How can ventures in Canada, without licence expertise or experience, actually benefit from the IP they have acquired over time?
This week the DEEP Center in Canada (Center for Digital Entrepreneurship + Economic Performance), who has been doing research around the governance of IP, posted a blog about their ongoing research into sovereign patent funds (SPF’s). They looked to address a few specific questions around the rise of SPF’s, and how policy-makers can think about these types of funds. So far the governments of Japan, South Korea and Taiwan, all leading innovation nations, have all set up SPF’s.
There are many that won’t take the time to read through the paper, assuming it doesn’t impact their roles in IP or innovation activities, but I would suggest that many rethink the potential impact it will have on their venture. Looking through the DEEP work, it is obvious the question about the economic development of IP has been a topic of interest, and with recent talk in the news about SPF’s and moves by RIM we can say there is at least a discussion started that could impact how IP could be approached by firms in Canada.
Last June, Jim Balsillie (co-founder and former co-CEO of RIM / Blackberry), wrote an article in the Globe & Mail entitled “Time to invest in better protections for Canada’s intellectual property”. He lamented that if Canada wants to continue to invest to grow SME’s into globally competitive firms, they also need to invest in an ecosystem that protects their ideas.
“The Government of Canada annually invests billions of dollars in innovation strategies through various grants and programs designed to harness ideas and turn them into commercialized services or products. Yet the intrinsic value stored in the intellectual property that has been generated by these public investments will not yield maximum dividends if we do not consider equally shrewd approaches used by GE, other global corporations and governments.”
One such way to do this, Balsillie suggest, is to build and increase the IP rights capacity through tools such as sovereign patent funds.
Ironically, last month in August, Blackberry spun off and launched BlackBerry Technology Solutions – the IP arm of Balsillie’s old company – to essentially build a separate licence venture. In essence, Blackberry’s budget and pool of 44,000+ patents was enough to launch their own corporate patent fund.
Unfortunately for most ventures launching a private fund or group is not feasible, which is where the DEEP research comes into play. By starting the conversation for policy-makers, it puts another viable option on the table. Right now there are several semi-private funds in Canada, such as Wi-Lan, but there exists no easy way for smaller ventures to be helped with protection, or even larger ventures without the expertise or connections to build a licence program. As a result it implies there is a considerable amount of work many governments can do on the IP front – they routinely invest billions in innovation and R&D grants, but as a percentage dedicate little to no effort or funds to the future of protecting innovation outputs. Granted, there is a large time gap between funding innovations and having patents that can be used for licensing, but that does not make it any less important in the cycle of taking an innovative idea from conception and building a global business around it.
If the innovation outputs are supported by IP they can be a vehicle for future venture growth both remain in and be profitable inside of Canada. There are those that will argue against a SPF, just on principle that a state sponsored NPE shouldn’t be created, but it ignores the key market force at play: Regardless of who is funding and managing the funds there is a multi-billion dollar opportunity in both jobs and revenue that has been created by the enforcement side of the patent system that exists. Many firms and individuals understand that and are reaping the benefits, using the patents supported by the innovation funds originally supported by early state investors and government funds.
If countries and firms want to be leading edge on the innovation front, it will also take effort to remain out front protecting their developments.
2017 UPDATE: An update has been posted in relation to this. I bring this up because the global IP licensing market has changed dramatically in the past few years – both in what is working and in what jurisdictions they are working best in. While SPF’s and Patent Assertion Entities are still relevant, their approaches are expanding from pure licensing to stronger linkages to venture innovation projects and associated funding.
After 3 days of discussing business + IP at the IP Business Congress in Amsterdam, many themes and talking points emerged, which Joff highlighted in his wrap-up summary post on the IAM website.
However there is always the question “How do I translate something into a digestible point that ventures can consider and implement?” For startups and smaller ventures there is always a starting point of IP in their business, and there was at least two were foundational points agreed on by multiple CIPO’s that came out that can be considered as key by all stages of ventures: IP talent & IP organizational structure.
On the IP Talent I would summarize the key point as follows: The IP team as a pure talent base for filing patents will add little overall value to the business. Several of the panelists working for Philips as well as Daimler repeated the point that building a business focused patent portfolio requires the team to get out of their offices to understand the business and be able to apply their IP skills into protecting the marketplace, not just the inventor products. With this type of approach the IP team can have a more realistic 5 year view compared to marketing with landscaping and other IP strategic tools.
#ipbc14 Most important thing an IP Dept can do is focus on the business, and talk with business in their language – Jako Eleveld @philips
But simply having a business savvy IP team is not enough – there has to be an organizational structure that allows for execution of a defined IP strategy. Brian Hinman, CIPO for Philips, lobbied that the CIPO should report to the CEO or the Chief Strategy Officer, as the IP decisions are truly a business decision that needs made. Another leading CIPO noted that even though litigation is part of his role, business licensing and strategy discussions take a large amount of time during the week as well, so a pure reporting structure within legal does not make sense.
Daimler IP head Christian Hahner – our experience is that to deliver the most value to the business IP has to be held centrally #IPBC14
Overall to leverage the foundations of IP talent & IP organizational structure, they really must be jointly considered. Many smaller ventures & startups can take a lesson in this – it is much simpler to setup the structure & IP frameworks as part of the business discussions early on than it is to make changes once the venture is large. Philips, one of the benchmarks for having a visionary IP structure, was hinted at when the CEO, Frans van Houten, spoke about their IP team “act as truly trusted, strategic counselors.” and that this aproach has given them success.
I will simplify it for ventures by saying combine business, IP, and R&D thinking together. The change may not happen overnight, as the world class IP structure that Ruud Peters built took 15+ years of growing and tweaking, but the foundational pieces of at least talent and operational reporting will reap benefits as a venture grows over time.
This year I was nominated and then selected to appear in the 2014 edition of the IAM Strategy 300, which was published this week. The annual guide is published by Intellectual Asset Magazine, a publication of the London based IP Media Group. According to Joff Wild, IAM editor “The IAM Strategy 300 identifies individuals who offer top-flight services related to the development and implementation of strategies which enable IP owners to maximize the value of their rights portfolio.”
I am particularly thankful to my peers for nominating me for inclusion in this years list. There are some IP superstars and industry recognized names on the list, so I am quite honored to be included. Recognition like this, after 15+ years of evangelizing and leading the business side of IP, is appreciated after all the work I have accomplished to date. From discussions with others I have surmised that only a small number of new people were added to the list in 2014, only 5 new individuals added from Canada, being listed along side the “IP A-players” of my industry is actually quite the professional complement.
When I look through the list in 2014, I see a common thread: Individuals who are leaders in their field, taking the holistic approach to management and value creation, focusing on how both must be aligned to the overall business strategy. They each view IP from the business view, and not just a legal consideration or “patent count to acquire”.
Since founding Northworks IP I receive at least 2 or 3 queries per year about being on a “top 100” list, only to be accompanied by an invoice. The IAM listing is quite different and based solely on the individuals skills and accomplishments, with those on the listing not paying to be included – All had to be nominated by at least 3 peers and then all those nominated still went through a review process with IAM researchers, with the editor noting that many nominees did not make it through the final selection process.
My congratulations to all those that are on the list in 2014.
About the IAM Strategists 300: Over the course of five months, IAM researchers spoke to a wide range of leading IP professionals in order to identify people considered to be world-class IP strategists: men and women whose business is the creation, development and deployment of strategies that enable IP rights owners to gain maximum value from their portfolios. Only those individuals considered and nominated by their peers to be outstanding IP strategists are listed in the IAM Strategy 300. The IAM Strategy 300 is available in printed format and online at www.iam-magazine.com/strategy300.
I recently authored the INTIPSA IP Strategist Column in the July/August 2014 issue of IAM Magazine, entitled “Using a patent roadmap to lay the ground for an IP strategy”. I centered the article around the challenge I recognized many companies face: Ideally an IP strategy should be defined from the outset, but there were many practical cases where this was not always possible. For these situations I outlined some practical steps in the form of two best practices for “IP advance positioning” that IP professionals or CIPO’s can undertake to build a quality portfolio before a strategy is fully developed or approved in the board room. The methodology can be applied to startups, small and medium entities, and larger entities that usually require a lengthy runway to develop and deploy a roadmap.
While an IP strategy is the gold standard, it is not always possible due to constraints on time and resources. However, a patent roadmap and partial deployment by IP teams can still make a difference to an organisation’s bottom line.
The magazine is quite good, focused on the real business side of IP, and I would recommend you subscribe beyond the trial if your budget allows.
The article is part of a larger discussion or workshop I often end up having with growing ventures that recognize they need an IP Strategy, but need to make some tactical filings first due to time, bar date, or budget constraints. The larger discussion contains additional best practices and is built around the three critical components of strategy, process, and people. I often refer to these as Components of the Patent Engine – all three are required for the long-term success and scalability of a program and can be adjusted to work in all environments: startups, technology offices, local business units, national teams, and corporate global entities. As companies grow there is an expanded set of components that mix in legal and corporate views, but the foundational three are always consistent.
The Fundamentals Components of a Patent Strategy
The Components of the Patent Engine:
For Strategy
› The strategy component defines the vision and mission of any patent plan. This includes the strategic intent (where the venture needs to be) and strategic actions (top-level actions to achieve the strategic intent).
For Process
›The process component defines the infrastructure required to move ideas to patents and is important because it can be replicated in an efficient and scalable manner. It also ensures key stakeholders are involved in relevant decisions and enables monitoring of KPIs and other measurements of success, inefficiency, or failure. Most importantly, and because the patent process is fairly lengthy—upwards of four to five years from idea to a granted patent—it ensures tracking and knowledge continuity as staff and counsel depart over this time period.
For People
› The people component defines the organizational behaviour aspect of deploying and supporting any patent strategy or process. It is the foundation of an IP-centric culture.
In the business environment different ventures may consider an IP strategy for varying key reasons, for example:
Startups, SMEs – protect the fundamental technology, while accounting for technology pivots; Spend limited resources wisely.
Accelerators & incubators – identify which ventures need IP as a core strategy, and mentor them successfully.
VC & Investors – Instill process to reduce costs, set expectations for an IP ROI for the teams, and increase valuations for the next exit round.
Universities & TTOs – focus on mining and identifying the best research areas to focus IP investments in, and link those to commercial benefits.
I will use another post to dive into the 3 components but the common thread is to position & protect growth while deploying processes that will support the IP vision and scale up as growth happens. Whether you define a full IP Strategy, or deploy an IP roadmap ahead of approval, any IP planning action gives IP leaders a response when asked in the boardroom “What IP do we have, and is it useful for our business? ”.
For those wanting to know more about IP Strategy, feel free to contact me. If you are looking for external references on IP strategy, check out both IAM Magazine and INTIPSA (International IP Strategists Association) for more IP-Business related content.
Patent Strategy of market leading IT companies normalized for year founded.
Startups and Fortune 100 companies take note: Jeff Bezos is positioning Amazon at the future center all of web commerce. And he is planning reaches at least 7 years into the future. Earlier this year Amazon said it was experimenting with delivery by drones, dubbed Amazon Prime Air, and details were found on anticipatory shipping before an order is even placed. Despite this being “new” news for the consumer world Amazon actually filed a patent on anticipatory application in 2012, claiming priority to 2004. So yes, the recently granted US Patent 8,615,473 which covers order fulfillment and shipment of shipping packages before an order has occurred, was contemplated and filed for a patent 10 years ago.
In 2004, Amazon started contemplating filing patents ‘predictive shipping’. 2014 was the year the patent granted and the tech community picked up on their future plans.
This type of advance patent filings seems the norm for Amazon, with another example as the famous “One-click patent” on a method and system for placing an order. Merits of US Patent 5,960,411 patent aside, which as been re-issues, affirmed or denied at various times by US, Canadian, and European courts, it should be noted since it was filed in 1997 it has been cited over 1670 times by other patents. It is, by the definition of patent statistics used in academia, considered a highly valuable patent. Amazon has used the ‘411 patent in litigation with Barnes and Noble, who arbitrarily added more clicks to get around the patent, and has actively licensed it to companies such as Apple as far back as 2000.
Patent Holdings for key Tech companies
But not all companies have had the fortune to plan and execute IP in this manner. Rapid growth combined with IP as a non-core strategic asset has put a few notable companies on the offensive. Both Linked-in and Twitter had under 10 granted patents by the time the IPOs were announced, and for at least Twitter this was seen as a risk to some investors when compared to the volume by their rivals Facebook. Pre-IPO negotiations by IBM against Twitter resulted in the vast majority of Twitter’s 1800+ portfolios coming mainly from IBM. Facebook’s IP growth has been through acquisition, spending at least $1.6B on acquisitions between IBM, and AOL & Microsoft since 2012.
Google has maintained a more stable growth of IP through filings and of late a $15B combined purchase of IP and Technology has given it key acquisitions such as Nest and Motorola. Last check gave Google at over 32,000 active patents, their exponential growth of IP not really beginning until after 2001. This is a far cry from 1994 where at technology inception only four filings were done. A cursory review of Google’s early patents gives the impression they were filings based on technology in production. Yahoo’s 5000+ active filings tell the same story of starting small with only 1 filing in their year of inception (1994), 9 in year 2 around web pages, but the filing volume growing exponentially by year 3 of operation.
Organic patent growth from Google, Amazon, and Yahoo show different approaches in the initial years.
For startups and other high growth companies this outlines two generic paths than an IP plan can evolve from:
IP Acquisition After Growth, as seen by Twitter, Facebook, and Linked-in.
IP + Technology Strategy, which later moves from organic to include acquisition growth as seen by Google, Yahoo, and Amazon.
Ultimately for market leaders the paths do end up together were IP becomes a critical element of their competitive position. For example, Yahoo’s high growth rate gave it a deep pool to use as a tool against both Google and Facebook when the filed to go public. However the Facebook offensive position was not such a successful tactic as Facebook used the acquisition of the IBM and Philips patents to countersue Yahoo.
Companies where the high velocity growth of a customer base is key, such as Facebook, Linked-in, and Twitter, are mainly adopting the IP Acquisition After Growth path. For the ventures where velocity trumps IP, as growth occurs planning for future cash to deal with the problem is a viable solution.
However focusing on the path of IP + Technology Strategy gives some valuable lessons for startups to consider. Consider the organic portfolio growth rate of Amazon, Google, and Yahoo of the, or filings by the original company and not those added through acquisition: comparing filings since 1994 indicates their actual patent growth rate varies but the business approach is the same when looking at the overall portfolio to date – small to moderate growth in the initial years of the company and a high exponential after 2002 for all involved. A more detailed view of the years prior to 2002 shows similar corporate trend of the startup years 1 and 2 having less than 5 filings, and a mini-exponential trend starting at years 3 of operation and beyond where patent filings per year jump above 30 filings per year for some ventures. Google is the notable exception, taking until its 6th year of operation to rapidly increase the filings.
Organic patent filings by priority year.
While the filing trends are relatively similar a key difference can be seen in the portfolio content, specifically with Amazon. As a reference point by the time the one-cick ‘411 patent was filed in 1997 Amazon had $148M in revenue and 1.5 million customers, after experiencing rapid expansion during its launch only 2 years earlier. Even at Amazon’s inception in 1995, the first year of operation saw several patents by Jeff Bezos and his team filed around topics such as secure communications of credit cards over non-secure networks. Looking forward into Amazon’s growth we can see the two IP Strategy paths are coming together: with Amazon how having over 4400 patents their strategy stepped up again in 2012 when they added a Patent Acquisition & Investment leader to their team. Through this we can see how Amazon is continually building IP into their DNA, making it an integral part of the corporate strategy.
The important lesson in the first few years Amazon’s patent position is rooted around Jeff Bezos long term plan on owning the web. As outlined in the Steven Levy article in Wired Magazine (2011), Bezos highlights an important point for startups and large ventures to heed, which was present in the shareholder letter he penned back in 1997.
“But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow—and we’re very stubborn.” – Jeff Bezos
Looking at the long term Bezos pushes Amazon to work in the 5 to 7-year horizon. More impressively he has had the patience to align his patent filings in the same way, and is still doing so if we use the proxy of “predictive shipping” patents filed in 2004 that was recently uncovered as a future Amazon service.
So what lesson can startups take from this?
For startups and other high growth ventures that choose to focus on the IP + Technology Strategy path of IP evolution this provides some guidance on how successful portfolios for pure software based organizations started. A take-away action for CEO’s is to have a discussion with their board and leadership team about their IP strategy plan. The conversation can be simplified down the question about portfolio allocation and coverage.
Key Question: Does our IP strategy allocate protection for today, tomorrow, and the future’s competitive markets?
Allocating a portion of the portfolios future technology position at company inception, even if the filing volume is fairly low, positions the venture’s portfolio well ahead of the evolving marketplace. This approach also mitigates the risk that exists in the technology industry where software releases are growing 2-3x faster than the patent office can pace with. In short, it provides support for the “quality” aspect to a portfolio even if the volume is small in the first few years.
As growth happens and the marketplace becomes more saturated with sustaining technology, the ventures will have already identified and filed for protection for new disruptive technologies and processes that will become a fundamental piece of the market. The result of aligning a 7-year plan with IP is a granted portfolio that is positioned to be relevant in the 10+ year timeline.
For the pace of filing in the first years of a software based startup, the data shows a modest number of filings in the first 2 years of operation, and year 3 of operation was where the high growth of filings occurred. However considering the increased pace of technology growth now compared to the 1998-2000 time frame it is not unreasonable to consider 2 years of operation now happening in 6 months of development. A rapid decrease in the barriers for new ventures to start and launch means the IP Strategy must adjust for this new environment.
Followup Question:Are the patent filings focused on pure technical coverage for today’s technical solutions, or is there room in the filings to reposition the IP as the market evolves by covering solutions to our future disruptive technology?
Over time markets evolve and technology advancements catch up with customer pain points. What historically took years of development can now be created and released on a global scale in months, yet the 20 year life of a patent still remains the same. With this 20 years of life, spending time answering these questions and positioning an early portfolio could be the difference between the venture paying out in the face of competitive IP pressure or reaping the financial and market benefits as patent ownership becomes a critical success factor in the industry.
