Part 1, Part 3

Introduction:

In part 1 of this article series on patent strategy we derived eight species of strategy from the steps a successful/profitable patent goes through over its lifetime.  In part 2 (this article) we are going to use the eight species framework to illustrate how intellectual property management evolves through five phases over the life cycle of a successful company.  In this article, we’ll review the basic framework from part 1, and then describe how IP business processes help us develop an IP management maturity taxonomy.  Then, level 1 “boot up” and level 2 “managed” IP maturity levels will be described in terms of business processes used for each IP management function.

Framework Review:

For a full description of each species of patent strategy, refer to yesterday’s post.  Figure 1 displays the framework and Table 1 has vignette length explanations of each strategy species.

Figure 1: The Eight Species of IP Management Business Processes

Table 1: Short Definitions of Each IP Management Business Process Type

Levels of IP Management:

Carnegie Mellon has since 1984 worked to measure the maturity of software organizations.  This research began at the request of the US Department of Defense as software projects proved to be strategic bottlenecks in getting high-quality defense systems completed on time and within budget.  Figure 3 and Table 2 display the characteristics of organizations as they range from level 1 to level 5 in software management maturity.  The big change across the 5 levels, is how process improvement changes.  In level 1 organization, there is no process improvement, because there are no processes.  In level 5 organization process improvement has become a coequal function to the actual software specification, development, and test.

Figure 3: CMMI Maturity Level Characteristics
Source: Wikipedia

Table 2: Capability Maturity Model Process View of Model
Source: Wikipedia

IP management is a complex, multidisciplinary, knowledge-based process, just like defense system software development.   Individuals working in IP management, like individuals working in defense software development, are unlikely to know about the existence of maturity levels.  At lower levels of maturity in both software and IP management systems, short-run individual behavior is largely determined by the system.  As IP management maturity increases, latitude for long-term initiative and individual autonomy open up.  Reactive behavior, is largely, predictable behavior.

We believe the eight species of IP management strategy help in understanding the five levels of IP management maturity.  In the sections that follow, we describe the business processes characteristic for each type of IP management strategy for each level of IP management.

Intellectual Property Management in Startups:

When you read about startups, in say Jessica Livingston’s excellent FOUNDERS AT WORK you quickly realize that there are important problems specific to startups, and intellectual property is not one of them.  Picking good partners, finding funding, using better tools, selling, all of these are critical in startups.  But, intellectual property is not, and in many ways, can not be important.

IP is not important because startups think in terms of break even and number of payrolls that they can cover with current assets.  Optimizing a startup by capturing and managing IP as an ongoing business process is like asking a 16 year old to invest in an annuity that will mature in 600 years.  While it may be profitable, there just isn’t any way to do this within the 16 year old’s mental framework.  Like the 16 year old, people sweating firmware, releases, products, and sales, do not have the emotional space and intellect to invest in a patent that might issue in 5 years and might be licensable in 15 years.

We think the big reason that isn’t important to startups, is that the first job of every startup is to pivot its business model until it generates product market fit.  Before a startup has a product market fit, all it has is prototypes and hypotheses.  If patents are files on prototypes and the markets they are hypothesized to fit, they are likely to be wasted.  Startups have to pivot their business models over and over before they find markets.  Reading books on high tech marketing by Guy Kawasaki, Geoffrey Moore, and Steve Blank have lead us to the conclusion that  more certain management is that it knows how a high tech market will evolve, the more likely it is to be wrong.

And while patent attorneys are only too eager to write patent applications on any novel, useful, non-obvious technology, and they are eager to get started on drafting patents as soon as possible, the fact remains that patents are not worth having if they don’t protect product market fit that a startup ends up with before growing.  Protection of early prototypes and hypothesized markets is worthless.  And most startups consequently, ignore IP.  Example: We’ve known Guy Kawasaki for 20 years, and we have never been able to get him excited about intellectual property management for his startups.

So, the standard starting point in an electronics startup company is displayed in Figure 3.  That is, no IP business model, no profitable IP targets, no capture, no triage, no prep and process, no portfolio management, no litigation until they are successful, no monetization strategy.  In a startup’s beginning, there is no IP management.

Figure 3: Level One “Boot Up” IP Management Maturity

Table 2 displays the business process to IP strategy matchup of a startup pre-success.  The startup is sweating finding a product market fit, until that fit is found, there isn’t any equity for a patent troll or other patent holder to siphon from a startup.  So, most startups coast without intellectual property management until they hit a level of success that becomes widely visible.

Table 2: Pre-Litigation-Event IP Business Process to Strategy Species

Take for example, VIZIO the TV company.  They started in 2003 and did not attract litigation until 2006 when they were selling more than US$500,000,000 a year of products.  Look at Figure 4 and guess how many patent applications VIZIO filed in 2003, 2004, and 2005.

Figure 4: VIZIO Sales (red) Patent Litigation (blue) and Patents (green)

Figure 5 shows that the first patent application on record for VIZIO was a design patent filed in October of 2006.  This is not proof that startups ignore intellectual property.  It is just an example of one startup and its experience with intellectual property.

Figure 5: Visio Patenting Activity 2003-2008
Source: Delphion

But everything about intellectual property management changes for the startup once it becomes a sales success and it experiences its first patent infringement lawsuit.  For VIZIO the first suit hit in 2006 (blue bar in Figure 4). The startup company finds out that it has been sued, and needs to hire a general counsel, change legal firm or add a patent litigation literate firm to existing transactions counsel, just to have an “at bat” experience in its patent litigation.

Startup companies have no IP business processes and are reactive to IP crises.  Table 3 displays the state of IP management business processes immediately after a successful small company has been sued.  While before litigation, all eight species of IP business strategy were being ignored, immediately after litigation initiation, two business processes begin to receive management attention: Litigation and Prep and Process.

Table 3: Post-Litigation-Event IP Business Process to Strategy Species

As ugly as litigation/licensing is, it is the gateway event to put an IP management program in place.  It is a gateway because litigation is so astronomically expensive.   For a big electronics company the cost is often $1,000,000 per month. These kind of costs create an instant management justification for the successful startup to begin to manage intellectual property.

A managerial light goes on and the founders of the company realize fully for the first time, that patents can prevent other companies from suing.  Because suits are so costly, preventing litigation with patents, is … valuable!  Litigation/licensing then moves IP management being nice “in theory” and stuck in a level 1: Boot Up, to a “business expense” that gets to level 2: “Managed” (see Figure 6).

Figure 6: Level Two “Managed” IP Management Maturity

In this article in this series on eight species of patent strategy we have covered the basic framework, and then the idea of five levels of IP management existing through an analogy with software management and CMMI work at Carnegie Mellon.  The reason to bring in the idea of IP management maturity and five levels of maturity was to illustrate how the eight species of patent strategy are helpful for characterizing IP management.

Every IP program manages eight species of patent strategy.  And they manage these with business processes.  Initially the business processes used by startups (Level 1: Boot Up) are to ignore all eight species of patent strategy.  But when startups become successful they attract licensing programs, and litigation by patent trolls as well as legitimate patent-holding businesses.

Make it Personal:

By now, you are beginning to see the eight different kinds of patent strategy.  How these kinds of patent strategy can be extended to IP strategy in general.  And how each of these kinds of patent strategy are instantiated in business processes.  Now you can apply this framework to the IP management in your company.  What are the business processes your company uses to define its IP business model?  Does your company ignore IP business model?  Is your company in “boot up” mode or are you in “managed” mode with prep and process and litigation departments in your legal department?

In Part 3 of this series, we will work through the business processes that companies develop in level 3 “defined” and level 4 “closed-loop” IP management maturity, and finally level 5 “profit maximizing” IP Management.

Part 2, Part 3

Introduction:

When invited to give a talk for an American Corporate Council Association (which changed its name to the Association of Corporate Council) in 2004 I was asked to speak on “patent strategy.”  When I complained “That is a pretty big topic, can you narrow it down a little for me?”  the answer was “No.  You are a great person to speak on patent strategy, just do the best you can with it.”

So, we invented an eight step analytical framework to make sense of all the kinds of patent strategies we had been involved in while managing intellectual property at HP, as well as an IP consultant with other clients.  Six years later, we am still using the same eight species of IP strategy in IP consulting and teaching, and we have found that clients and students see this analytical framework, and then immediately snatch it out of our hands.

As we work through our first book from BasicIP’s consulting practice experience running 240 invention workshops around the world, I’ve found this framework to be indispensable to laying out a step by step argument about why IP programs need invention workshops. The eight species framework has become the foundation on which we build new analytical tools.  So, just to be sure this framework isn’t shot full of holes I’ve been tricking local law firms in Boise (Zarian Midgley Johnson, Hawley Troxell, Buchannan-Nipper) former bosses, the IP manager training guru for the Licensing Executive Society, and even a local law school dean (Yes, Boise is getting its own law school!) into looking over this framework and seeing if they can see anything wrong with it.  So far, no problems.  So, the purpose of this blog post, is to work out the Eight Species IP framework in format that is a little more formal than the PowerPoint decks it has until now, called home.

The Eight Species of Patent Strategy Framework:

Figure 1 displays the eight species of patent strategy.  I derived these eight steps from the steps that a successfully licensed patent follows in its life cycle.

Figure 1

The steps a successfully licensed patent should follow over its life cycle are as follows:

1. A defined business model.  Principle: If you don’t know how you are going to monetize a patent before you apply, you are never going to monetize that patent.  Beginning with the end in mind is a Steven Covey principle.  Beginning with a profitable end in mind is closer to a law of nature when it comes to patents.  Example patent strategies that come out of defining IP business models might be IBM’s shifting to a for-profit IP business model under Gerstner (see 149 in his excellent book W.S.E.C.D.) to justify investing in research.  Or, a startup that has been small but that is becoming larger, may need to change business model from “hiding in the shadows of an industry” (a great place for every small company to start) to “buying oligopoly membership” as it grows.
2. Targeting profitable IP.  If the IP management team is not specifying what it wants inventors to invent, then it won’t get what it needs.  Typical engineering management is very busy, not that confident in its IP knowledge or strategy ideas, and so the tyranny of the urgent crowds out making a list.  Example targeting strategies related to patents while I was at HP was Steve Fox’s mantra of “future looking, competitively preemptive, and gap filling” inventions that were wanted. While these are great general goals for targeting IP, the wise CTO will take these goals one step further and specify specific technologies from them.  For example, while I was at HP Boise in Y2K, we continued to receive halftoning invention disclosures – by then an “old” technology.  And when halftoning disclosures were filed as patents they cost more, took longer, and ended up capturing less, than an equivalent investment of money and inventor time in a future-looking technology like internet printing.  So decommissioning halftoning as an invention disclosure target would be a second example of a patent targeting strategy.  For a great example of making patent targets specific, see Steve Fox’s chapter (11) in Patrick Sullivan’s PROFITING FROM INTELLECTUAL CAPITAL.
3. Generate and capture IP.  Generating and capturing involves training and dragooning.  If you look at how inventors come up to speed in your organization, you will find that about half of them require writing four to six invention disclosures before you can tell how good an inventor they will be.  The other half writes great disclosures from the start.  Training involves how you reach the non-instant-on half of your employees and providing them with the deliberate practice necessary for them to come up to speed inventing.  The dragooning involves everyone.  You can dragoon people into inventing in an infinite number of ways: with a simple “IP strip-mining” exercise, with an intensive off site brainstorming exercise, or by telling them they don’t get their paychecks until they fill out 6 enabled invention disclosures.  Or, you can give away iPods randomly to people filling out invention disclosures.  Whatever strategy you choose will be better than not having a strategy to dragoon inventions from people.   If you don’t have a dragooning strategy, you will capture =log(of what you should be seeing).  Most patent attorneys in companies have complained about “not seeing enough” from their inventors.  But few strategically dragoon their inventors.  Get a training and dragooning strategy.  They work well together!
4. IP triage is what happens after an invention disclosure has been turned in, but before it is acted on.  The default triage strategy in most IP organizations is to sit around a table and read the invention disclosures and then invent rules for how to disposition the disclosures.  Every quarter another meeting is held, the rules are reinvented from a new set of invention disclosures.  The process repeats four times a year.  An improved triage strategy includes developing four 1 to 10 rating scales that each disclosure is rated on, having two or three independent raters rate all the disclosures, and then automatically dispositioning the disclosures without group discussion if they fall below X or above Y.  Then, the group discussions can be focused on defining what each of the four ratings scales mean, and discussing disclosures that generate ratings variations.
5. Prep and process.  This is the stuff of patent agents and attorneys.  Prep and process is one of two species of patent strategy where every IP department scores at least a B is in prep and process.  This is craft.  Quality.  Goodness to attorneys and patent agents. So, I don’t talk much about prep and process strategies.
6. Portfolio management.  There are many kinds of patent strategies involved in portfolios.  For example, international patenting.  Nobody can afford to file in every country, so a natural patent portfolio management strategy is a factorial design of IP across countries to cut down patent costs but to maintain enough coverage to protect products internationally. Another portfolio management strategy example would be to build a strong portfolio in a specific area to feed a licensing program. Another might be to defensively publish heavily around big patents that are obtained to preempt other companies from capturing improvement patents.  Portfolio management strategies are truly legion.  But today, almost all the contact most IP organizations have with portfolios is in deciding on patent maintenance fees.
7. Litigation.  A second “B or above” patent strategy area for every IP organization.  Please note that litigation is the only species of the eight kinds of patent strategy, taught in law school.  Also note, that none of the eight species of patent strategy are taught in business schools.  In fact, the eight species of patent strategy are something of a “no man’s land” where companies have to paste together business processes the best they can to cover.
8. Monetization.  Deciding how you are going to make money with your patents is one thing.  Cashing checks from IP is another.  There needs to be a lot of feedback between monetization and IP business model.  Business models that are so heavenly minded that they are no earthly good need to be tested and refined into monetizable business models.  Checks will not come back to your company for IP unless you have a strategy on how you are going to monetize the IP.  Managers need their feet held to the fire.  Business processes need to be set up, run, fed, refined, and refactored.

The next post in this series will talk about how IP strategies evolve in the wild of the electronics industry starting with stage one where a growing company has no IP strategy (see Figure 2).

Figure 2