Top 5 IP challenges – and solutions – for all executives in 2015 (Part 2)

Last post I outlined the top 5 IP challenges all startups, investors, executives, and business leaders – not just IP focused leaders – will have in 2015.  These challenges directly impact R&D departments, legal groups, innovation teams, and even finance departments.

The challenges revolve around the need for an evolving IP leadership. Why? The status quo of simple IP-maintenance will not properly address how global competition and accelerated technology development timelines have fundamentally changed how successful businesses need managed.

To address this, there are three key actions that corporate leadership can undertake to solve the challenges:

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Top 5 IP challenges all executives will face in 2015 (Part 1)

As much as the IP leaders wish IP to be top-of-mind in every business and investor, in reality this is not always the case.  In an ever more globalised environment, there are seemingly more immediate needs to speed up R&D execution, lower local manufacturing costs to compete globally, and constant pressures to attract more customers or clients.  In short, global competition and accelerated technology development timeline has fundamentally changed how successful businesses need managed.

However as this has happened, IP has become the common pillar of success for key market leaders. This poses the question: What are market leaders doing different than their competitors? How are all levels of their management bringing IP discussions to the C-Suite?

What are the key business oriented challenges that any manager or executive should be considering in 2015?

Based on patent and market changes, below are the top 5 challenges all executives or company leaders will face in 2015 – these challenges directly impact R&D departments, legal groups, innovation teams, and even finance departments.

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3 Lessons on How and Why High-Growth Markets Need an Evolution in IP Strategies (Part One)

Earlier today Archimedes IP  published one of my articles on IP Strategies for high-growth markets, which I based around Nest Labs as a case study.

Why is this topic important to high-growth technology ventures?  Because Nest Labs’s demonstrates why active attention and refinement of an IP strategy within high-growth markets is critical: Within the span of four short years a new billion dollar market was born; litigation by a market incumbent was launched to block the first movers from Nest; key IP acquisition and defensive licensing deals were arranged, and fast-followers launched competing products.  From the IP-lifecycle perspective, four years is an incredibly short time, often not enough to generate legally enforceable IP protection. As a result even a delay by a few months of IP planning and execution will increase the risk and challenges of an entrant in this new market.

Below is a piece of the introduction, with the full article posted on the Archimedes IP Forum Blog. My thanks to Tom Ewing for both editing my draft, and contributing to the final copy.

Why High Growth Markets need an Evolution in IP Strategies (Part 1):

A successful corporate intellectual property (IP) strategy must account for the pace, style and strategy of key competitors – it is simply not enough to plan and execute an IP strategy based solely on the direction of your business.

This fact of life is especially true for companies operating in high-growth markets where it is even more critical that an evolution and refinement of strategy needs to happen at least on an annual basis if not quarterly or even monthly.

Nest Labs offers a valuable case study on both how and why a strategic IP position needs to shift as competitor’s tactics are unveiled.  From Nest’s experiences, we find three fundamental lessons in developing a successful corporate IP strategy:

  1. IP is the long game, so keep strategic options open.
  2. Buy vs. Build needs to be in the business planning cycle
  3. Business Strategy must be integrated with IP Strategy

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Why IP Due Diligence may not really about validating your investment’s patents

10 years ago is was about just having patents. 5 years ago it was about having a high volume of patents. Today it is about having quality patents.

The impact of this re-balancing for investors, either venture capitalists buying into companies with portfolios or institutional investors adding IP licensing companies to their portfolios, require a shift in the way traditional due diligence is both approached and reviewed.  The legal side of patent or trademark due diligence is still critical, however the investors that layer a business oriented approach to more deeply understand the full opportunity will be poised for greater success.

As an investor, one can break the business-IP due diligence reviews into at least 3 discrete points for review:

1) A strong portfolio alignment with business opportunities:

As a sign of alignment, the IP due diligence should highlight what markets and segments the patents cover, as well as the type of IP opportunities they support.  To accomplish this it requires a technical and business expert review of the portfolio against the business use will give direction on where value (or gaps) are identified.

From a due diligence perspective one measure of a ‘quality’ portfolio against opportunities is in considering the use case the business – defensive, standard essential, commercially essential, licensing grade, litigation-ready, etc.  Further, for operating firms, this needs to take into account not only the current business environment, but the future business opportunities of the venture.  Having a partial IP position as a company moves into the space or segment may prove to be immensely valuable as the venture (and investment) matures.

2) Tomorrow’s geographical coverage:

With an average protection of 20 years for many patents, there is ample time for emerging markets to catchup with iterations of technology from developing markets.

As an example, even 10 years ago the volume and growth rate of companies filing patents in china were small as compared to todays rates, which WIPO reported as high as 35% increase in growth in past years. Even now the high costs to expand all patents into multiple geographies it was only the large multinationals that kept their coverage in China. However IAM Magazine recently reported how a focus on IP in China has been key in solidifying high value technology transfer deals between companies like Xiaomi and Leadcore.

From a due diligence perspective, geographically relevant filings needed to reviewed to understand the best business scenario of the investment.

3) Mind the gaps:

A strategic portfolio analysis, for either due diligence or other investment purposes, needs to highlight the business value of the portfolio.  Moreso for investors looking to purchase an operating company with IP rights, an additional an in-depth analysis needs to also highlight the portfolio gaps.

Understanding the limitations will allow the investor to to both make a more informed valuation or purchase price. For more hands-on investors it gives an indicator where the management team needs to add to their position, or where the board needs to continue to steer the investment towards.

Summary:

In the past such an approach was not needed – mere presence of IP (or any volume of IP for that matter) was all that mattered. Now, with the realistic shift in the PAE or NPE IP savvy market towards measuring patent portfolio quality before purchasing, investors must play catchup as the new benchmark becomes the standard.

As a result, for investors being asked to offering a premium for existing IP, a business focused due diligence analysis needs to be done along side the traditional legal review and validation.

It is not about validating the patents in a traditional sense of validity and infringement, it is about validating the business position the portfolio will support (or not support).  It is the difference between having IP as an add-on to the purchase, and a pillar that the future valuation and revenue will be built on.

IP Dealmakers: The 3 Key Take-aways for IP Licensing Deals

The only constant is change.

Spending 2 days with the IP and Investment leaders in NYC this week at the IP Dealmakers Forum, highlighted for me 3 key take-aways of IP licensing in today’s business environment: Flexibility, Opportunity, Success.

#1) Flexibility
A consistent theme throughout the time was the discussion of licensing flexibility as a top priority.  With the investment firms becoming more sophisticated in reviewing deals, combined with the lowering volume of both quality deal flow and the financial structure, dealmakers are needing to be more flexible in  how the opportunity is structured for financial benefits.  In short, there may be less cash up front for now but for the quality patents it still gives the opportunity for the same revenue at the back-end.

Flexibility is driven in part by the legal climate.  A short, yet pointed discussion, happened on how recent patent law changes have impacted how deals are being executed.  The discussion around law changes highlighted the level of flexibility in the room, with most speakers simply noting the recent law changes and then moving swiftly to how their processes and procedures have changed to adapt to the new rules. It is this swift acceptance of the legal changes from a business view that breaks the top dealmakers apart from the rest.

 

 

 

#2) Opportunities In both data and beautiful graphs (thank you David Morland of 3LP Consulting), we saw that not only is there new opportunities but a growing market cap that they support. New entrants into the ecosystem of publicly traded IP companies show at least a $1.4B increase in market cap recently, a marker of continued volume on the private side. While the move to lower deal cash is happening, the cross-border volume is growing.

Overall there was a consensus that that it is a buyers market, and for those IP Investment firms with access to capital, it is a good time to invest (and to do so without pure reliance on Excel spreadsheets). And the investment is not limited to the traditional geographies or sectors yet a large point of discussion did seem to always circulate back to topics like Automotive, Medical, Agriculture, Industrial, and other non-software related sectors.

 

One challenge brought up on the opportunity side is for investors to have more educated IP based analysis to interpret the information, and translate it into business impacts.

#3) Success Like any business, the stars will emerge to be successful, but is is the A-player teams that will be leading the charge.

 

There is no denying that as deals are forged, the licensing path of the successful is supported by litigation at some point. Certain “fruit name companies in California” seem to be leading the charge of having a standard process of litigate over license, one patent at a time. However for those with the capital and team to support the endeavour, there will be success in the long term.

 

Wrapup: With the constant of industry change, the entities having breakthrough licensing programs are the result of flexibility and opportunity identification: The dealmakers in the IP area are several steps ahead of the reset of the VC, Instustional Investors, and Blue Chip markets. The IP marketplace is growing, and it is up to those that capitalize on the market and legal trends to land in the ‘success’ category.

 

Post-script: If you addend the event, you will see I didn’t cover the keynote by Jay Walker. The only thing I didn’t like about the keynote is that it was so good, I didn’t even have time to take notes on it, and I wasn’t alone!