Late last month BCG released The Most Innovative Companies (2014): Breaking Through is Hard to Do.  The paper outlined the top 50 innovative companies of this year, and the trends they share.  They report reinforces the five characteristics of strong innovators, one of which is how they leverage IP to exclude and build markets.

Rethinking your Innovation System

Another BCG Perspectives posting, Rethinking Your Innovation System (October 2014), builds on this and discusses how to approach Innovation as a System. The article describes the three major components of the system as “a strategy comprising choices on where and how to create growth and value through innovation; a supporting set of processes for research and product development; and an enabling set of systems, tools, and capabilities. (See the exhibit, ‘World-Class Companies Treat Innovation as a System.’)”  It further goes into detail on how inside this Innovation Strategy there are four areas where value growth and creation can happen – Innovation Types, Innovation Sources, Targeted Domains, and IP Strategy.  To me this demonstrates that to have a replicable innovative product there has to be much more depth in the process behind the ideas as a company grows.

Interestingly it also highlights the tangible number of IP assets have on the companies who develop breakthrough innovations on a consistent basis:

“Companies that manage their IP assets effectively are more successful than their competitors at winning approval for their applications, securing patents more than 60 percent of the time. They control a disproportionate share of the IP within their industries, measured not necessarily by raw numbers of applications and claims but by breadth and depth of coverage.” – BCG, Rethinking Your Innovation System.

Rethinking your IP System

Almost every startup or high growth venture I talk to or read about seems to want to emulate at least one of the companies on this list of 50.  However few of them take the system level approach to growing their innovations, and even less of them have an institutionalized approach to IP strategy.

To move any venture into contention for this “Most Innovative Company” title in the future, they must first decide if they are going to embrace all components of the strategy, and with respect to IP ask the following questions:

• Do we have IP built into our operational and strategic processes?
• Do we let our patent portfolio manage the IP process, or does the IP vision drive the process and portfolio?
• Do we have the right team in place to deliver on the IP we need to own the breakthrough innovation R&D is producing?

Aligning an IP Strategy with a business strategy is inherently not difficult with the right team in place. It is, however, one critical piece consistent in the innovation system the current market leaders all have.  So if you are going to emulate the market leaders and turn your venture into an Innovation Leader, you can’t pick and choose the pieces of the Innovation ecosystem you wish to use – it is all of them, including a defined IP strategy.

With the shifting sands of patent law, building a patent strategy that will stand the test of both time and legal challenges isn’t getting any easier. And for certain industries it is becoming more important.  Reviewing the Thomson Reuters State of Innovation report for 2014 illustrates an uptick for almost every sector in patenting: Telecommunications (33% increase), Automotive (35% increase), Medical Devices (26% increase) and so on.

One of the larger ‘hidden’ growth items that was interesting is the “Data Transmission Networks”, up 27% with almost 56,000 new patents filed in 2013. Behind that title is the infrastructure that keeps our internet rolling, the data centers and the way the information highway supports the digital aspect of most businesses.

The reason why this is an important item to note is that for many businesses looking to grow their technology that have any kind of interaction with data, there is an opportunity (and risk) to ensure that the information infrastructure that supports the technology is protect.  Multiple older and industrialized businesses may believe their technology is bereft of the data infrastructure, but two simple examples show where the data infrastructure can be used:

Oil & Mining: Monitoring of equipment through the cloud – how do you efficiently and cost effectively get data out of a mine or well to enable real-time tracking and predict critical failures in the field?

Transportation & Travel: Monitoring and tracking of transportation trends in real-time, or travel spending trends of passengers – how do you extract, combine, and create models out of the big-data that can result in critical business intelligence to give a competitive edge?

Companies that rapidly develop data and information driven supporting infrastructure, or even client offerings, around old-school fields such as Mining or Transportation are positioning themselves to move their industry into the next digital age. The question for these firms to ask is whey they get there, who will own the IP rights to the way they have evolved – or will they have filed the visionary IP that is needed to be the leader of the new industry?

Without question there is another venture contemplating how to digitize the industrial age, and the way to get the data moved from earth boring machines and into the cloud where it can be analyzed for efficiencies and opportunities.

To address this and create a patent strategy that fits both the industry direction, as well as matches the patent trends, industrial based firms can approach IP with the following actions:

• Creating a patent portfolio profile that covers both existing R&D efforts, but also adds in the breakthrough innovation piece of digital technology.
• Analyzing the patent trends of the current space to identify where gaps and clusters of IP exist, taking into account the trends of patent law as they pertain to the digital and software world.
• Building an IP team that has the technical, legal, and business perspective of both the industrial needs of the present, and the digital needs of tomorrow.

Shifting business that were historically rooted in industrial machinery and equipment is already happening.  Patent filings in the high-tech area around the topic of data and communications have been experiencing rapid growth.  At a certain point in time they will collide, and it will be the venture that understood both of these factors that will end up on top.

I was interviewed last month by Acquisition International, as part of their “Ones to Watch in 2014: IP Experts” panel.  I talked about the impact of IP in acquisitions, using the Smart Grid as an example.

If you are interested you can view the October edition online, or let me know and I can email the pdf copy of the full writeup.

Some excerpts of the interview are below:

IP is becoming a key piece of both growth and acquisition plans.

In the energy sector, specifically the Smart Grid and Smart Home sectors, there is a growing market opportunity that many firms are moving to capitalise on. Within these sectors, IP is becoming a key piece of both growth and acquisition plans. Considering in more detail the smart home sector, as firms like Google and Samsung pursue growth into the sector through acquisition, other new entrants are trying to position themselves to be an alternate platform for the market – which is projected to be at US$100bn by 2018. The position of this market is a list of highly fragmented sub-segments, coupled with no one venture owning a controlling piece of the entire segment, which means key players are looking for acquisition targets to become the market leader.

With IP being critical for this growing market, from the acquisition perspective this results in the need for deep analysis of any venture portfolio to ensure it will result in future value. Analysis of the entire sector trends also indicate which firms are prime targets fo acquisition, and hold key IP assets for this growing future market. For investors the areas of lighting control, intelligent bulbs and consumer smart devices hold the largest market share opportunities. There are other smaller sub-segments that still have no large market leader yet hold tremendous opportunity for investors that have the capital to build market leadership through acquisition.

For the price of one globally filed patent, one can likely file 10 new patents in a single jurisdiction.  For a business with budget constraints, the result is trying to find the balance between a broader portfolio of unique patents or a large global portfolio covering only a few inventions.

For one or two applications this decision may be manageable, but for larger portfolios if they are not managed the foreign-filing costs will quickly outpace new filings and potentially impact the finances for continued new growth.

In a patent strategy, the foreign-filing plan is important to consider from a financial-expenditure and business-use perspective.

Thus, the development of a comprehensive foreign-filing roadmap and decision matrix is recommended to aid in a business unit or corporate filing process. The first key benefit of a foreign-filing roadmap is the ability to project and forecast multi-year financial requirements of nationalization decisions. The second benefit ensures all nationalizations have business use. The result enables optimization and reduction of maintenance costs of the portfolio. The third benefit relates to institutional knowledge as foreign-filing decisions may occur 12, 18, or even 36 months after the original filing date. As team members move on, the institutional or project knowledge over this time period may be impacted, and a foreign-filing decision plan ensures continuity of knowledge.

There are at least three points of view that need to be addressed for each foreign filing or the overall foreign-filing position of the portfolio: market, legal, and business. The end goal is to have a brief business rationale for expansions that can be linked to the company or product sales, realistic legal enforcement capabilities, and the internal business needs.

While corporate environments vary, an example of a foreign filing business rationale provided to support the overall business is as follows:

• Foreign extension recommended as EP only in mature markets of France, Germany, Italy, Spain, Switzerland, and UK.
• Key competitor is based in Switzerland with manufacturing plants in Germany, thus EP filing would cover production of competitive products sold and shipped worldwide.
• Market data indicates emerging markets (India, Brazil, Russia) will be 10+ years before patented technology will be utilized by a large market thus with budget constraints the added costs to support filings in these jurisdictions is not recommended. In addition enforcement in the emerging markets is likely not to occur.

In addition to the foreign filing rationale, legal filing strategies around the nationalization should be discussed with counsel.  For example filing PCT applications and making a decision on specific countries requiring costly translation fees until after the first search report has been issued.

The take-away action plan for IP Managers and executives:

As part of the overall filing strategy, create a replicable and scalable process that considers market opportunities, legal issues, and long-term portfolio direction. To do this, define a comprehensive foreign-filing roadmap and nationalization decision matrix:

• Have a process to generate the market opportunity match, that is built off the existing company’s marketing and sales materials.
• Have counsel create guidelines for foreign jurisdictions important to the company, and a way to compare the patents to the enforcement ability and other legal issues that need considered.
• Have management generate a ‘patent portfolio profile’ that new patents for foreign extension can be compared to and prioritized based on budget, KPI’s, and other company criteria.

There is always more to solving the problem than we think, and the human resource aspect of intellectual property strategy is a critical component of building a strategy that companies can’t afford to ignore.

If you have worked with me before, or asked me high level advice about your patent situation, you will recognize the following phrase: “It depends.”

An IP strategy specific to a company is not something that can be digested into an easy soundbite without knowing all the details and the business environment. More specifically, when asked about the best strategy to pursue there is so many variables that the reply – like any good strategy – needs to take into account the environment it is both build it, and created to exist in. This translates me repositioning the question I am asked “Can I patent this?” to “Should you patent that, what is the scope of the business you need use the IP for, and will your current scope help you?” Is the patent part of a defensive strategy, or licensing program you are hoping to build? Are you key competitors already in this technology space, or is it a blue-ocean you are planning for?” There is 100 more questions I could ask a venture that will help narrow in on the best strategy for that venture based on the business environment they are playing in.

However, there is one consistent piece of an IP strategy that transcends all types of ventures, and growth plans they have: People. And it is not enough to have “a team member who knows about IP” as part of your strategy to have IP as a competitive advantage in your venture.

Startups and smaller ventures need to have staff that are masters of many topics, but in reality for IP it is a strategic skill set that is often not available internally. This translates into the need to have outside counsel that is not only versed in the legal side of IP, and also with business experience in the industry to help guide the work being done. As a cautionary note, simply outsourcing IP to an attorney with the hope that they will guide the strategy is often a plan I hear startups talk about, but in practice does not always generate the portfolios needed for the future venture. For other more savvy startups, they opt to have a strong advisory board or board member that has the background to keep the venture and external counsel on track. Larger firms need to realize their end goals of having an internal IP team, and see if the core competencies required exist in the team or if it should be outsourced. For ventures with an existing team who have been building a patent portfolio, the question I would ask is as follows: “Is the team that build it also versed in setting the appropriate business strategy? Or are they just a team build to execute?”. There are larger ventures who have been staffed with an IP team before the vision is set, so while execution of a program happens it may not be execution of the best program for the venture.

Jim Collins, author of Good to Great, talks about the “First Who, Then What”, which elaborates on how the right people can be the most important asset, but the destination of a successful venture is defined by the WHO you have on board, leading to WHAT they will accomplish. Building and executing an IP program or strategy is no different – you have to have the right people. If you have stacked your venture with skills in executing and prosecuting IP, your ultimate portfolio will largely be defined by patents that were generated and prosecuted efficiently, yet the ultimate scope and view may have no defined strategic position.

The key core competency of a patent team is not just legal. It is the ability to apply the combination of legal, business, and technical skills to the venture from both the strategic and tactical perspective.

For smaller ventures I would ask: Do you have a mentor team, advisory board, or board member that has the skills to help strategically position your IP? While these individuals may not do the work they can steer smaller groups with restricted budgets to spend their efforts and filings costs in the best areas. Do you have the WHO to get you where you need to be in order to have a protected competitive advantage in the market?

For medium and growing ventures I would ask: Do you have a team built to execute, and are you actively making time with your executive teams to ensure you are providing them guidance? Measuring a team on patent volume as the metric of progress needs to be supported by a measure of quality and scope as well.

For larger ventures with established teams I would ask: Do you have the leadership in both the businesses and IP groups to set the strategy that needs executed? Is the IP position part of the strategic planning cycle, and are KPIs in place to drive the right behavior for the IP team?

In summary, a tangible take-away for ventures is to really think about the HR aspect of your patent plans. Having the right people to define the strategic view on your team will be a key success factor in your final portfolio position, regardless of venture size.