Innovating through collaboration with external stakeholders is becoming a key strategy in many industries. But it raises all sorts of problems in intellectual property rights management that call for rights management policies and procedures.
By 2014, two-thirds of Fortune 500 enterprises will design open innovation networks to engage employees, customers, business partners and Web communities, according to a February 2011 study by Gartner Inc. titled Use Innovation Network Design to Unleash Open Innovation. Cross-enterprise teams will require that their respective companies’ intellectual property (IP) is readily accessible on an as-needed, confidential basis. As a consequence, access to royalty and licensing structures and forecast models will be needed to make sound financial decisions.
Using existing IP in collaboration with partners is not the only revenue opportunity. For example, in the semiconductor industry, where revenues are forecasted by Gartner to reach $314 billion this year, the challenge is to innovate and deliver within a fast-moving market, especially the consumer market for tablets, smartphones, iPads and mobile phones. Because the research and development (R&D) investment ranges from 10% to 15% of revenues, IP reuse is important in helping to minimize continued R&D costs and when responding to requirements that often are customized to a corporate buyer.
The pressure to produce rapidly while dealing with the increasing complexity of designs, processes, material technologies and manufacturing equipment make this industry a hotbed for quick success or failure. Companies need to quickly access IP information and any IP prototype variations, tying these uses of IP into revenue and forecasting models.
Mitigating IP risk
Many companies consider IP protection fundamental to their survivability, especially manufacturers with significant R&D programs, or companies that divulge, by market necessity, their IP to industry partners or customers. A 2008 study by the semiconductor industry association, SEMI, showed that close to 90% of the companies polled had experienced some form of IP violation, which strongly implies that IP misuse may likely cross many manufacturing sectors. IP violations occur through infringement, counterfeiting and theft, and often these losses do not come from competitive leaks, but surprisingly, from customers or industry partners.
But if the perpetrator is identified and lawsuits are initiated, legal processes are expensive and slow, and court decisions may come long after a market opportunity has passed. Drawn-out court cases offer little incentive to take any action, but often, legal action is never initiated because the plaintiff lacks solid evidence or fears repercussions from customers or partners.
Those with the most investment in their IP have the most to lose. The medical device industry, with global revenues of $209 billion, relies heavily on protecting patents, as shown by its lobbying for changes to the Patent Reform Act of 2007. According to a 2010 study on R&D investment by Booz & Co Inc., the health care and medical device segments invest more than $111 billion annually to manage and build the next generation of medical technologies and treatments. Protecting patents and IP is absolutely essential for the survival of every medical device company.
Changes in operating models can create the need for active management of IP rights and the revenue stream association with those rights. For example, a major engine manufacturer transformed from its original business of assembling engines for the value chain to a more diversified model. In the new model, not only did the assembler do the basic final product, but it also provided services, engine subassemblies, and IP to suppliers so they could perform value-added processes such as coatings and finishes. It then repurchased the components from the suppliers at a reduced cost for final assembly.
Rights management definition
Collaborative dialogue between customers and technology providers is the bridge that leads from the IP dilemma to a defined solution. By first defining rights management, managers will be able to better direct their thoughts and actions toward identifying the most critical rights managements activities for their organization.
Rights management focuses on rights and privileges in the use of intellectual property at a program level. Patents, designs and trademarks are identified and cataloged, and confidentiality is delineated, which helps to determine IP asset properties, such as who can access which aspects of an asset. IP protection policies, codes of conduct and best practices are enforced, all through clear business processes. Stakeholders receive confidential access to IP information only after those processes are used and releases are authorized. Integrating the rights management workflow with financial management reporting and forecasting can allow companies to analyze the return on investment (ROI) of IP assets.
Rights management functions can be broken into three specific yet interrelated areas that transcend the activities of create, manage and monitor. They include:
- Patent management: Tracking the patent process from concept to formalization and managing any potential or realized infringement.
- License and royalty management: Tracking who has access to and use of what IP through associated contracts, and managing licensing or royalty revenues or costs.
- Asset management: Defining and cataloging each IP asset, including value and use opportunities.
Patent management: Once a patent is published, it can both guide competitors toward their own inventions and protect the invention from competitive use. The best patent decisions come from a strong relationship between strategic thinkers, including corporate executive management and R&D. Steps in the concept and publish stage include definition, analysis, research, resource planning, patenting and publishing. The second stage of “exploitation” includes decisions surrounding regulations, licensing, outsourcing and tying the patent into product lifecycle management.
License and royalty management: Manually tracking royalties and licenses can easily result in billing errors and lost revenue opportunities. Integrating into existing financial models can lower processing costs, increase accuracy and provide visibility for analyzing and forecasting other market opportunities.
Asset management: Simply defining IP assets opens up strategic opportunities through better access and understanding of the assets. An IP asset repository can create a foundation for better IP control and visibility by leveraging existing processes, including customer, product, inventory and forecasting systems in CRM, ERP and PLM systems.
With the right technology foundation, the following benefits can be realized:
- Improved ROI analysis by individual IP investment.
- More accurate forecasting based on the ability to track licenses and royalties.
- Increased opportunities for clear and defined IP reuse.
- Improved productivity and management effectiveness from easier access to and visibility into IP information.
- More grounded business decisions thanks to better visibility into expiring rights.
- Fewer infringement incidents by having a clear, watchful eye on who sees what and when.
- Increased litigation success due to better court evidence on IP information and event tracking.
- Improved competitiveness due to rapid and well-defined partnering initiatives.
Rights management can be improved with technology like the long-term forecasting and quoting software used by some automotive manufacturers and their suppliers. Business objects for IP, such as royalties and licenses, can be defined and integrated with a company’s IT platform.
For example, by integrating product information from PLM or engineering systems with predictive financial models from ERP and industry program models, a predictive financial model for the IP portfolio can be derived. Just setting up better processes and metrics for tracking royalties and licenses alone may ensure that revenues are accurately collected and not overlooked.
Once each IP asset and its revenue models are defined, a manufacturer will have better visibility, whether for what-if forecasts, quotations, or invoicing, from having a single, integrated view into the entire manufacturing process, of which IP is often the central asset.
Organizations are often reluctant to make changes unless the change ties directly to a top priority for the company, but those that are the most dependent on their IP have the most to gain.
Armed with better rights management processes, manufacturers can harness new profits and mitigate risks.
William Newman is managing principal of Newport Consulting Group, a management consulting and software integration firm based in Clarkston, Mich. Contact him via email at email@example.com or follow him on Twitter (william_newman).
Liz Garnand is a principal with Newport Consulting Group. She can be reached by email at firstname.lastname@example.org or followed on Twitter (LizGarnand).
This article was adapted from the full-length version on the Newport Consulting Group website.