Genzyme sues Sandoz for infringing Hectorol patent | Reuters

Genzyme sues Sandoz for infringing Hectorol patent | Reuters

Road to Patent Acquisition & Portfolio Enhancement

In this writeup, I tried to discuss the real issues and process of patent led technology acquisitions in various industry verticals. How/Why patent led technology acquisition takes place and what are the factors that are crucial in this process. It is based on my observations, learnings and experience in this field. This discussion is more focused towards Intellectual property aspect of a technology and how patented technology and portfolio is managed.

Introduction:

Management always confronts new challenges. Technology and Patent asset creation and exploitation are key to success to any company operating in any area of technology. Economic historians have emphasized the role of technology and organization in economic development.

Intellectual property is an aspect of property rights which augments the importance of know-how assets. Intellectual property is not just important in the new industries such as microelectronics and biotechnology. It is of importance to more mature & tangible asset based industries such as  petroleum and steel.

Patents are increasingly becoming as commodity which are used, valued,  and exploited as tangible assets. New business models pertaining to IP has changed the way a global company plan its business and technology strategy. Increase threats of Non practicing entities, law suits & increased pressure of acquiring new technology in short time have hugely impacted the company’s technology strategy.

Identification of Need of Patents/technology:

It is obvious that technology is needed to increase operational efficiency, or competitive advantage. 

However, a new kind of model in IP world is changing the the ways how companies look at intangible assets. There have been increased threats by Non - practicing entities (NPEs) which includes small businesses, universities and independent inventors holding patents but do not engage in product sales,  known as patent speculators or “ trolls”.

With this radical shift in IP arena, it has been concluded that building a strong offensive patent position ensures that executive and operational staffs are not disrupted by the tedious intricacies of patent litigation. The portfolio should enable personnel to give their full attention to building valuable products.

In certain cases, If a company wants to use patents primarily to prevent others from marketing competing products or even researching alternatives to current products, they employ a “ blocking ” strategy.

Hence as the first step, following analysis is required for assessing need for patents or technology:

1. Acquire Patents/Technology for increasing operational efficiency

2. Acquire Patents/Technology for new competitive product

3. Acquire Patents/Technology for defensive purposes

4. Acquire Patents/Technology for offensive purposes

5. Acquire Patents/Technology for strategic purposes

In this step it is essential to evaluate current technology and patent portfolio of the company and match the objective with the overall business and technology strategy.

Example: A telecom company wants to acquire quality IP assets in “Cloud computing” area. They look forward to enter in this area as well as wanted to acquire assets for defensive purposes.

Patent/ Technology search:

After assessment of the requirement, variety of sources can be referred for acquisition of patents.

1. Patent Literature

2. Identified Inventors

3. Non core asset of other a company working in other domains

4. Patent Brokers

5. Patent Auctions

6. Online Patent Market (a new system started by Ocean Tomo, similar to stock market)

7. Conferences

Example: The said company has many options for technology search and can use any or multiple, as mentioned above

Technology evaluations: This is one of the most important step in patent and technology management. As in the given example, the company looking to buy patents must ensure the following:

1. Ownership of the patents

2. Global Coverage

3. Validity of the patents

4. Claim strength

5. Dependence on other technology

6. Overall package of the patented technology (what is protected system, method, or use)

7.Overall fit in the portfolio, and pursued technology strategy

8. Licensing executives

Price Fixation and Negotiations:

This is probably the most difficult part of patent acquisition. Valuing a technology or patent is the most crucial step. Till date, there are no established and universally accepted models for valuing IP assets.

A lot is dependent on from whom the company is buying the technology. Inventors usually over expect the value of the patent. A broker might inflate price to earn deep profit. The company has to carefully evaluate and fix the price. Some valuation approach can be used for this purpose.

1. Market based 2. Cost based 3. Income based

One of the somewhat accepted methods of royalty assessment is 25% rule. According to this rule 25% of operating margin is given back to the inventor.

At this company also need to decide whether it wants to purchase the technology as outright sale, licensing it, or lease it.

On the negotiation table, company need to put its tradable and must ensure that clear right is provided to the company. Price, exclusivity, incremental inventions & training are some key issues while negotiating the deal.

In the example, the company may just want to license the technology due to its high cost.

Technology Contract :

After rounds of negotiations, a definitive contract is drafted that incorporate the terms and conditions for final deal. It is very important for the company to consider following points while drafting final agreement:

1. Coverage of patents

2. Territory in which patents are assigned/licensed

3. Exclusivity

4. Language

5. Terms of Payments

6. Confidentiality

7. Ownership of improvements

In this case of Cloud computing, in case company decides to license the patents. It must ensure the above mentioned points in the contract.

Absorption, performance evaluation:

Generally companies operating in highly dynamic technology area such as computing, communication. Technology is absorbed and launched in the market very fast. In most of the cases, alternatives are ready even before the launch of the basic products.

The absorption of the technology is ensured by the companies by some time bundling technical support from the seller. The performance evaluation is generally done by $ earned by deployment of the technology or number of patents acquired/total revenues.

Conclusion:

The patent monetization as an area is still in juvenile phase. Developed economies such as the US has witnessed a sea change in the way patents and technology are exploited in the industry. At many occasions, a patent related dispute almost finished the flourishing company. Hence, companies are proactively seeking to acquire new assets.

It is recommended that companies must investigate its own portfolio while deciding the need of a technology. In couple of occasions, a exchange of technology proved to economical and mutually beneficial.

In high tech areas, a new concept of patent pool is emerging where companies pool their assets and cross license to save time and effort. In the above example, apart from buying assets, company could also seek participation in patent pools.(Some successful patent pools are MPEG-LA which license key patents related to MPEG-2/4)

Technology management and Organisational strategy

This discussion outlines important factors in defining technology strategy and steps to be followed in implementation of defined strategy. A focused approach on IP management is outlined in later sections of this.

Technology in the organization should be managed as an important asset to the company. Some of the important steps in management are

•     Define organizational goal
•     Taking account of what is being used
•     Define a clear ownership (role of CTO)
•     Continual improvement and assessment of technology
•     Adequate measures for protection of data

In the organization, generally these steps can be used for defining its technology strategy

Step1: Define group strategy or analyze business strategy. In this focus should also be on the line of businesses and its strategies. This strategy is generally developed by taking internal as well as external factors into account. This strategy really define course of the business.

Step2: It is also important to freeze strategic goals, operating model and define key business capabilities.

Step 3: In this step an assessment of current State of technology within the organization is done. In this step a thorough assessment of document and current architecture is conducted.

Step 4: In this step organization aims to confirm its strategic technology goals & principles. This involves Gap analysis, requirement analysis, and current trend in the technology.

Step 5: In this step an exhaustive definition of technology capabilities are defined. A detailed technology architecture and roadmap is defined that directly impact on business strategy and help the company achieve its vision.

Step 6: An exhaustive search on new technology is done to identify technology that could potentially fit in the organization and address requirement. In the step determine if technology needs to be developed in house of to be outsourced from somewhere else. In this step identify & agree on key technology programmes. The buy decision should be taken by taking various factors into account such as: Cost, Risk, challenges, and IP protection. Also, it is very important to define financial sources for development of acquisition of the technology. Depending on the risk and type of technology, various innovative methods can be employed to arrange and pay for technology. For example, in pharmaceuticals technology option are very frequently used. Another example could be Milestone payment methods.

Step 7: Follow best practice while taking technology from outside and define and document technology. Also, develop detailed programmes for training and implementation of the technology in the organization.

Step8: Update technology documentation and Measure effectiveness of the new technology.

In the end it is very important in the process of strategy formulation, organizations adopt an unspoken high-level thinking strategy that should guide their approach to strategy formulation. Individuals should inherently follow set logic, and it drives a natural sequence of activities that most organizations follow when attempting to formulate a strategy. This logic is based on natural tendencies and instincts, and is often executed without question. 

References: 

Some thoughts presented here are borrowed from public presentations made by prominent speakers and writers. 

Thanks for overlooking the typos!

Intellectual Property and Knowledge Management

Objective:

In this case study, focus in on how knowledge management can be applied in the area of IP management and promoting innovation in the organization. I am trying to asses this based on my experiences with real world IP projects that aimed to manage patent knowledge and incite innovation in the company.

Background:

According to various business journals, there are 4 important pillars for a business viz. Working Capital, Fixed Assets, Intangible assets (IA) and Intellectual Property. Intangible assets include contracts, know – how, customer lists etc. Intellectual Property includes copyrights, trademarks, patents and industrial designs.

In last three decades world has witnessed an economic inversion in the importance of these four components in the business. It has been empirically proven that during 70’s a company’s 80% value was associated with its tangible assets viz. working capital, fixed assets etc and only 20% in its IA and IP. In present scenario, a company’s 80% value is associated with its IA and IP and only 20% in tangible assets. Businesses across the world are now operating in a knowledge based economy.

For knowledge based companies operating in dynamic space such as Pharma, Telecom need to actively protect their interest by securing patents on innovating technologies. Inventors and start up need to understand the dynamics of IP and finance to effectively plan success of their ventures. Educational institutes also play important role in advancement of technology and need to plan effective strategies to ensure utilization of their resource at full potential while staying economically viable.

Companies such as Xerox, Dell, Dow Chemical and Gillette, effective exploitation of IP rights has moved to the top of the corporate world. IBM, one of the ‘poster boy’ for all the companies aiming to adopt an aggressive IP "milking" strategy. Company saw its annual patent licensing revenue increase from approximately USD 30 million in 1990 to well in excess of USD 1 billion by 2001.

As a consequence of these developments, modern standards of corporate governance require that a company's IP assets are effectively managed and exploited. Effective management of IP and particularly patents requires some form of knowledge management system. The extent and sophistication of the knowledge management tools employed by a business will largely be dictated by the nature of the business. A global technology company will have a greater imperative for sophisticated systems, but even a small start up should adopt some form of knowledge management as IP may be its most significant asset in terms of attracting investment and building a market, and for developing innovation strategy.

Why Knowledge Management and Patents?

Depending on the organization, there could be various objectives for managing patent knowledge or apply patent in knowledge management. However, broadly there could be following objectives:

Innovation Capture: Patent knowledge management systems enable a business to effectively identify and capture innovation. This ensures that innovations are identified from the time they are developed at R&D level and are then tracked through the development cycle to enable informed decisions about patent registration strategy. Knowledge management systems should have appropriate safeguards are in place to maintain confidentiality.

At the less sophisticated end, such systems involve implementing non-technical management processes. These include record keeping and reporting protocols for R&D, appointing IP gatekeepers to manage innovations, work with professional advisers and report to senior management, and maintaining detailed IP registers.

Promotion of Innovation culture and inciting ideas: Patent knowledge management systems can also enable idea generation. Companies developing certain technology/product use patent to track latest innovations happening the space. This helps the researches to not only generate new ideas it also helps them in finding creative solution to real world problems. This can help companies to increase their product line or improve existing.

Patent Portfolio Management: Taking into account ‘What you own’.

Knowledge management systems are critical for companies who manage an existing patent portfolio. These systems could also help in managing annuity deadline as if the patent is a potential 'blockbuster', missing one of these deadlines can mean the loss of substantial revenue. Various companies offers such software to manage patent portfolio etc.

In this it is also important to technically classify patent by technology, business unit, product etc. This can help R&D staff from ‘reinvention of wheel’ and effectively integrate existing knowledge.

Competitive Intelligence: Another useful application of a patent knowledge management system is assessing the scope, extent and direction of competitors' patents. A key aspect of the patent system is that complete details of patents and the innovations they encompass are publicly available. Businesses are increasingly implementing patent mapping strategies and knowledge management systems to gather intelligence on their competitors' technology. This enables a business to track competitors' innovations, anticipate their future direction and in some cases beat them to a solution. Critically, it also enables businesses to "design around" their competitors' patents, thereby avoiding or reducing the risk of costly patent infringement actions.

Source: EPO conference of Patent system

How can this system benefit and give tangible results?

The business world and capital markets have recognized that intangible assets such as IP and in particular patents can have substantial value if they are effectively managed. It is becoming a corporate imperative to efficiently identify, protect and exploit this IP and a range of new technologies and solutions are emerging to provide IP knowledge management systems. A number of businesses ranging from global giants to small technology startups have recently demonstrated that combining an IP strategy with an efficient knowledge management system can produce a powerful competitive advantage and promoting innovation in the organization.

How the system can be implemented? What should be its Architecture?

Source: 129109391053281250-KM_Lec_20Feb2010

The architecture of the system of this system can be similar to the shown above. Since patent are complex to classify and mine. A manual or semi-automated approach can be used as engine to data mining. Various companies (including CPA) offers such services where vendor provides data to the companies who then deploy using web interfaces or as standalone database (excel/access).

It is very important to link this data with market sales of product such that researchers can identify its effort, objective and impact of the patent knowledge management system.

How to measure effectiveness?

So far, there have been no clear evaluation criteria for such system. However, some research institutes propose certain models to evaluate companies strategy on patent management.

Success Stories:

There are various companies who are presently on top in the world and generating high revenue partly due to their state of art patent knowledge management practices.

Some such companies are:
  Qualcomm,   Interdigital,    Dow chemical,  IBM,   BT,   DSM,  P&G, Intel, and many others....

References: 

Some thoughts presented here are borrowed from public presentations made by prominent speakers and writers. 

Thanks for overlooking the typos!
Glad you reached at this point :-)