From Assets to Profits E-Book

Bruce Berman

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Intellectual Property - General, Law, Accounting & Finance, Management, Licensing, Special Topics
• Sprache: Englisch

Seitenzahl: 462

Veröffentlichungsjahr: 2008

Beschreibung

Edited by IP communications expert Bruce Berman, and with contributions from the top names in IP management, investment and consulting, From Assets to Profits: Competing for IP Value and Return provides a real-world look at patents, copyrights, and trademarks, how intellectual property assets work and the subtle and not-so-subtle ways in which they are used for competitive advantage. Authoritative and insightful, From Assets to Profits reveals the most relevant ways to generate return on innovation, with advice and essential guidance from battle tested IP pros.

Leseprobe

Table of Contents

Title Page

Copyright Page

Also by Bruce Berman

Dedication

Epigraph

Acknowledgements

About the Editor

Introduction

USEFUL CONSEQUENCES

JUNGLE LOGIC

PART 1 - IP Business Models

CHAPTER 1 - Out of Alignment—Getting IP and Business Strategies Back in Synch

THE CEO’S DILEMMA

THE EMERGENCE OF PATENT TROLLS, AND THEIR IMPACT ON IP LICENSING

IN A CHANGING IP AND BUSINESS ENVIRONMENT, WHAT IS THE CORRECT IP STRATEGY?

THE NEED TO TIE INTELLECTUAL PROPERTY STRATEGY TO OVERALL BUSINESS STRATEGY

USING THE COMPANY’S INTELLECTUAL PROPERTY TO IMPROVE BUSINESS PERFORMANCE

NOT MAGIC—JUST HARD WORK

CHAPTER 2 - Evolution of the Technology Firm: IP Rights and the Business of Licensing

INTRODUCTION

THE PAST: THE INTEGRATED INDUSTRIAL ECONOMY

THE PRESENT: THE DISAGGREGATED MODERN ECONOMY

THE FUTURE? THE INTERRELATED ‟OPEN” ECONOMY

CONCLUSION

CHAPTER 3 - Reengineering the IP Ecosystem

STRATEGY BEFORE TACTICS

ECOSYSTEM REENGINEERING—WHAT IS IT?

PROFIT POOL POSITIONING: ‟SHOW ME THE MONEY”

ADVANTAGED NETWORKS: ‟WHO DO I WANT TO PLAY WITH?”

COLLABORATIVE INNOVATION: ‟HOW TO AVOID LOOKING OVER YOUR R&D SHOULDER”

CHAPTER 4 - IP Investing: Catalyst for Return or Recipe for Pain?

AGREEING TO DISAGREE

IP COMES IN MANY SHAPES AND SIZES, SO DOES IP VALUE

FEWER THAN 5% OF PATENTS ARE ASSETS

DIVERSE PATENT HOLDER MOTIVES AND EXPECTATIONS

IP IN CONTEXT: TOWARD A BROADER INTERPRETATION OF ROIP

THE CEO CHALLENGE: RECOGNIZING AND MAXIMIZING IP ASSETS

CHAPTER 5 - Making Sense of Recent Trends, Court Decisions, and Attempts at ...

TOO MUCH LITIGATION, TOO MANY BIG AWARDS

PATENT COMPETITION

MYTHS FOSTERED BY THOSE CLAIMING THE PATENT SYSTEM MUST CHANGE

EMERGING NEW IP-BASED BUSINESS MODELS

RECENT SUPREME COURT DECISIONS’ IMPACT ON BUSINESS

PATENT REFORM LEGISLATION

CONCLUSIONS

PART 2 - I P Performance

CHAPTER 6 - Patent Valuation Contexts: Navigating Murky Waters

SOUNDING THE SHOALS, PLUMBING THE DEPTHS

VALUATION TECHNIQUES

SOURCES OF VALUE

PRACTICAL APPLICATION

CHAPTER 7 - Measuring and Conveying IP Value in the Global Enterprise

INTRODUCTION

STRATEGIC INTENT OF IP—A CHANGING ROLE

STRUCTURING FOR SUCCESS—IT SOUNDS GOOD BUT HOW DO YOU GET EVERYONE ON BOARD?

LEVERAGING IP FOR INCREASED VALUE—BUT WHAT KIND OF VALUE?

IP CASH/VALUE—WHO GETS THE BENEFIT?

REVENUE RECOGNITION—SO YOU GET THE CASH, BUT CAN YOU COUNT IT?

SPECIFIC BUSINESS MODELS—WHAT ARE REASONABLE FINANCIAL GOALS?

TRADEOFFS—SETTING THE GOALS AND MEASURES OF SUCCESS

SUMMARY

CHAPTER 8 - Strategic Patents and Return On Investment

WITH PATENTS, CASH IS NOT NECESSARILY KING

VALUING A PATENT VERSUS VALUING A TECHNOLOGY

STRATEGIC USE OF PATENT PORTFOLIOS

IS R&D SOLELY FOR THE PURPOSE OF GENERATING PATENTS A SUSTAINABLE BUSINESS MODEL?

THINKING STRATEGICALLY ABOUT PATENTS

HOW DOES A FIRM KNOW IF ITS PATENT STRATEGY IS SUCCESSFUL?

CHAPTER 9 - Patent Litigation: The Changing Economics of Risk and Return

THE ONLY CONSTANT IS CHANGE

THE RULES OF THE GAME HAVE CHANGED

THE RULES MAY CHANGE MORE

RISK/REWARD ANALYSIS

PATENT LITIGATION IS MORE EXPENSIVE

RISK/REWARD FROM THE PATENT OWNER’S PERSPECTIVE

RISK/REWARD FROM THE ALLEGED INFRINGER’S PERSPECTIVE

OTHER FACTORS THAT ALL PARTIES NEED TO CONSIDER

A REPORT FROM THE TRENCHES

CONCLUSION

CHAPTER 10 - Making Reputation Pay: Intellectual Assets’ Impact on Shareholder Value

THE REEMERGENCE OF REPUTATION

INTELLECTUAL PROPERTY AS A GLOBAL DIFFERENTIATOR

INTANGIBLY DENOMINATED OBJECTIVES

REFINING TECHNIQUES FOR QUANTIFYING REPUTATION

KEEPING BRAND PROMISES

NEW MEASUREMENT RIGOR

MAKING INFORMED DECISIONS

PART 3 - IP Transactions

CHAPTER 11 - IP Asset Sales, Still A Work in Progress

FROM TECHNOLOGY TRANSFER TO TITLE TRANSFER

A TRADITION OF PATENT LICENSING

EMERGENCE OF NEW IP MARKETPLACES

IP ASSETS: TOMORROW’S CURRENCY

CONCLUSION

CHAPTER 12 - The Evolving Role of IP in M&A: From Deal-Breaker to Deal-Maker

NOT JUST A BUNDLE OF RIGHTS

FIRST GENERATION M&A MINDSET: IP AS A DEAL-BREAKER

SECOND GENERATION M&A MINDSET: SEEING IP AS A DEAL-DRIVER

REMAINING IMPEDIMENTS TO FULLY INTEGRATING IP VALUE ANALYSIS INTO M&A ...

THE ROLE OF THE CIPO IN EARLY-STAGE M&A ACTIVITY

THE ROLE OF THE IP INVESTMENT BANKER IN EXTRACTING MAXIMUM VALUE FROM IP IN M&A TRANSACTIONS

CONCLUSION

CHAPTER 13 - Patents-As-Hedge: Wall Street’s Emerging Monetization Model

VALUING RISK MANAGEMENT

ATTRIBUTES OF PATENTS WALL STREET SEEKS TO PROCURE

INNOVATION FOR CONSORTIA AND JOINT VENTURES IN MARKET STRUCTURES

ROLE OF PATENTS IN MARKET STRUCTURE JOINT VENTURES

PATENT VALUATION AND IMPLICATIONS FOR USE OF PATENTS MOVING FORWARD

CHAPTER 14 - Financing IP Assets—What Lenders are Missing

FINANCIAL CAPITAL AVAILABILITY TO IP HOLDERS

PUTTING THE SUBPRIME CREDIT CRISIS INTO AN IP PERSPECTIVE

IP FINANCE

IP FINANCE LANDSCAPE

CONCLUSION

CHAPTER 15 - Assets, Property, and Capital in a Globalized Intellectual Value Chain

(RE)DEFINING INTELLECTUAL ASSETS, PROPERTY, AND CAPITAL

THE TRANSFORMATION OF INDUSTRY TO KNOWLEDGE-BASED BUSINESS

KNOWLEDGE-BASED BUSINESS MODELS

THE ROAD AHEAD

Index

This book is printed on acid-free paper.

Copyright © 2009 by Bruce M. Berman. All rights reserved.

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Library of Congress Cataloging-in-Publication Data:From assets to profits : competing for IP value & return / edited by Bruce Berman. p. cm. Includes index.

eISBN : 978-0-470-45049-9

1. Intellectual capital—Valuation. 2. Intellectual property. 3. Technological innovations—Economic aspects. 4. Patent licenses. I. Berman, Bruce M. HD53.F75 2009 658.4’038—dc22 2008036348

Also by Bruce Berman

Hidden Value

Profiting from the Intellectual Property Economy

From Ideas to Assets

Investing Wisely in Intellectual Property

Making Innovation Pay

People Who Turn IP into Shareholder Value

For innovation, wherever and however it may appear.

Profits are the lifeblood of enterprise. Don’t let anyone tell you different.

—ANDY GROVE, FORMER CEO AND CHAIRMAN, INTEL

Acknowledgments

A number of dedicated colleagues and friends played a part in From Assets to Profits. They include Angelina Lachhman, Alexandra Angel, and Narriman Subrati, who were instrumental with research and the preparation of the manuscript and exhibits. Others who helped with planning, thought development, or feedback were Fred Bratman, James Haggerty, Professor Paul Janicke of the University of Houston, Ron Laurie, Dan McCurdy, Brenda Pomerance, and Professor Alexander Wurzer. Paul DiGiammarino spent many hours with me discussing and analyzing intellectual asset management approaches, as did members of Anaqua’s user community, notably Amy Achter of Kimberly Clark, Stephen Harpster of Qualcomm, and Marshall Phelps of Microsoft.

My appreciation to Steve Lozan of CitiGroup Smith Barney who showed me that IP-centric investing is something equity investors can and do participate in; David Wanetick of Incremental Advantage; and Bo Heiden and Ulf Petrusson of the Center for Intellectual Property Studies in Gothenburg, Sweden for providing me a platform for thought and discussion. Kudos, too, to Senior Editor Susan McDermott and her crack team of production people, typographers, and designers at John Wiley & Sons. This is our third collaboration, and her attention to detail made a difference on every page. Also instrumental was Joff Wild, editor of Intellectual Asset Management (IAM) magazine, who for the past five years has encouraged my ideas and irreverence in “IP Investor.”

The encouragement of readers of my previous books and IAM columns, and those who have attended my presentations, has meant a great deal, as has the support of my wife Sharon and daughter Jenn. My final and greatest debt of gratitude is to the contributors of From Assets to Profits and their affiliations for their generous time and commitment.

About the Editor

Bruce Berman is CEO of Brody Berman Associates in New York, a communications and management consulting firm that focuses on innovative businesses and intellectual assets. Mr. Berman works closely with IP-based businesses and their advisors, to enhance patent and brand values, win disputes, and facilitate transactions. In addition to this book, Mr. Berman is responsible for Making Innovation Pay—People Who Turn IP into Shareholder Value (John Wiley & Sons, Inc., 2005). He also edited and contributed to From Ideas to Assets—Investing Wisely in Intellectual Property (John Wiley & Sons, Inc., 2002), a widely acclaimed book about the business of IP. His articles, reviews, and book chapters have appeared in many publications, including Nature Biotechnology, The National Law Journal, and The Book of Investing Rules (Financial Times, Prentice Hall, 2003), which The Motley Fool called one of the all-time best investment books.

Mr. Berman has guest-lectured at Columbia University School of Business, and chaired panels and organized IP business conferences for Incremental Advantage, The Wall Street Transcript, the Intellectual Property Owners’ Association, and, in 2005 and 2007, the Center for Intellectual Property Studies (CIP Forum) in Gothenburg, Sweden. He has donated his time and expertise in support of the International Intellectual Property Institute (IIPI), the Brookings Institution, and other leading foundations. Mr. Berman’s column, “IP Investor,” appears regularly in Intellectual Asset Management (IAM) magazine, and he serves on the editorial advisory boards of IAM and Patent, Strategy & Management. He is an honors graduate of The City College of New York (CCNY) and holds a master’s degree from Columbia University.

Introduction

Innovation profoundly affects every business and investor. While most executives believe that new ideas are the currency of choice, few agree on the best ways to profit from them. From Ideas to Profits is a search for how invention rights become business assets and the ways they can be converted into return.

Along the way, contributors to this book confront questions facing managers and businesses who rely on innovation. These questions include:

• When do IP rights like patents become business assets?

• What are the best business models for an IP holder to achieve return or advantage?

• Who in fact, are IP investors and how do they affect innovation?

IP value typically escapes the balance sheet. Revenues from patent licenses are attractive to some because they are easily understood. But royalty generation is one of many ways intellectual assets can be monetized. It is not the definitive way. Many companies under pressure to perform get sucked into the competition to build patent stockpiles and generate fees. Some have called licensing income an “addiction”; a mythological siren song that seduces otherwise intelligent CEOs and financial analysts.

Return on intellectual assets means different things to different IP holders. The dynamics of deploying invention rights have changed dramatically over the past twenty years and there is a burden on patent owners today to extract meaningful returns on high cost of R&D. This is especially true of operating companies that are engaged in selling products as opposed to licensing them. It is difficult to pinpoint the role IP rights play in protecting products’ market share or maintaining their profit margins. It is even more difficult to capture their impact on overall business performance. A company may know that some of its patents vaguely support objectives, but seldom can it measure their impact on profitability, the lifeblood of a company.

USEFUL CONSEQUENCES

Wikipedia defines profit as “the making of gain in business activity for the benefit of the owners of the business.” The word comes from Latin meaning “to make progress” and is defined in two different ways, one for economics and one for accounting. “A key difficulty in measuring either definition of profit,” notes Wikipedia, “is in defining costs.” I would add that another challenge is identifying “advantage.” Another definition of profit from BrainyQuote also is worth considering:

Accession of good; valuable results; useful consequences; benefit; avail; gain; as, an office of profit.

Unfortunately, there currently is no line on a 10-K report called “useful consequences.” Goodwill does even less to explain things. IP value is a relative term that depends on context for meaning. Defining it in terms of royalties generated or damages awards won is too narrow for most IP holders. The patent revenue model is currently a very nasty business, often accompanied by disputes, distraction from day-to-day business and costly litigation. The economics of licensing may work for some IP holders, but not for the majority. For most companies, IP supports the business; for a few, it is the business.

Royalties are typically high margin cash flows that both C-level executives and credit ratings agencies respond to. Strategic patent advantage is vague and abstract. The formidable challenge faced by CEOs and their advisors is how to capture and articulate the meaning of strategic advantage and translate it into the language of income statements and balance sheets. Without a fiscal handle on intellectual assets otherwise ethical fiduciaries run the risk of mismanaging valuable assets, undermining return and facing regulatory scrutiny and shareholder suits. Settling a case for $50 million, as RIM could have in 2002, is with hindsight a better management decision than having to pay $612 million three years later.

Non-practicing entities (NPEs) hold patents but do not engage in product sales. They include small businesses, universities and independent inventors. Some companies dismiss them blanketly as patent speculators or “trolls.” These independent holders have for the past twenty years or so challenged conventional thinking about how IP rights are best deployed. By identifying successful products that infringe patents they have been granted or have acquired, some NPEs can extract lucrative settlements and licensing fees from fearful operating companies. Many believe NPEs have an unfair advantage because they do not sell products and cannot be counter-sued. But not all NPEs are harmful to innovation.

Large portfolio owners employ patents (primarily) for freedom to sell their products. However, about 15% of U.S. patents granted are to independent inventors. Another 15-20%, or so, are awarded to small companies and universities. That means about one third of patents are held by small under-capitalized entities, most without products, seeking a return on their ideas. How a business chooses to use its patents is often determined by its industry, size and willingness to do battle for what is theirs.

Uncertainty about patent validity and value, and the lack of pricing transparency, inhibit IP transactions. They in turn create market inefficiencies that are good for buyers, bad for sellers, and hard on valuations. A surge in patent brokerage activity and public auctions is beginning to create a more efficient market for IP-related deals, including mergers and acquisitions.

JUNGLE LOGIC

Some readers will view From Assets to Profits as a cautionary tale, an ode to strategic IP representing a move back to basics when patent rights were viewed as defensive shields. Others will see it as a call to manage innovation more imaginatively and globally. Still others will conclude that it is a rationale for speculators. The truth is that all are correct. The chapters of FATP are divided between those that advocate strategic use of IP rights and those that regard IP as instruments for direct revenue generation.

In my previous book, Making Innovation Pay, a dozen prominent IP practitioners regarded the importance of patent licensing for maximum return. But a singular focus on direct revenue generation, while lucrative to some, is not appropriate for the majority of patent holders. In FromIdeas to Assets we considered how IP rights are business resources. In From Assets to Profits the focus is on understanding the appropriate monetization strategies for a particular business and group of rights.

It is becoming apparent that innovation exists less within a jungle of competing rights, but in an eco-system that relies on symbiosis as much as natural selection. Some of those operating in this environment like trolls may appear to be less savory characters than others. But like the “good” bacteria that inhabit one’s digestive tract, some hosts serve a necessary purpose. Survival in the IP world is complex and requires competition to assure quality and success. Identifying, nurturing, acquiring, measuring, conveying, and profiting from intellectual assets are in their infancy. As IP management matures it is becoming clearer there are many ways to generate a return, but that some are more difficult to discern than others. The contributors to From Assets to Profits believe this book will help make it less so.

Bruce Berman New York City

PART 1

IP Business Models

CHAPTER 1

Out of Alignment—Getting IP and Business Strategies Back in Synch

BY DAN MCCURDY

PERSPECTIVE The desire to extract decisive returns on innovation is clouding many companies’ judgment. In an environment, where inventions have greater impact and court cases and legislative reform are weakening the value of many patents, confusion reins about what constitutes the proper way for a CEO or board of directors to behave.

Dan McCurdy contends that most business executives are ill-equipped to use patent strategy or understand the IP marketplace. Often, they fail to deploy intellectual assets for their true value. He also believes that IP executives have done a poor job of conveying IP imperatives to senior management, especially those in the C-suite, and to shareholders.

“In virtually all other aspects of business, executives fully grasp the requirement to knit together various elements of business operations into a cohesive whole,” says McCurdy, a licensing executive turned defensive strategist.

“They understand how to use a company’s equity, its cash, real estate, human resources, global reach, supply and distribution chains, marketing prowess, customer relationships, personal relationships, banking relationships, and government relationships to advantage their business. But, curiously, they do not understand—or generally even have much curiosity about—how to use to their advantage perhaps their most valuable corporate asset—their intellectual property.”