by kevin g. rivette and david kline harvard business review (jan...
TRANSCRIPT
By Kevin G. Rivette and David Kline
Harvard Business Review (Jan – Feb 2000)
INTELLECTUAL PROPERTY
Intellectual Property Legally protected intellectual assets
Trade secrets Trademarks Copyrights Patents
PATENTS
Most tangible form of IP Strongest legal protection Greatest effect on commercial success and
market value Patent databases are powerful sources of rich
competitive intelligence
COMPANY’S SUCCESS Quality products Excellent operations Effective marketing
1. Establish a Proprietary Market Advantage 2. Improve Financial Performance 3. Enhancing Overall Competitiveness
ESTABLISH A PROPRIETARY MARKET ADVANTAGE
Defend a proprietary market advantage Translate into
Category-leading products Enhanced market share High margins Foundations for new industry
Use of internet Collapse of competitive barriers Blurring of industry boundaries
Patents may become one of the most effective means of creating a proprietary, defensible market advantage
CASE STUDIES
Lacked proprietary advantage against online rivals Market share reduced
1-Click buying system Filed infringement suit against B&N
Name-your-own-price (NYOP) reverse auction patents
Filed infringement suit against Microsoft (Expedia – Online travel site)
ESTABLISH A PROPRIETARY MARKET ADVANTAGE
1. Protect core technologies and Business methods
2. Boost R&D and branding effectiveness 3. Anticipate market and technology shifts
PROTECT CORE TECHNOLOGIES AND BUSINESS METHODS
Core Technologies Focus patent strategy on proprietary technologies
which gives competitive advantage Monopolize market
Xerography patents Allowed monopoly in copier market
Forced to license copier patents under terms of a federal consent
Business Methods Competitive advantage not in the products and
services Innovative business methods
PROTECTING BUSINESS METHODS
Direct-sales business model
Build-to-order Selling, distributing
and after-sales support
Sophisticated purchasing, marketing and distribution systems
Higher efficiency, Lower prices, Higher rates of customer satisfaction
DELL WALMART
PROTECTING BUSINESS METHODS
Secured 42 patents Customer-
configurable online ordering system
Leveraged on use of patent with IBM Lower cost
components Freed from royalties
Price competitive
No patent on business systems
Ineffective protection of trade secret law
Unable to prevent key employees from transferring knowledge of Wal-mart’s proprietary systems
DELL WALMART
BOOST R&D AND BRANDING EFFECTIVENESS
Build category-leading products Enhance the branding efforts Develop products which patents can help to
establish dominant share
Hitachi - Automotive airflow sensor Effective patent wall Rivals are forced to look at more complex and
expensive alternatives Less competitive
BOOST R&D AND BRANDING EFFECTIVENESS
Biotechnology & Pharmaceutical companies Think about the potential strength of patents Research and Development priorities Best results in clinical trials Strongest clinical trials
BOOST R&D AND BRANDING EFFECTIVENESS
Gilette’s Sensor Shaver Challenge in mapping out the patent landscape
Determine keyDeliver a closer and more comfortable shave
Twin/ Triple independently moving blades Floated –angle geometry technology blades Cartridge Springs
performance attributes Full patent analysis Examine strengths and weaknesses Choose design that is difficult for competitors to
duplicate
ANTICIPATE MARKET AND TECHNOLOGY SHIFTS
Texas Instruments (TI) High demand for higher speed internet
communications (1997) Digital Subscriber Line (DSL) Acquire Amati Communications Patents for DSL Develop favourable partnerships and licensing
relationships
ESTABLISH A PROPRIETARY MARKET ADVANTAGE
1. Protect core technologies and Business methods 2. Boost R&D and branding effectiveness 3. Anticipate market and technology shifts
1. Establish a Proprietary Market Advantage
2. Improve Financial Performance 3. Enhancing Overall Competitiveness
IMPROVE FINANCIAL PERFORMANCE
1980s
• Physical Assets: >60%
2000s
• Physical Assets: <30%
• Technology-intensive industries • Manufacturing industries
TAP PATENTS FOR NEW REVENUES
From licensing patent rights
Texas Instruments (TI) Earned $4billion in patent royalties $800million per year
1990s
• $15 billion
Today
• $110 billion
10 years later
• $0.5 trillion dollars
TAP PATENTS FOR NEW REVENUES
Xerox New business unit “If you only use your patents to protect your
products, which is the old paradigm, you’re missing all manner of revenue-generating and other opportinities.” – VP of Intellectual Property (Xerox)
Alcatel-Lucent 266-person business unit 12% of $30billion in annual revenues in R&D
REDUCE COSTS
Reduced portfolio maintenance costs and taxes Review patent activity
Dow Chemical Identify licensing, commercialization, and joint
venture opportunities Immediate savings: $50 million Match technology assets with business goals
ATTRACT NEW CAPITAL AND ENHANCE CORPORATE VALUE
Lockheed Martin (Aerospace) Patented 3D flight simulator Unused technology Later used as a foundation to a new venture:
Real3D PC graphics and video game business Success in transforming unused patents into a
strategic presence in a lucrative new market
AUDITING YOUR PATENT PORTFOLIO
o Task: Assessing financial value of patent& assessing business& commercial business
o No easy task: best rudimentary& little help in providing reliable valuation benchmarks.
o Core patents – presently used technologies o Evaluated by how much contribution to commercial
value
o Non-core – not used currently or planned products
o Easier, focus of IP licensing efforts o Rates usually 1%-5% of gross sales or 25% rule
AUDITING YOUR PATENT PORTFOLIO
o Rather than divide value of each patents, some portion is assigned of total market capitalisation.
o Market value – Book value = value of knowledge assets.
o Limitations of stock market Alternate:
(tangible/financial asset earnings –annual normalised earnings.)
With this, ready to consider means of tapping their value for investments.
ASSESSING BUSINESS/COMMERCIAL VALUE
Valuable
Abandoned
To assess best commercial use: example Dow Chemicals
Many Business units
Low Business units
Usage of patent
Use in present operation
Future plan
No Plan
ENHANCE COMPETITIVENESS
Value of patents as competitive weapons& intelligence tool
Blocking competitor’s product development plan
Gain entry into new market
Acquisition opportunity
Reduce risks involved
1. OUTFLANK COMPETITORS
Example S3 Faced with Intel Patents Outbid Intel for patents of
bankrupt chip maker ‘Exponential Technology’ for $10 million.
Obtained predated Intel’s Merced chip patents, holding them ‘hostage’
Forced Intel to cross-license for exchange of rights
1. OUTFLANK COMPETITION
Quickturn sued Mentor Graphic for patent infringement and had injunction, blocking sales of Mentor products.
Mentor want to acquire Quickturn but Quickturn resisted
Sell off its intellectual property to White-Knight Cadence Design Systems
Hence no longer exposed to M&A actions, continued its infringement case until Mentor withdraw its Simexpress product,
2. EXPLOIT NEW MARKET OPPORTUNITIES
Patents gives patent-protected entry to new markets
Example: Avery Dennison Corporation developed new film
Dow chemical also started to move into it
With Avery having more fundamental patents and strengthened with extra patent filings
Making Dow Chemical to withdraw
2. EXPLOIT NEW MARKET OPPORTUNITIES - MACHIAVELLIAN M&A MANEUVERINGS
Example: The Stent business worth 41.3 billion per year market, shared with 3 companies
All changed when Guidant Corporation had FDA approval for new Multi-link stent.
Johnson& Johnson filed infringement suit Guidant bought EndoVascular Technologies Having an unused Stent patent, result in
paidoff of $350million worth of devices sold.
-MACHIAVELLIAN M&A MANEUVERINGS
Example : IBM Chosen a slightly different approach Due to user’s needs for routers&
networking equipment Instead of huge spendings or slashing
prices, IBM uses its patents Had deal with Cisco Guarantee sales of IBM’s component for 2
years and to gain foothold into the new market.
3. REDUCE RISK
Information in patents can also help steer companies’ R&D & M&A programs around infringement& due diligence potholes.
Example of Eastman Kodak& Polaroid on instant camera& films
Kodak had infringed on Kodak’s patent and suffered huge losses as a result.
OTHER EXAMPLES
Minolta and Honeywell, over auto camera patents
Fonar Corporation vs General Electric over patented MRI technology
ENHANCE COMPETITIVENESS
Many Executives think is unnecessary to spend time& money.
Life span of products being shorter than time required to obtain patent
Risky thinking Patent suits duration and having to
abandon R&D upon infringements. Emerging threat of board liability and
shareholder lawsuits regarding patents.
ENHANCE COMPETITIVENESS
Reduce risk of merger & acquisitions Patent portfolios not closely looked at
either for valuation issues or exploitation possibilities
For drug company, life or die on strength of their patent holdings
Companies just want buy all wonderful patents
Acquisition patents also seen as less innovative and slow
IN A NUTSHELL
Patent not just as a legal tool Power of influence & determine outcome
only grow especially in e-commerce industries
Winner determined by patent shoot-out Wars over e-commerce patents getting
common Example Priceline.com ,Amazon etc
Financial& competitive rewards require top-level involvement and enterprise wide organisational muscle.
IN A NUTSHELL
Companies treating patent portfolio as strategic asset& core competences have big advantage.
Made easier by technological advantages- automated systems.
Lesser time taken for patent mapping Can be presented in 3D reports Hence if patents are ‘smart bombs’, the
companies tat fails in developing strategies for their own use will do so only at their peril.
THE END
THAT’S ALL FOLKS