Most blogs and websites have short posts, enough for a soundbite, but not enough to sustain any depth of conversation. However there are a few exceptions.  This week Jackie Hutter at IP Maximizer Asset Blog posted a good article entitled “Do Startups Need Patents? Rigorous Study Presents Real Data on Startup Company Patenting Behavior“.  I am not going to summarize it because it would encourage you to go read her post in its entirety. It has some great soundbites, but also some in-depth discussion and commentary to help startups understand why patents should be filed.

What is most interesting is her comments are supported by a data driven study by author Stuart Graham, a Georgia Tech Business School professor who from 2010-2013 served as Chief Economist of the US Patent Office, entitled “High Technology Entrepreneurs and the Patent System of the 2008 Berkeley Patent Survey” (published in the Berkeley Technology Law Journal and available in this link).  Graham’s article is quite long, but also worth a review.

As a service provider (consultant, lawyer, patent agent, mentors, startup advisers, etc.) I always find it somewhat egotistical for the profession to always be proclaiming “Everyone needs patents!” without giving a valid business reason why, and more pointedly without giving a business reason that is based on more than personal experience or a few selected tidbits of A little startup beats a huge multinational with a patent story we see summarized in the news. As such I find empirical data to backup logic is always beneficial.

This type of post and data it links to is the type of information business and IP advisers can use for their clients on the importance of IP in their business strategies. It is also beneficial for resource and cash strapped startups to see why it gives a good reason to prioritize IP as a fundamental piece of the strategy from the beginning and not have it as a ‘checkbox’ to say it was done.

In 2005 I did a thesis-option for my Masters in the area of IP Strategy.  I was going to submit it for publication back then, but graduation + the general busyness of life happened and it was put on the “probably will not get done” list.  However, my research was driven in part by business reasons -I really wanted to understand patenting differences between large & small firms – and more importantly how can a small firm with relatively smaller resources get “more for their money” by having more valuable patents. Those in the patent field realize that small firms have less experience than large firms, as measured by filed applications – but I wondered was it by enough to statistically compare the two groups?

The ultimate driver was to help small and medium size firms, as well as smaller groups in a large multi-national, approach IP from a strategic view and generate a higher volume of “valuable” patents.  There will be a volume of discussion on what “value” is defined at but for the purposes of this paper I used citations as a proxy for value. While the dataset is quite old and could be updated to see if the conclusion changes, I suggest the general trends are probably still valid.

A PDF of the paper is available here, and the abstract and some take-away points are listed below.

Abstract:
The economic rents associated with patent portfolios are highly skewed with only a small portion having value. This leads researchers and industry to ask what early strategic patenting decisions around the patent itself will impact the future value of the patent, specifically within the context of small firms. To address this question the paper modeled these ex-ante strategic patenting decisions by using a common measurement of forward citations as a proxy for patent value. Six indicators were modeled with two of them, provisional basis and priority claim, not explicitly investigated in previous research.

A focus on the small firm as well as the two strategic patent decision indicators provisional basis and priority claim are areas that have not been explicitly investigated in previous research.

A stronger relationship was found for small firms with indicators of breadth and priority claims, as compared to a weaker relationship of only claim counts for large firms. Research also indicated that from a small firm management perspective the most potential valuable patent is one that covers a broad scope of technology is a new filing and does not claim priority to other applications.

Take Away Points (or what Academia confirms with reality):

How can I apply this to my firm? Small firms can benefit from this research by seeking to increase the value of their future patent portfolio by filing new patents that do not claim priority to other applications, yet cover a broad scope of technology.

How should I change my filing strategy? Dont’ just churn them out. Simply having a patenting strategy that is focused on creating large patent portfolio counts, or having a standard procedure to patent all innovations across a pre-defined batch of jurisdictions will not necessarily lead to a portfolio with a high volume of valuable patents. They must consider each new innovation separately and make filing decisions accordingly and not based on pre-determined business decision procedures.

Can small firms really make a difference by patenting things? Does their lack of patenting experience matter? Although small firms have less patenting experience than large firms as seen by their experience distribution plots, surprisingly the firms patenting experience was not a significant predictor in the model. This suggests to industry that small firms with little or no patenting experience still have potential to create valuable patent portfolios from inception.

If you informed any R&D executive that only 5% of their efforts may result in some value for their products, and any value they did create within that 5% would be worth the entire value of the company, there would be quite a few nervous R&D executives waiting to explain to the CTO why they are wasting so much of the company resources to generate so little.

Now, taking the same stance as patents, why is a 5% value acceptable? Is it lack of business drive to grow relevant IP, inability to execute on generating quality patents, or just acceptance of the “status-quo game of IP”?

Research (and experience) validates that generally about 5% of a patent portfolio volume holds 95% or more of the value for a business.   I would propose that the strategy of randomly filing patents based on generated ideas or shipped products actually generates even less value than 5%.

Here are some back of the envelope estimates as to why a random strategy will not generate any value, arguably close to 5%:

Taking some rough numbers and assume only 20% of a mature R&D organization’s ideas get turned into final products, and of that estimate generously that 50% would be protected by IP, that gives:

20% x 50% = 10% patent coverage of all possible generated ideas.

Now, again consider that only 5% of a portfolio has value, that gives:

10% x 5% = 0.5% patent coverage of all possible ideas generated by the venture have value.

It is fairly rough, and discounts a large number of variables, but is a simple way to illustrate that while a venture may believe they have 50% of their products protect by patents, in reality they only have about 0.5% of all possible ideas they generated protected by patents. Playing with the rough numbers will change the results slightly, but still give the same order of magnitude to consider.   Next, and more importantly to consider, who is to say along the R&D process that out of all the ideas that were dropped, there did not exist most of the “valuable 5%” patents?

A good patent strategy still needs to have real market applicable patents that can be used to at least defend, license, or enforce.

This now begs the questions: Who in your venture is taking the cancelled product ideas, which may be dropped due to financial or resource issues, but have the potential to be future game changers? How early in the patent process is mining (and prosecution) happening? Fundamentally, where does IP execution happen in the business? If it starts – and finishes – at a product release, I would expect to be called into the CTO’s office and explain why I was wasting so much of the company resources to generate so little potential returns with IP.

Execution of a patent strategy to generate a high number of valuable patents has to have many points to mine ideas in the Innovation, R&D, and Product Release stages. With this type of model it affords the IP Manager, Legal, and CTO to be in a better position to ensure they can chose the best innovations to protect.

When I began my venture into the world that is now known as IAM, there was little mention of patents in the boardroom, the phrase “Patent Troll” had yet to be coined, and business model of Intellectual Ventures was merely a concept in Nathan Myhrvold’s mind.

Almost 15 years ago I was tasked with building a patent portfolio for a SME, so I set out to see how this could be done – and I found out that you cannot learn about Patent Strategy from a single book… and to complicate matters, there wasn’t very many books to even chose from. There were no “IP Consultants”, few local mentors that knew about IP, and even less accessible industry knowledge to lean on.  For literature in this area the closest book about planning was Rembrandts in the Attic, which was more a call to arms for CEO’s about buried IP potential than a guide on how to actually deal with IP, followed by a wide gap, and finally more verbose literature around licensing structure and joint ventures.  But this wide gap was where I set out to immerse myself in – to find out the HOW of IP – HOW to create a portfolio of value to setup a license program; HOW to be a IP leader in your industry; HOW to generate relevant patents that can be actually used in the business, without bankrupting a small R&D budget. Of course in the 1990’s the model IBM portfolio was often a goal but it is simple economics that dictates SME’s can’t file 5,000 patents per year, and cover enough technology to generate $1B in license fees.  The SME’s have to start somewhere, and this is the HOW that I endeavored to find.

Along the way I was shaped by a few dozen books, took a detour into Academia for my own research and wrote a thesis on Business Patent Filing Strategies for Startups and SME’s for my MBA (available upon request!), and then expanded my knowledge base to include the link of Innovation-to-IP. In practice innovation and IP truly go hand-in-hand because while the first endeavors to create the next unique technology, the latter focuses on ensuring protection and rents be generated from the work.

Looking back I realize that to really understand an be in a position to talk about Patent Strategy, one has to have a fundamental grasp of how a firm’s potential IP interacts with the business and the market,  and then be able to move from discussion to execution of a patent portfolio that sits at this legal/market/technical intersection.

“IP professionals cannot explain how IP creates value they do not deserve to be in the boardroom” – Ralph Eckardt  #IPBC13

For me this means understanding the entire lifecycle of  IP: from (Innovation), how IP is managed (Mechanics of Patents & Licensing), where the business needs positioned (Approaching IP from a Business View), and where your company is growing (Thought Leadership & Business).  Merely reading a “Patent Strategy” book will not help one create and develop a quality patent portfolio, because it needs created in the specific market and company environment.

Below is the top 50 books I’ve read over the years, but if I could offer a shortlist to start based on the amount of marks & notes I have on them, it would be as follows:

1)  Edison in the Boardroom: How Leading Companies Realize Value from Their Intellectual Assets (Davis and Harrison).  This has been my ‘go-to’ book for over 10 years, mostly because it gives a good business primer on IP and follows with tangible steps and goals for a business to focus on. For training new business/IP team members or running an IP centric workshop it gives some common ground for terminology and quickly aligns the participants to a similar reference point. More importantly it gives the reader some references and structure to talk about the need for IP Management in the boardroom.

2)  The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business (Christensen).
How do you know what disruptive innovation is and the potential it has, if you have never seen it before? How will you change your processes to recognize these as core patentable topics for your portfolio? More importantly, are you building your patent portfolio around a disruptive (or unique) technology early enough? Understanding how disruptive innovation works is a benefit to those that need to mine and identify IP trends in their business and competitors.

3)  Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property (Blaxill & Eckardt).  The authors lay out a substantive case for the importance of IP, as well as lay out that businesses in the post-industrial and knowledge based economy must look to IP as a sustainable advantage for longevity.  This book, combined with some of the tools in Edison, give the reasoning to talk IP in the boardroom with executives as well as initial toolkit to jumpstart a patent program.

The reading list below is broken down into 6 main sections. I wouldn’t say every book is essential or even more useful than not, however the totality of the knowledge in them is what brings the understanding to the reader.

1) On approaching IP from a business view, and being able to talk about IP in the boardroom:

• Intellectual Capital (Stewart)
• Edison in the Boardroom: How Leading Companies Realize Value from Their Intellectual Assets (Davis and Harrison)
• Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property (Blaxill & Eckardt)
• Making Innovation Pay: People Who Turn IP Into Shareholder Value  (Berman)
• Patent Strategy for Researchers and Research Managers (Knight)
• Technology Licensing: Corporate Strategies for Maximizing Value (Parr & Sullivan)
• Harvesting Intangible Assets: Uncover Hidden Revenue in Your Company’s Intellectual Property (Sherman)
• Driving Innovation: Intellectual Property Strategies for a Dynamic World (Gollin)
• Essentials of Intellectual Property: Law, Economics, and Strategy (Poltorak and Lerner)
• Intellectual Property Strategy (Palfrey)
• Strategic Management of Intellectual Capital (Klein)
• Patents for Business. The Managers Guide to Scope, Strategy and Due Diligence (Heines)
• Einstein in the Boardroom: Moving Beyond Intellectual Capital to I-Stuff (Harrison and Sullivan)
• The Business of Intellectual Property (Area and Carreras)

 2)  On the Mechanics of Patents & Licensing:

• Patent Valuation – Improving Decision Making through Analytics (Murtphy, Orcutt, Remus).
• Intellectual Property: Valuation, Exploitation, and Infringement Damages (Smith and Parr)
• A Handbook of Intellectual Property Management (Jolly)
• Developing a Patent Strategy: Infringement, Litigation, and Protection for Businesses (Aspatore Books)
• Patent Valuation: Improving Decision Making through Analysis (Murphy, et al)
• Patent Searching: Tools & Techniques (Hunt, Nguyen, Rodgers)
• Intellectual Property. Licensing and Joint Venture Profit Strategies (Smith and Parr)
• Technology Management. Developing and Implementing Effective Licensing Programs (Megantz)
• Value Driven Intellectual Capital. How to Convert Intangible Corporate Assets into Market Value (Sullivan)
• Patent Strategy. The Manager’s Guide to Profiting from Patent Portfolios (Miele)
• What’s the Big Idea? Creating and Capitalizing on the Best Management Thinking (Davenport, Prusak, and Wilson)
• From Ideas to Assets: Investing Wisely in Intellectual Property (Berman)
• Virtual Monopoly (Pike)

3) On Innovation, and ensuring your patented technology flows from a solid foundation:

• Change by Design (Brown)
• Open Business Models (Chesbrough)
• The New Age of Innovation (Prahalad and Krishnan)
• Stoking your Innovation Bonfire (Kelley)
• Innovation and Incentives (Scotchmer)
• Innovation and Its Discontents (Jaffe and Lerner)
• Payback, Reaping the Rewards of Innovation (Andrew and Sirkin)
• Where Good Ideas Come From. The Natural History of Innovation (Johnson)
• The Other Side of Innovation, Solving the Execution Challenge (Govindarajan and Trimble)
• How Breakthroughs Happen. The surprising Truth about how companies Innovate.  (Hargadon)
• Design Thinking: Integrating Innovation, Customer Experience, and Brand Value (Lockwood)
• Open Innovation: The New Imperative for Creating And Profiting from Technology (Chesbrough)
• The 10 Faces of Innovation: IDEO’s Strategies for Defeating the Devil’s Advocate and Driving Creativity Throughout Your Organization (Kelly)

4) On Thought Leadership & Business:

• The Long Tail (Anderson) Ask – do I need IP on the technology in front of me, or scoped to include the long tail?
• The Opposable Mind. How Successful Leaders Win Through Integrative Thinking (Martin)
• The Design of Business: Why Design Thinking is the Next Competitive Advantage (Martin)
• The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business (Christensen)
• Blue Ocean Strategy (Kim). Ask – are you patenting in a red or blue ocean?

5) On Patents in Academia:

• Economic & Management Perspectives on Intellectual Property Rights (Peeters, de la Potterie, ed)
• Economics, Law and Intellectual Property. Seeking Strategies for Research and Teaching in a Developing Field (Grandstrand, ed.)
• The Economics and Management of Intellectual Property. Towards Intellectual Capitalism (Grandstrand, ed.)
• The Strategic Management of Intellectual Capital and Organizational Knowledge (Choo and Bontis, ed.)
• I also have a weekly Google Scholar search on a few topics, such as Patent Strategy, which bring up the occasional paper that is interesting.

6) I have the following books on my “to read” list, that look fairly interesting:

• Valuation and Dealmaking of Technology-Based Intellectual Property: Principles, Methods and Tools (Razgitas).  An IP book that receives a review of 5/5 stars on Amazon from Gordon V. Smith deserves a look at.
• True Patent Value: Defining Quality in Patents and Patent Portfolios (Goldstein).  I’m partial to any author that talks about the need for patent quality in a portfolio.
• Not So Obvious: An Introduction to Patent Law and Strategy (Schox).  Jeffrey Schox is one of the few IP lawyers that I see teaching startups how to approach building their portfolio strategically.  Although his book looks like a legal patent primer for businesses or inventors, I am hoping there is the business application view to it that I have seen him speak about before. He currently has a practice and also teaches “Patent Law and Strategy for Innovators and Entrepreneurs” at Stanford University
• Inside the Patent Factory (O’Connell). Background as well as operational points on setting up a process and culture to generate IP – Already on my “ordered” list I am looking forward to reading it by the end of the year.

My reading list is ever expanding. If you have a book I missed and feel it will contribute, don’t hesitate to add it in.