellectual capital. To move beyond that passive stage, you need to get a
better sense of what IP you already hold and how to make it serve your business
Think as broadly as possible. Should you treat a unique
manufacturing process as a trade secret or a patentable process that could
present an obstacle to competitors or earn you licensing revenue? Can you
assess the value of your brand identity? Have your geniuses in inventory
management figured out a way to shorten delivery times that needs protection? Every
company is different, so make sure you’re not overlooking something
important as you gather your brain trust to take a crack at the following
- What IP do we already hold?
- How much of it is already protected?
- Which specific pieces of IP offer strategic value to the
- What additional IP would be necessary to carry out our strategy?
Make sure every piece of IP you inventory provides clear value
to the company’s strategic goals, as otherwise it isn’t worth
protecting. That said, value can mean a variety of things. Does a piece of IP — typically
a patent, trade secret, or trademark — prevent a competitor from copying
your products or from taking on your identity? Can you tie up a rival by
patenting IP you currently don’t need but that is critical to the
competitor, and so block its efforts to get into your markets? Do you have so
much IP socked away that you could use it as a bargaining chip if you’re
sued for infringement? (You’d be surprised at how many IP lawsuits
get settled this way.) Could you license or donate unused IP to see some sort
of return? Take time to consider all the possibilities.
Types of IP Protection
Since IP generally isn’t tangible, it’s
inherently easy to copy — unless, that is, you’ve taken the
legal steps necessary to protect it. Here’s how:
Patent: Built a better mousetrap? A patent
will help ensure you’re not immediately competing against cheap
knock-offs. You have to disclose the details of your invention, but then you
usually get 20 years to use it exclusively. Patent filings are expensive,
though. A single patent with international coverage can run $100,000 during its
Trademark: Trademarks cover company names,
slogans, logos, and other mechanisms normally associated with corporate
identity and branding. Initial filing in a single country like the U.S. will
probably run well under $2,000, though you’ll need to pay more over
time to keep the trademark in force.
Copyright: Written material, video, audio,
images, and many designs are considered to have inherent copyright, making this
method one of the greatest bargains in IP protection. In the U.S., a copyright
holder has to register a copyright in order to maintain a strong defense; the
cost is generally around $45. Practices vary around the world.
Trade Secret: This is how Coca-Cola
protects its formula. Most countries allow companies to sue if someone steals
their trade secrets, assuming that a firm has made the effort to keep its
information out of the public eye. The big wins here: trade secrets never
expire and you never have to disclose them, unlike a patent.
Remember that the key to protection is early action. If you
don’t file, register, or take other proper legal steps early enough, you
could find yourself walking away empty-handed, since patent and trademark
authorities are often sticky about their deadlines. Pay attention.
Create Your Process
Goal: Catch IP as you create it
Once you’ve got your inventory, you need figure out
how to manage all that existing IP, plus all the innovations your employees are
continually coming up with. Stephen Fox of Foley & Lardner, who used to
head up the legal IP operation at Hewlett-Packard, advises companies not to
spend “endless hours” trying to develop a perfect scheme
right out of the box. Instead, he suggests starting with a relatively simple
system that you can tinker with over time.
Here are the three basic activities your setup needs to cover:
- Get innovations from the innovators.
- Protect the valuable stuff to build your arsenal.
- Make it work for you in any number of ways — perhaps by
inconveniencing your foes or using IP to expand into new markets, much the way
Harley Davidson licensed its logo for use on shirts and jackets.
The first part involves capturing ongoing innovation and figuring
out whether it has any strategic value. To do so, you’ll need to work
both from the bottom up, with your innovators, and top down from an
administrative level to focus efforts on areas strategic to the company. All
this should happen as early as possible as new gadgets and practices are
Someone also has to mind the store, because it’s a
major mistake to leave IP decisions in the hands of engineers and patent
attorneys. Such folks “tend to be very technology focused, sometimes
to the exclusion of the commercial benefit of the technology to the company,”
says Morrison & Foerster partner Alex Chartove. The result, often as
not, is an IP portfolio too heavily focused on nifty technology ideas that may
be of little use to the company.
The other mistake executives make is to put too little emphasis
on IP early in its lifecycle and before infringement happens, says Carlo Van
den Bosch, an IP attorney at Sheppard Mullin. Once someone has stepped on your
IP rights, “it’s very difficult for attorneys to scramble
and get protection into place.” And of course, when lawyers start
scrambling, the bills start mounting.
One important point: You’ll also have to consider strict
legal deadlines in some cases. For example, publicly disclosing an invention
starts a one-year clock on filing a U.S. patent application, after which the
window slams shut. Americans must also register copyright within 90 days of
first publication to ensure that their legal options aren’t
circumscribed in case of infringement.
Methods to Capture IP
Incentives: Few things attract employee
attention as thoroughly as rewards. This works best for patents, because the
value of the IP is high enough to warrant paying out bonuses. But don't limit
your thinking. For example, how much would it be worth to a Disney to get
another Mickey Mouse?
Workshops: Formal protection of IP is a
foreign concept to most people, so don’t expect them to absorb it by
osmosis. Offer training to innovative personnel to explain some of the factors
that make IP valuable and the signs that someone might have created something
of value to the company. Do this periodically as the competitive landscape
Templates: Don’t make people re-create
the wheel. Provide fill-in templates for employees to disclose new developments
to management. That improves the odds that you’ll vacuum up all the
information you need — at least in theory.
Helping Hands: Smart companies such as 3M regularly
send their IP lawyers to work among their innovators. For example, lawyers will
have second offices in labs and spend a day a week there. Such arrangements
make it much easier for attorneys to hear about new developments. And if cranky
scientists don’t want to fill out IP paperwork, the lawyers can sit
down with them and walk them through it. Far better to spend a bit of time than
to lose a lot of value.
Consider the Bigger Picture
Goal: Plan strategically by looking at your IP in
To make IP really effective, you eventually have to look well beyond
your own office park. Experts recommend studying the IP map of an industry,
which illustrates how different markets and products intersect with the IP
holdings of major competitors in those areas. Protected IP acts like a fence
that blocks off one or more avenues. By looking at the lay of the land, you’ll
more easily see which market or product segments are free and clear in an IP
sense, and where you might find strategic paths through other
intellectual-property thickets in order to reach your goals.
By doing so, companies can get a sense of where they can deploy
IP to push rivals out of a market and when they’ll have to settle for
a narrower but still important advantage, says Susan Pan, a partner with IP law
firm Sughrue Mion.
Depending on your industry, finding an absolutely clear path may
be impossible. Various aspects of a cell phone, for instance, may be covered by
literally thousands of patents. In that case, it’s time to cut deals
with the companies holding IP that stands in your way — another good
reason to have a formidable IP portfolio you can deploy in negotiations.
Competitors will be more open to licensing or cross-licensing discussions when
they know they’re vulnerable on other fronts, and that your portfolio
could help shore up their defenses.
The immediate impulse of most companies is to directly protect
their intellectual property. But sometimes the indirect approach can strengthen
an IP portfolio. Here are some areas that can provide additional protection:
- Associated Processes: If you have a patent on a given
invention, you might be able to protect a process that’s key to
manufacturing a gadget or that could enable an important supply chain. Boston
chef Jasper White couldn’t keep other restaurants from offering
lobster, but at his Summer Shack he patented a method of cooking them for New
England clambakes of up to a hundred people.
- Enhancements: Nothing stands still for long. As
companies further develop IP, they can protect intermediary versions or
enhancements, much as Apple refines devices such as the iPhone and gets
additional patent protection.
- Extensions: Similar to enhancements, extensions move
intellectual property into new areas. A new use might provide a new area of
protection. For example, you might add a new product line to a trademark
registration, or modify the story line and dialogue of a movie and turn it into
a script for a Broadway play.
- Strategy Blockade: As you watch competitors and their
activities, you can often get a sense of where they are going. Calculate the
path they need to take and tie up some of their steps so that they can’t
IP Is Important to Investors
Because so much of corporate value is tied up in
intellectual property these days, many companies need IP portfolios for simple
survival. “How we protected our applications and deliverables today
comes up in almost every discussion with an investor,” says David
Gulian, CEO of InfoLogix, Inc.
In early stage companies, getting the proper protection can
be expensive, so you have to choose your actions carefully. “We try
to prioritize what’s key to the business and identify which of those
assets that they’ve been developing that they really need to protect
first,” says Bill Vobach, a partner with IP law firm Townsend and
Townsend and Crew.
You might, for instance, put off registering trademarks or
copyrights and invest in patenting key technologies, then revisit the other
areas when you’re closer to launch. Although that isn’t
always the case: A media company, for instance, will generally emphasize copyrights
and trademarks over patents.
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