IP Asset Maximizer Blog

R & D Tax Credits Mean Little to Businesses That Do Not Competently Manage Their Intangible Assets

2010-09-07T14:36:48Z

Companies that fail to properly identify, capture and protect their intangible assets leave much R & D tax credits on the table.

This week, President Obama will announce a $100 billion proposal to stimulate the economy, where much of the focus is to be placed in the area of R & D tax credits. In addition to making the R & D tax credit permanent, Obama will seek increasing one of the credits available from 14 to 17 percent.

This announcement brought to mind a blog post that I wrote almost 2 years ago addressing how I believe that many companies fail to capture all they are entitled with respect to existing R & D tax credits due to the fact that most companies do a poor job identifying, capturing and protecting their intangible assets. So, irrespective of one’s opinion of whether this new stimulus plan will help the economy, it is my strong belief that many–if not most–corporations, both large and small alike, will fail to fully capitalize on the tax credits available to them because their organizations do not possess the accounting methodologies necessary to identify, capture and protect their organization’s intangible assets. Without such infrastructures, which are known generally as “intellectual asset management” systems, it is virtually impossible to accurately assess an organization’s entitlement to tax credits associated with R & D spending.

The blog post mentioned above, from November 5, 2008, follows:

I recently heard a group of tax experts spoke about issues related to intellectual property (“IP”), and since then I have been thinking about how my clients could benefit from better incorporating IP into their corporate tax planning and accounting processes. The topic is very complex and, as such, I will leave the details to the experts. (Feel free to contact me for recommendations in this regard.) I believe it is nonetheless valid to make the following statement: if your tax experts do not include IP issues in their tax planning and accounting processes, your company is likely leaving considerable money on the table.

As these experts discussed IP-related tax issues, it became apparent to me how important IP asset management should be to corporate tax planning and accounting efforts. However, my experience demonstrates that few corporate managers are aware that such savings are possible. Even if they know about this opportunity, it would likely be exceedingly difficult for them to capitalize on this savings because few organizations possess the IP infrastructure that allows efficient capture and assessment of costs associated with obtaining and managing IP assets. And, without such IP accounting information, the tax savings cannot be appropriately captured.

A word of qualification–I am in no way a tax expert. Nevertheless, I do understand that in order to capitalize on tax deductions and tax credits related to IP, accounting processes must be able to determine the costs of obtaining and managing such assets. It would then make sense that IP attorneys such as myself would be contacted on a regular basis to assist tax experts in the information capture process. In my years of high level intellectual property practice, I was never expressly brought into the tax planning or accounting processes. I must therefore conclude that most, if not all, of my clients failed to adequately capitalize on the tax savings opportunities discussed by the tax experts. Indeed, the tax experts who I heard speak confirmed that many companies are effectively ignorant about how proper IP asset management and tax planning can reduce overall corporate tax liability.

How can a corporation capture this tax savings value? The first step is certainly to obtain education about the categories of tax savings that can be captured through improved IP management programs. Management would be well-served in this regard by finding the necessary IP and tax expertise to identify opportunities for value capture through tax savings. Due to the highly arcane nature of the interplay between tax and IP, I would advise one to seek specific expertise outside of their organization. This will require payment to consultants, which could be a limiting factor for many corporations. However, without the initial investigation by the appropriate consultants, the result will be that no IP-related tax savings will be captured.

If this investigation proves that demonstrable IP-related tax savings are possible, the next step would be to institute an intellectual asset management (“IAM”) system that allows the corporation to capture the costs associated with obtaining and managing IP-related assets. Many corporations have successfully developed and executed on IAM systems by internally developing robust business-focused IP management processes. Such “home grown” solutions to IP management can be very effective, however, long term management commitment and infrastructure development are typically needed for success.

For organizations seeking to obtain IP-related tax savings more quickly and (possibly) with less infrastructure development, an IAM software solution may be beneficial. Examples of such software systems are Decipher, Anaqua and Lecorpio. These software solutions can be expensive to implement and maintain, but for many corporations the reduction in tax liability may clearly demonstrate immediate ROI associated with such a product.

To reiterate, my knowledge of tax is minimal. However, I feel strongly that much opportunity exists for corporations to capture tax savings through better IP management processes.

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Facebook’s “Trademark Bullying” Should Serve as an IP Strategy Lesson for Startup Entrepreneurs

2010-08-27T17:20:24Z

Like other forms of bullying, Facebook's aggressive trademark activities can be attributed to "poor parenting"

This week, Facebook’s trademark action against a small online teaching company has been all over the news. In summary, Facebook contends that TeachBook infringes its trademark rights in the “Facebook” name because, presumably, the “book” part of the name is associated in the minds of the relevant consumer public with the now well-known Facebook brand. Today, it was reported that Facebook is now trying to own the rights to the “face” part of its name.

Most wouldn’t be surprised that the word “book” is used as a part of the name of a multitude of products and services, which would make it appear that Facebook is using its resources to beat up on smaller companies. The natural response from the layperson is “why is Facebook being such a trademark bully?” But to someone with experience in IP strategy, the business reasons behind Facebook’s actions are clear.

From a legal perspective, Facebook likely has little legal standing to extend its trademark rights in a direction that will allow it own either “face” or “book” as individual aspects of future trademarks in as-yet-introduced third party products or services. These words are just too non-specific and common to legally signify the source of a product or service. That is, if you as a member of the public saw the word “face” with another word–say “music”–would you think the company providing that product was the Facebook company? Probably not. So, should Facebook be allowed to own all rights to “face” or “book” when combined with another name, as it is now apparently contending? Certainly not, and, without more legally relevant evidence, the Trademark Office is likely to deny Facebook the ability to prevent others from using face or book in their products or services.

Given the lack of legal basis for its contentions, Facebook’s actions instead appear to be directed toward using its vast financial and legal resources to either get smaller companies to forfeit their probable superior trademark rights or to obtain settlements with cash-strapped start-ups–like TeachBook–that will allow Facebook to expand its products and services in the direction needed in the future. Is it legal for Facebook to do this? Yes, and it appears that they have been successful in doing so previously. Is it right? I don’t think so, but business is business. Nevertheless, I hope that Facebook is thwarted in its attempts to leverage the legal system and deep pockets to fix errors made by the founders in the early days who decided that “Facebook” was a cool name for, well–a facebook–as well as the later failures of its business advisors to craft a more scalable and protectable name. In other words, much like the bullying that occurs with children, Facebook’s current “trademark bullying” is a result of the “poor parenting skills” of those managing the company when it was a young start up.

With regard to Teachbook, a likely scenario is that Facebook will offer to buy the “Teachbook” mark a couple of million dollars, which would likely be a great boon for the much smaller company. Teachbook’s management may decide that the money is more important than the existing name (in which it probably has little brand equity), and will therefore make a business decision to sell the “Teachbook” name to Facebook to fund its other efforts. And–Voilà!–Facebook now can contend that it owns broader rights in the “book” aspect of the name to provide it with even more leverage to gain total control of that aspect of its trademark. The more examples Facebook can show of use and actual ownership of the word “book” to describe its products and services, the more likely it is for the Trademark Office to grant legal trademark rights to the company.

The strategy to own the word “face” is identical to the one for “book,” but it appears to be a longer shot. As of the date of this post, there are 481 registered trademarks that start with the word “face,” thus indicating that Facebook is only one of many companies wishing to identify their product with this word. Also, words coming at the beginning of the mark are generally given heightened scrutiny because that aspect of a trademark is considered to be more recognizable to the relevant consumer. In addition, the owner of the “FaceCash” mark is objecting to Facebook’s attempt to gain trademark rights to the “face” aspect of its name standing alone because the FaceCash owner wishes to preserve his rights to extend his product and services at a later time using the “face” to as names. Apple also owns rights to the “FaceTime” videophone product, and I don’t think anyone expects them to capitulate to Facebook at any price.

My sense is that Facebook’s strategy will succeed in at least some part, such as with small companies like Teachbook. They already were able to get Placebook to change their name. And, for a company with lots of money, that’s all that matters. However, the core of this issue is the fact that Mark Zuckerberg chose a lousy name for his start up. This is a common problem: a majority of start up entrepreneurs fail to think about the ramifications of naming one’s company, product and/or services. As a result, they may find themselves with a successful company with a name that constrains their ability to trade on brand equity for continued growth, which is the place that Facebook finds itself today. Alternatively, one can find themselves in the position of Microsoft did in 1995, when the Trademark Office refused to register the “Windows” mark until shortly before the introduction of Windows 95.

Some would think that it would be nice to have Facebook’s problem, and I would agree that I would like to be at the helm of a company with the growth potential that requires broad opportunities for brand extension that need to be named. Nonetheless, one must recognize that Facebook is now presented with significant business uncertainty and unnecessary risk. Its future products and services cannot be fully fleshed out without a clearer understanding of how these can be presented to the consumer, and for a start up company in high-growth mode, such uncertainty can be crippling. Facebook is also likely bleeding legal fees, but this is probably a lesser issue than the uncertainty caused by the trademark issues.

So what are examples of good start up names? Well, few would contend that Google, Skype and Ebay are indicative of other products and, in my opinion, each of these is a bit “wacky.” It is just this sort of “fanciful” (the actual legal term) name that most often leads to the legal ability for one to broadly own and, therefore, to widely prevent other companies–whether competitors or not–from seeking to use names even remotely close in form. Fanciful marks are words that were effectively made up out of whole cloth for use in naming the particular company, product or service etc. and, by definition, can only be associated in the minds of the public with the first and original user. In other words, start up entrepreneurs should try to come up with names that are what trademark law calls “fanciful” and what I call “wacky.” Of course, one must balance the need to develop a protectable trademark with the ability to connect with the consumer because a great name is worthless if the product or service name impedes sales in any manner.

What do I think is a good trademark strategy for start ups? I think Google has done a good job with this in its products by using names like “Voice,” “Reader” and “Patents” along with its main word mark “Google.” By using these descriptive–and even generic–words along with the fanciful name “Google,” the consumer immediately knows what the product or service is and from whom it comes. But, Google is certainly an outlier in this respect because its trademark has now indisputably become famous–and in near record time in comparison to others with famous marks like Kodak, Xerox and Starbucks–which resulted from the combination of its fanciful name and its explosive growth over the past few years to effectively seer the “Google” name into our minds. Indeed, Google’s primary trademark problem today is to prevent its name from becoming generic, such as in “to google something,” which is the fate of former trademarks such as “cellophane” and “escalator.”

Again, it would be great to have Google’s problems, right? We “mere mortals” should probably strive to create a name that leans toward the upper end of the trademark distinctiveness scale as described in this article. Nonetheless, start up entrepreneurs would be well-served to view Facebook’s current problems, as well as those faced by Microsoft many years ago, as cautionary tales of the need to generate an IP strategy even at the earliest stages of start up business planning. While it would be great for any start up entrepreneur to be as successful as either of these companies, I am sure that the founders wished that they had done a better job at “parenting” their fledgling companies.

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Contrarian Viewpoint: Patents Likely Matter Little to US Innovation and Job Creation

2010-08-25T01:03:06Z

My Soapbox: Patents matter little to innovation and job creation.

Many experts insist that innovation cannot succeed without patents, and that the delays in the US Patent Office stifle innovation. This viewpoint is like to become more widely believed by the public as US Patent Office Director Stephen Kappos sees a way to improve the dismal operations of the Patent Office by equating patents as job creation tools, which necessarily requires patents to be asserted as critical for innovation to occur.

I believe it is highly misleading, and even harmful in many cases, to say that patents are the end-all be-all to innovation. I also think that fixing the Patent Office–which will invariably mean that more people will see value in obtaining patents to support their business idea–should be viewed more as a job creation engine for patent attorneys and those who support them (including Patent Office employees), as opposed to creating jobs that can help improve the dismal employment figures the US is experiencing today.

No doubt, it is true that patents are necessary to create value from many innovations, and that jobs can then result when the patent owner is able to build a business around the idea (assuming the company and its employees are actually present in the US–but we won’t go there). As one example, I am currently working with a start up company with technology involving a disruptive energy innovation. For this company, IP rights are critical to success. But, our business model is based on licensing: if we do not obtain bulletproof patent rights, we won’t have any way to make money, at least at the early stages. Jobs do come into play with the patent rights, namely ours. But, we do plan on building a sustainable business here in the US so, for us, it will be very important that we obtain patent rights and that these issue quickly from the US and other patent offices.

Another example where patents are important for both innovation and job creation is when small or medium sized companies that need ownership of their innovations in order to keep knock-offs out of the market. Once they establish the market for their products, other companies can come in and undercut their prices before the innovator has a chance to recoup make sustainable profits and grow further. Unfortunately, many of these companies fail to recognize the importance of patents to the sustainability of their business models.

These two examples are only a small subset of the business types and models that seek to obtain patent rights to protect their innovations, however. And, I expect that more jobs are ultimately created from innovations that are not patented (or even patentable) than vice versa.

For business models based on innovations that the market will adopt because the technology is better than anything that has come before–that is–innovations that address an unmet market need–patents in fact matter very little to the success of the company and to the number of jobs created from that innovation. This is illustrated by this TechDirt post that relates the story of how Yahoo passed on Google in the early days. Put simply, Yahoo just did not see how Google was going to eat their lunch. As a result, patents were irrelevant to the Google’s market acceptance, at least in the early days. I like this quote from the post:

Whenever we talk about innovation and things like patents, one common refrain is that no innovation would occur without patents because big companies would immediately copy the technology and destroy any up-and-comer. We’ve pointed out plenty of times that this simply isn’t true. For a truly disruptive innovation, big companies often won’t even notice you until you’re way ahead of them — at which point copying is fruitless. Hell, for nearly the past decade now, Yahoo’s tried every which way to “copy” Google, and it got them nowhere in terms of actual market share (actually, it got them so little that they recently gave up and outsourced it all to Microsoft).

Unfortunately, many entrepreneurs conflate their likelihood of success with the ability to obtain patent rights. And, patent attorneys–the ranks of which are growing in number every year–clearly capitalize on this belief. The problem will get worse because all these patent attorneys need to make money by writing patents because this is THEIR business model. In turn, this will lead to more clarion calls of “innovation is stifled by the failure to get patents.”

At the end of the day, it is up to entrepreneurs to learn how to recognize when their business models will benefit from patent protection, as opposed to listening to “experts”–most of who benefit from the patent system. Otherwise, these entrepreneurs will waste money and, perhaps worse, will center their activities and spend their money on obtaining a patent, not on getting consumers to see and adopt their product or technology. And, when we talk about job creation mechanisms, we should first look at the viability of building a sustainable business model around the innovation that will require US-based employees. If the longevity of the company in some way depends on the ability to keep competitors from selling the same or similar product, than it is correct to say that the presence of patent rights are an important aspect of US job creation. In my experience, this is rarely the case: if it was true, we would not have seen the massive job losses of the last several years even while the number of patents has escalated dramatically in recent years.

As for patent attorneys, only when we can figure out how to make money by advising clients not to get patents, will we be truly able to provide unbiased advice that directed toward creating value for our clients, as well as ourselves. I have written about what I see as fundamental flaws in the IP lawyer business model previously, and will not go into detail here. Suffice it to say, however, that there is no doubt that we IP lawyers had better figure out how to provide advice that better aligns with the client’s underlying business model or many of us will find our practices dry up as entrepreneurs and those who invest in them become better educated as to the actual value that patent rights bring to their ventures.

Off my soapbox now.

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An Innovation Expert Sticks Up for IP Lawyers!

2010-08-20T01:18:52Z

IP lawyers and Open Innovation teams can make great teams.

Regular readers of this blog know that I strongly believe that IP lawyers can do a whole lot more to better serve the needs of innovation teams. Much of the disconnect between what IP lawyers do and those of their innovation clients can be traced to misalignment of incentives, as well as a structural and cultural impediments that makes it difficult for legal and business experts to communicate and work well together. Last week, along with my good friend Deb Mills-Scofield and Mike Riegsecker of Menasha Packaging, I co-led a workshop on this topic at the 2nd Annual Open Innovation Summit. The workshop was well-attended, and the response was very positive.

Also, it appears that my message got through to at least one attendee, who is a prominent innovation consultant. Keven McFarthing of Innovation Fixer wrote this post in which he asks open innovation professionals to not just look at their IP lawyer as an “extraneous irritant,” but instead as a member of the team. Kevin also provides these recommendations:

Ideally, make the lawyer a member of the formal team. If that can’t happen, treat them as if they are on the team.
Don’t leave the final decision up to the lawyer. After all, legal risk is only one part of a project, there are risks associated with R&D, manufacturing etc. You should have a senior decision maker who decides what will happen based on ALL the inputs.
When it all works out, say thank you. If it doesn’t work out, treat it as a collective setback for the team, not the individual who put their neck on the line to try to help the innovation succeed.

I agree with all of these, but I would add to the first one that innovation folks need to recognize that their colleagues in the law department–in particularly legal management–may not be accepting of lawyers being closely integrated into a business team due to a perception that they “are getting too close to the business.” Innovation managers should be on the look out for signs that their lawyer might be effectively be getting “beaten up” for going out on a limb for the team. Moreover, innovation professionals need to understand that by asking their IP lawyers to take risk for the sake of the business, the person who is going to suffer most if that risk plays out is the IP lawyer. That is, if the innovation team embraces IP litigation risk and legal cost or litigation ensues, it is the IP lawyer who will experience the most “blowback.” Innovation managers must therefore be willing to provide their IP lawyers with the resources–both by way of budget and staffing–if the innovation decision leads to undesirable legal results. I provide more detail on this subject here.

It’s great to see innovation folks sticking up for IP lawyers! Thanks, Kevin.

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2 Ways to Reduce Open Innovation Risk: Convert the Naysayers and Bring on the Seasoned Veterans

2010-08-10T17:58:29Z

Open Innovation efforts are often perceived to result in inordinate risk to the organization. This doesn't have to be.

Open Innovation is risky. It’s like letting a stranger in your house to see what valuables are there for the taking, and letting them keep the key to your secrets even after you finish working with them. For some, this perception of risk is enough to stop any attempts of Open Innovation in its tracks. Other corporations respond to the risk by “lawyering up,” which, at a minimum, markedly increases the costs of proceeding or, at worst, causes the relationship to break down before any collaboration can occur. And I, as IP counsel to a number of corporations in my prior life, must admit to being responsible for shutting down Open Innovation due to my role as IP risk the person responsible for mitigating my clients’ IP risk.

After leaving the Friendly Confines of defined roles and responsibilities set out in my corporate and law firm life where it was clear that my job was to stop risky behavior, I now realize that this approach to risk mitigation was, quite simply, wrong-headed and misdirected. Indeed, halting or slowing third party collaboration as a result of perceived risk is actually more risky than taking the leap into Open Innovation. I mean, how risky is it to assume that the smartest people are in your building, and that you can’t benefit from help by others not on your corporate payroll? Ok, maybe you don’t need the smartest people ARE in your building if all of the following are absolutely true:

You hire flawlessly
Your consumer insights are perfect
Your team’s execution of innovation–from inception to the shelf and beyond–will be 100 % on the money

But, when do all of the stars align to make this happen? The data show that the failure rate of new products is shockingly high, the result being that, even in the best of times, corporations succeed in their product development efforts only a small amount of the time. The odds are even lower today, as discussed in more detail below. So, regardless of whether your company’s decision-makers believe that Open Innovation is risky, I believe that most organizations must bite the bullet and move forward to make it a go. In order to be successful (and not only have a single chance to try Open Innovation), one must be able to navigate the corporate politics that would stop the process, as well being able to minimize the risk associated with going outside for new product ideas. I think I have a solution to each of these concerns.

With regard to generally dealing with the “Naysaying Nellies” in your organization who might think Open Innovation is too risky, I have put together a case study for a workshop I am co-leading a workshop at the 2nd Annual Open Innovation Summit this week in Chicago with my good friend Deb Mills-Scofield and Mike Riegsecker of Menasha Packaging. This is the second time I have participated in this event. The organizers report that the number of attendees has doubled, with 150 people scheduled to attend. I like the make up of this event because it is focused on providing folks with actionable insights about Open Innovation to take back to their organizations so they can better implement Open Innovation, as opposed to other gatherings where people discuss how great Open Innovation is, but not how to do it. If you are interested in Open Innovation and its implementation, I suggest you keep an eye out for the Twitter feed this week: #OIS10. I will post some output from the case study, which we will work on with a group of 20 or more experienced innovation and product development professionals who are participating in the workshop.

In this workshop, we are going to discuss our experiences with corporate culture and incentives as these relate to achieving success in the world of Open Innovation. Much of what I am going to talk about is how those seeking to implement Open Innovation in their organizations can understand the naysayers better–by way of incentives, thought processes and mind sets–so that they can reduce the possibility that decision-makers in their corporations will put the kibbosh on their efforts. We are going to be using this case study to help attendees understand the roles and incentives of the senior members of their team to better help them achieve buy-in from those in their organization with decision rights.

Also, I look forward to hearing from others how Open Innovation is becoming more entrenched in US corporate management, as I predicted way back in 2008. It is becoming more clear to me that Open Innovation must be the way forward for US corporations now that there can be no dispute that the last couple of years of “extreme downsizing” has left many organizations without the necessary skilled professionals to create the viable innovations needed to fill their product pipelines.

Think about it: as we know, even in the best of times–with the best teams and appropriate financial investment in place–the failure rate of new products is ridiculously high. And, in what other area of modern life would we accept such a high failure rate? Historically, companies have accepted this number because “that’s just the way things are,” and they would plan accordingly by establishing contingency plans that would help to spread risk of such a high failure rate. Today, corporations are running extremely lean and, perhaps more significantly, have through layoffs or attrition scaled back the number of senior level people on their staffs. In other words, in they don’t rebuild, they reload. After several years of shrinking sales, many corporations are acutely feeling the need to see a big win in the marketplace, if only to demonstrate to investors that the company remains a good bet. So, after years of “extreme downsizing,” many corporations are effectively fielding rookie innovation teams, just when they need to win the product development Superbowl. Yes, they can get lucky, but as most coaches know: in this situation, your odds are better if you rely on an experienced coaching staff and bring in some seasoned players.

Because of this “extreme downsizing,” however, the experienced coaches and seasoned players are not on the usual playing fields; that is, they are not in the corporations where they learned their crafts (on someone else’s dime). Moreover, many of them–presumably the best and most entrepreneurial of them–are not sitting on the sidelines after being cut from the corporate teams for which they have been playing for many years. In my experience in the past 3 years (since I myself was cut from my corporate gig), there is a huge pool of highly skilled product development and innovation professionals working outside of the confines of the formal organization who are enthusiastic about becoming entrepreneurs after many years working for “the Man.” These are the folks who would have remained the backbone of their corporate innovation and product development management teams, if only they had not grabbed the chance to take early retirement or had been laid off to meet corporate cost cutting goals.

In the past year or so, I have seen countless numbers of start-up companies where seasoned corporate professionals are calling the product development and innovation plays. While not all of the ideas that serves as the focus of these start-ups are the so-called “killer apps,” many may very well be. Those corporate leaders who seek to capitalize on the value of Open Innovation can off by filling their innovation pipelines at a lower cost, while still minimizing the risk of going outside their organizations, could be well-served by seeking out and engaging these more senior folks. Given their experience in the inner workings of corporations, it is likely that these experienced innovation professionals will be able to understand the needs of those still working inside the corporation to provide a better overall work product in a more efficient manner. These seasoned professionals will also be more likely to have realistic expectations–both financial and otherwise–of what will happen when collaborate with a corporation. I think that this knowledge will lead to a better up-front negotiation regarding Open Innovation opportunities and, I dare say, are less likely to think that litigation is the appropriate solution for business disappointments. Moreover, these “gray hairs” will provide added benefits by transferring their deep knowledge to a younger generation of innovation professionals.

For lean corporations seeking to see whether Open Innovation is the right approach for them, while still hoping to minimize the risk of going outside their organizations for new product ideas, I suggest that they look for “gray hairs” who are nonetheless young at heart. It might take some work to find the appropriate collaborative match for your organization, but the payoff for your search could markedly improve the success rate of your current and future innovation and product development efforts.

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Corporate Business Leaders: Want to Create Value from Your IP? Stop Making it Your Lawyers’ Problem.

2010-08-07T16:36:26Z

Business leaders should expect their lawyers to provide them with legal guardrails, not roadblocks for their business.

One of the biggest complaints I get from corporate innovation and product development professionals is how risk averse their lawyers tend to be about dealing with intellectual property (“IP”) issues. It doesn’t matter whether these business people are talking about their outside or in-house lawyers, either. To a person, the complaint generally tracks the contention that their IP lawyers “don’t get what they do” and, as a result, make it more difficult for them to meet the objective of adequately filling their product pipelines and introducing innovative new products that will keep the lights on at their corporations.

I have written and spoken about this topic on several occasions. But, recently, I have been thinking a lot about the issue of risk aversion and IP lawyers for a couple of reasons.

First, I am co-leading a workshop at the 2nd Annual Open Innovation Summit next week in Chicago with my good friend Deb Mills-Scofield and Mike Riegsecker of Menasha Packaging. In this workshop, we are going to discuss our experiences with corporate culture and incentives as these relate to achieving success in the world of Open Innovation. Much of what I am going to talk about is how those seeking to implement Open Innovation in their organizations can understand their lawyers better–by way of incentives, thought processes and mind sets–so that they can reduce the possibility that their lawyers will put the kibbosh on their efforts.

Second, I have recently wrapped up a substantial project with a large consumer products company where I worked jointly with a VP of Innovation and her legal team to navigate a competitor’s highly complex patent portfolio to provide product design direction in the face of substantial patent infringement liability risk. In the past 7 years, the competitor has obtained a number of patents that appear to be of questionable validity. In short, the competitor obtained multiple patents on a consumer product that closely match products that existed in years prior to the date they filed for patent rights. At a minimum, most of their patent filings reflect obvious improvements over the prior art and, as such, should not be patentable. Moreover, the competitor’s strategy clearly was to “throw stuff against the wall to see what would stick” in regards to its patent filings and, somewhat surprisingly, some of the filings “stuck.” In other words, the competitor had been successful in obtaining patent rights that are likely invalid, but which nonetheless held a presumption of validity in the eyes of the law.

For my client’s perspective, the competitor obtained patent rights that effectively prevents his company from participating in the market by offering a product in a growing category. My review of the patents and patent filings demonstrated that the patent examiner who allowed most of the patents to issue was either asleep or incompetent (or both), and the competitor capitalized on this to file continuation patent applications incorporating increasingly complex language to describe was actually a pretty darn simple product. This complex patent language was certainly a good strategy: in recent months the “kinder, gentler Patent Office” has granted even more of these filings, one of which covers a product that has likely existed in the marketplace since at least the mid-1980′s.

There is no question that the competitor’s actions in regard to its patent strategy is–in a word “skeezy”–and, some might say, could amount to a violation of the US antitrust laws. But, from the perspective of my client’s IP lawyers, the multiplicity of patents and pending patent applications gives rise to a huge potential for risk. As we know, the role of the IP attorneys is to reduce or eliminate such risk, and they are incentivized by the organization to do so. Therefore, the natural tendency of the attorneys is to not be open to allowing the innovation team to undertake a project direction that, at best, heads toward the possibility of expensive legal opinions and, at worst, contentious litigation involving the competitor’s complex patent portfolio. So, even if the IP lawyers ostensibly understand the need to investigate whether the business situation requires that they should develop a competitive product, they naturally will want to move in a different direction.

In other words, the lawyers’ inclination is to act as “traffic cops” for my client’s innovation team and set up roadblocks effectively preventing the business teams from moving forward with their innovation pathway, as opposed to providing them with “guard rails” within which they can operate with minimal IP legal risk. Note that the “guard rail” metaphor does not mean that the innovation team always “stays within the lanes;” rather, it means that the lawyers provide them with the ability to prevent their “crashing and burning.” In the process of developing and commercializing a successful innovation, they might indeed scrape against the guardrails or travel into oncoming traffic–hopefully not to experience a head-on collision. But when the lawyer provides the proper tools and information to prevent them from careening off a cliff, the innovation team will likely get to their business destination faster, with fewer obstacles and at lower cost.

At this point, IP strategists like myself normally say something along the lines of “to succeed in IP strategy, you have to ensure that incentives are aligned between the business and legal teams.” There’s nothing wrong with this statement–certainly, there is no question that success in creating and maximizing corporate IP value requires the business and legal teams to work together to advance this common goal. However, in working with this corporate client recently, I realized that this was a correct, but misguided, approach to the issue.

In working with the VP of Innovation at this large corporation in his collaboration with his in-house and outside legal team, I realized something that had never occurred to me: no matter how well aligned the legal team was with the business team, the people who would suffer most if the competitor brought suit for patent infringement were exactly the people being asked for permission to proceed in this potentially risky direction. This was like asking the traffic cops to place themselves in the path of traffic to likely get run over by their own advice. Most IP lawyers, as well as most traffic cops, would no doubt try to slow things down, if not totally stop the cars, lest they become “human speed bumps.”

So to obtain true alignment between an organization’s business and legal teams, the decision-makers driving the innovation process and who are seeking help from their legal team must engage closely with not only their lawyers, but also the legal process. This means that the business team must not only agree to pay the bills for any outside counsel legal expense–which is generally the case at most corporations–but they must also provide the legal team with the internal resources that they will require if their workload increases as a result of the business team’s moving in a direction that that is more likely to incur legal effort and cost. In addition, the business team must also embrace the fact that it was their decision to incur more risk and, as such, they must commit in advance not to penalize their legal team–whether actually or implicitly–for the unpleasantness that will result when increased cost, litigation and business difficulties later ensue. In other words, to achieve success in IP strategy, both the legal and business teams must work in concert as a cohesive team, much as a pit crew does in a NASCAR race.

So, rather than restate the old saw of “alignment of business and legal teams is needed,” I think we need to reframe the conversation to something that clearly illustrates the commitment by both teams required for success. Asking only for the legal team to change the way it addresses IP legal risk is a task destined to fail at most organizations, and for good reason: who wants to willingly throw themselves in the path of a speeding automobile, as most business people are asking their legal teams to do when they say “let’s choose the direction for our innovation that opens us up to the highest risk of patent infringement liability.”

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IP Lawyers: Enough about Bilski Already! Instead, Start Spending Time on Things that Create Value for Your Clients

2010-07-15T13:38:15Z

The response to Bilski demonstrates that IP Lawyers are attracted to star power just like most everyone else

Clear your calendars! Bilski was decided just a few weeks ago, and already the schedule is filled with at least 3 Lunch and Learn seminars in the Atlanta area about “what Bilski means to your practice.” If you can’t make these due to your Summer vacation schedule, don’t worry: there are countless blog posts and “Urgent Practice Alerts” available, each of which reviews, abstracts and analyzes the case and its minutiae.

Come on Folks: at the end of the day (and after 70 + obtuse pages of reading), Bilski was a very narrow ruling. We know what it means, and very few inventors will be affected by the holding. This means that very few attorneys should do much more than read the abstracted case, and then move on.

So, why are my IP lawyer peers spending so much time talking about a case that doesn’t matter much to our clients or practices? Maybe it’s because the Supreme Court deigned us with their presence by hearing a patent case. Whoo Hoo! But, that’s like being really interested in Angelina’s new tattoo “that’s only for Brad.“ There I said it–fretting over Bilski is akin to Celebrity Stalking, IMHO. In short, for most of us, Bilski is much ado about nothing, but we lawyers seem to think that by talking about something everyone else is talking about, we are somehow smarter and more worthy of recognition from clients and peers.

So, instead of spending time writing missives to clients that will immediately be put in the circular file or preparing for a seminar where you will demonstrate to your peers how well you can read and analyze obtuse Supreme Court cases, how about working to create value for your clients? Instead, I suggest you spend time helping clients address an issue that will be much more likely to effect them and their business bottom line.

I have set out a few examples below, but the point is that IP lawyers need to become more relevant to business. Spending countless hours talking about marginal issues makes us seem marginal to clients. If we don’t become more relevant to clients in this world where business is taking a harder look at IP, we will be left behind talking about case law with each other.

Some examples of ways to create value for clients come to mind as follows:

Helping them monetize the patents you have charged them handsomely for over the years
Providing strategic advice about how they can get better patents for less money
Sitting down and having a heart to heart talk about their business goals and how you and your firm can help make those happen
Taking a business class so you can communicate better with your clients and understand their goals

If you must talk about Bilski, how about this novel idea: pick up the phone and call your client, if just to say “don’t worry, this Bilski case is not relevant to your busiiness.” But, you’d better not charge them for this call!

Photo: Flickr:tincanorange

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IP Strategist on the Radio: 2 Recent Interviews

2010-07-10T13:41:37Z

IP Strategist on the radio!

As my consulting practice becomes ever more busy, blogging must be relegated to times when client work is not pressing–that ever-elusive free time. But now that Summer is here, free time has been hard to come by–it’s hard to write when at the pool with the kids or driving to Grandma’s house–but I haven’t been totally giving up my outreach. I recently participated in 2 radio interviews where I discussed the value of IP Strategy for entrepreneurs and inventors.

Here I was on the 40 Year Old Business Virgin Radio Show with Dave Savage, Leader and President of The Inventors Association of Georgia and a person named Mohamed who has a really cool entrepreneurial story (sorry I didn’t get his last name). The hosts of the show, Kile Lewis and Ted Jenkin, are irreverent business advisors, and you should enjoy the show. (I appear in the first half). They also made a short follow-up You Tube video (I had no idea I would appear on video and dressed totally inappropriately, but–oh well).

I also appeared with Dave Savage on the Community Perspectives Radio Show (link here: IAG Interview–opens to YouSendIt.com then your media player), along with Narayanan Subramanian. In this show, we talked about the Inventor’s Association of Georgia and its value to entrepreneurs and inventors. Dave had some very smart things to say about the difference between the two, and this is worth a listen, if just for that piece.

I hope you enjoy these interviews. Lots of substantive blog posts are running around in my head, and I look forward to sitting down before the computer soon–maybe from the beach in Florida!

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How the Northeastern Indiana Amish Serve as a Business Lesson about Patents

2010-06-25T14:31:03Z

The Amish can serve as a lesson for business about patent strategy

I have been spending time in Northeastern Indiana–the land of my roots–to introduce my children to their aunts, uncles and many, many cousins. Catching up with extended family has made it difficult to formulate a post in the past couple of weeks, but I have a few moments this morning and wanted to capture a thought that has been rattling around in my head since I arrived here.

Anyone who has spent time in this part of the U.S. will be familiar with the presence of the Amish as part of the cultural landscape. My children, as city kids, are fascinated whenever they see a carriage with families traveling along the side of the roads. However, I invariably consider about how stifling I would find it to not be able to interact with the outside world in the way that is familiar to me. In short, I wonder what it would be like not to be able to be part of the modern world and immediately subtract all of this from my “happiness quotient”, which is the same view I have held of the Amish lifestyle since I was a child.

Earlier this week, I was sitting with my uncle, who is a prominent small town lawyer, about an Amish client of his. He was going over some documents while we were chatting, and I said “So how do you talk to him? Do you have to drive out to his homestead?” My uncle laughed, and said “Oh, Jackie, they all have cell phones here.” And just then, the phone rang with the Amish client, and they proceeded to have a conversation about his substantial financial assets.

After his call was over, my uncle revealed some very interesting things about the “modern” Amish of Northeastern Indiana. Unlike years past, many have become very prosperous by engaging with technology such as cell phones, satellite Internet and generators. One of his clients has owns a factory with 100 employees that makes the “Amish-made” products that are sold in Bed Bath and Beyond. As he related this information, I recalled that the Amish houses we passed on the way up here looked very new, as opposed to the lived-in look from the Amish of my childhood memories of the 1970′s and 80′s. (The carriages we passed on the road were certainly much more modern and well-appointed with shock absorbers and safety equipment than the one in the picture above.)

So what do the Northeastern Indiana Amish have to do with maximizing your businesses’ IP assets? Well, these particular Amish can be analogized to companies that do not wish to maintain the status quo in their dealings with patents. The business success of many of the Amish in this area is a result of their finding opportunities for prosperity even in the face of strict religious dictates. All of these successful Amish business people comply with the requirement not to be wired to the electrical grid, but at the same time they have embraced alternatives that result from innovation in the outside world and, as a result, they may have even jumped ahead of their non-Amish neighbors.

For most of us, not being wired to the electrical grid would be viewed as an insurmountable impediment to prospering in today’s world. Similarly, the restrictive nature of patents–that is, the viewpoint of patents as setting up prohibitions against business actions and the attendant costs of compliance–would seem to create barriers to those wishing to create and maximize business value. This is especially true for those who may be “late to the party” in comparison to competitors that may have generated patents portfolios or for those who might have fewer resources to generate substantive patent resources. I submit that by looking at patents from the perspective of what opportunities they provide, as opposed to the risks posed, companies can better prosper in an otherwise ostensibly highly restrictive environment.

Of course, there are risks in using creativity and innovation to prosper in a world of restrictive rules. The Amish who use cell phones, satellite Internet and generators could be wrong about the religious correctness of doing so, and might end up in a very undesirable place for all of eternity. Those business leaders who attempt to find business opportunities through strategic navigation and management of their own and the patents portfolios of others may end up spending a lot of money on patents or getting tied up in litigation (both of which could be the business equivalent of a bad fate of the Amish at the end of their lives).

The risks associated with these undesirable religious and business outcomes may be enough to prevent people and companies from capitalizing on opportunities and, as a result, prospering in a way they could not have otherwise. Certainly, there are many Amish who chose to live in the more traditional manner as a result of their leader’s viewpoints that it is religiously inappropriate to capitalize on innovations, even those that do not clearly violate dictates laid down in the past. Indeed, the Amish of Northeastern Indiana seem to be on the cutting-edge of their peers in other parts of the country, from what I have read. Similarly, there are many companies that rely on their lawyer’s assertions that patent issues create risk and raise costs and, as a result, they should “not go there,” and take a conservative approach to dealing with patents.

My expectation is that the more traditional Amish congregations get along fine (relatively speaking) “coloring inside the lines” of their ancestors’ religious rules and are probably less concerned that they are making decisions during their worldly life that will effect them for all of eternity. And, at the core, the comfort–or lack of risk–associated with making such conservative choices may be what allows them to sleep soundly at night, if not allowing them to be particularly prosperous in the worldly sense.

Likewise, those companies that decide to wholly avoid becoming substantively engaged with patent issues, both theirs and those of competitors, probably end up doing just fine, too. These companies will also not have to deal with the consternation and cost of dealing with patents, a fact which may make make it easier for its business and legal leadership to sleep well at night. But, as the Northeastern Indiana Amish show us, maybe there’s a way to find opportunity where others see only risk of “eternal damnation” in the business sense. At a minimum, companies that embrace such an approach can at least likely say that they had no regrets, even if their choices ended up being the wrong ones in the eyes of the legal rule makers. And, perhaps they can prosper in a way they otherwise not possible if they had followed the risk-free advice.

Photo: Flickr/nanaaphotos

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Innovation is Sprouting in US Patent Office: A Plea for Flexibility from Patent Practitioners and Interested Parties to Allow the Necessary Changes

2010-06-09T18:53:44Z

This blogger is keeping her fingers crossed that necessary changes will be allowed to occur in the US Patent Office.

Anyone who has practiced IP law for a few years can attest to the transformations happening in the US Patent Office over the last year. In my opinion, Director Kappos is more than a breathe of fresh air over his predecessors, he actually knows what he is doing! Also, regardless of what one may think of President Obama’s other policies and actions, one cannot question that his leadership is resulting in real attempts at innovation in the arguably previously moribund Patent Office.

As a experienced patent practitioner, the last several years have been very demoralizing. I actually made the decision to stop working as a patent prosecutor because, quite simply, I became weary trying to educate junior examiners about the deeply nuanced intricacies of patent law. Worse was trying to explain to clients why their patent application covering an important commercial innovation could not get approved in the Kafkaesque environment of the circa 2000′s US Patent Office or why their competitors were seemingly able to get ridiculously broad patents covering the prior art.

From my vantage point as a 15+ year patent professional, it is clear that the absence of experienced leadership in the Patent Office in recent years served as a primary cause of the problems that we face today. Those thinking I am overstating this point would do well to remember that the first Director of Patent under President George W. Bush brought to the job the stellar credentials of having been the Chief Prosecutor of the Clinton impeachment trial, who needed a safe place to land after losing his Arkansas reelection bid. (One must wonder whether he knew what a patent was before he took the lead role in Patent Office.) The second Director, Jon Dudas, was only slightly more qualified: as a former legislative aide, he had probably seen a patent before being appointed to head of the Patent Office, but not much more. And, the appalling lack of competent leadership in the Patent Office occurred at the time the number of patent filings was increasing markedly: in 2000 there were approximately 330K patent filings versus about 435K in 2006. In my opinion, things went to Hell in Hand-basket in the Patent Office from 2000 to 2008.

At the risk of being called a cheerleader for Director Kappos (which I am not), I am heartened by what is coming out of the Patent Office. In the past several months, we have seen remarkable changes in its operations. As one example, currently allowance are at an all-time high, which I have written about here. More recently, the Patent Office has announced a program to advance pending applications by abandoning another application and a 3-tiered application speed track. These ideas have not yet been adopted, but they show an attempt by Director Kappos and his team to try new things to address the horrendous application backlog. Also, Director Kappos is reaching out directly to the interested public by speaking about policy and blogging about the Patent Office, unlike his predecessors who seemed more interested in photo-opps. (As to the last point, there was a running joke in the practitioner ranks in recent years that the only thing undergoing an upgrade on the Patent Office website from 2004-08 was the picture of Jon Dudas shaking hands that changed every week–sometimes more.)

There has and will be much push-back from the practitioner corps about some of the ideas floated to improve the operation of the Patent Office. Of course none of these ideas are perfect and, indeed, might cause adverse effects to some patent filers. Historically, this sort of thing has typically resulted in loud arguments from a relatively small group of affected people, such as a the often-exalted “independent inventor.” In the past, these strong voices have been enough to stop changes in the Patent Office rules, but often those against changes were woefully bereft of facts supporting their positions.

Indeed, with regard to re-vamping of the first to file rule, to which the US is the only country in the world to adhere to, Director Kappos has stated that far less than 1% of inventors (actually 0.01%) could be affected by the first to file . The fact that the first to file rule is really not important at all of to the workings of the US patent system or, more importantly to the rights of the vast majority of inventors should mean that we will be looking at legislation in the near term that brings this country into conformance with the laws of other countries.

The refreshing thing to me today is that under the direction of Mr. Kappos, the Patent Office is looking at facts upon which to base its rule-making, as opposed to hypotheticals about how proposed rules might effect certain types of inventors who, in reality, might not even exist. (Of course, there are many in the patent business who don’t let facts get in the way of their opinions, but every business has folks like these.)

Many of my colleagues, some of whom I consider friends, seem to exhibit an almost knee-jerk response to proposed changes in Patent Office rules, and those being proposed today are no exception. For non-practitioners, it may seem like such arguments from experts serve as substantive proof that proposed Patent Office rule changes are wrong-headed or, at a minimum, half-baked. Those on the outside would be well-advised to realize that we lawyers like to argue and find fault as a matter of our natures. Also, we tend to argue on the margins–that is, find exceptions that to prove the error in the rule because, quite simply, that is what we get paid to do. Too often, we get hung up on hypothetical situations that demonstrate that a proposed Patent Office rule is not perfect in its application. This lack of perfection has served to prevent needed changes in the past, and likely will prevent improvements in the future, especially when they can be stopped by competent (and expensive) lobbying to ill-informed Congressmen and their staffers.

So, to my colleagues who think the best way to react to proposed rule changes by the Patent Office–back off for once! Director Kappos and his team are trying innovative ideas in an attempt to fix the highly dysfunctional operations of the Patent Office. Such innovations reflect what most people say is the biggest problem with government: that it fails to act like a business. Innovation is what businesses do. And, like in business, not all of these innovations will work and some people will be negatively affected, but if we let perfection be the enemy of the pretty good, we will never see any improvement in the Patent Office.

Of course, the Patent Office can’t be allowed carte blanche to innovate, as its administration has been known to make some pretty boneheaded decisions–the 2007 continuation rules are a prime example of such stupidity in the name of supposed “efficiency.“ But, significantly, those rules were enacted under the previous Patent Office bosses who, as indicated, were put in charge not because of their expertise but instead for their political connections.

Also, as with any government rule-making applied in a monolithic manner to an entire class (here we are talking about all patent filers), there will be some who get the short end of the deal. To ensure that those with the most to lose have their interests protected, we definitely need experts advocating on their behalf. However, those voices should not be allowed to prevent improvements from occurring that will benefit the system in the aggregate. At the end of the day, the rules may apply to entity size or some other delineating feature that can serve to protect the “little guy,” while still allowing improvements to occur for most. (This wouldn’t be unheard of: the US patent rules and laws expressly address entity size when collecting fees.)

So, in conclusion, I am hopeful that Director Kappos and his team will be given the latitude to experiment (at least within the bounds of their rule making authority under the APA) by the practitioner community and Congress, as well as the courts. Change is never easy, but there can be no doubt that change in the Patent Office is critically necessary. Given the importance of the patent system to the success of the US as a major industrial power, we can’t afford to stick to the broken way of operating that has been proven to be a failure–even if it is more comfortable for patent practitioners.

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