Wednesday, 25 January 2017

Corporate secrets in an age of innovation

It is with pleasure that we reproduce here an MIP guest post, published with Aistemos ahead of this April's IP Strategy Forum. In this post The Telegraph's Enterprise Editor Rebecca Burn-Callandar discusses transparency in the IP system. 
Corporate secrets in an age of innovation

More patents are being created each year than ever before and yet we live in a world of innovation that is steeped in corporate secrecy. Patents and other intellectual property (IP) rights may be public disclosures - a way to tell the world about your innovation - but the opacity of the existing system and an ongoing corporate unwillingness to adopt IP transparency means that we actually know very little about who owns what, and how those inventions are being managed, defended and monetised. By this, we mean disclosures about the IP owned, and how it is licensed or protected through litigation - even how it is described to outside stakeholders such as investors, be that on the balance sheet - which is very rare - or even internally.


Why the secrecy?


In Aistemos’ exclusive research, business leaders and IP experts from some of the world’s most innovative companies were split straight down the middle over whether increased transparency would be beneficial to their organisations.


This polarisation is indicative of several issues: that many business leaders may conflate transparency over patents, trademarks and other IP - their protected innovations, which are already in the public eye - with future R&D, trade secrets and business strategy - their secret sauce. It may also suggest that the ongoing lack of understanding about IP - an industry renowned for its complexity - could also be creating a culture of “don’t ask, don’t tell” within corporations. The results are alarming: according to ORoPO, an independent - and voluntary - register of patent ownership, as many as one in four IP records are currently inaccurate.


Innovation in the age of technology


Over the past decade, technology has reshaped every conceivable industry. But technology start-ups are slightly different from the businesses that were born 10 or 50 years ago. Their competitive advantage relies on their speed to market and their ability to crack complex problems faster than rivals, rather than simply how much money they have behind them, or their ability to do one thing well ad infinitum. As Klaus Schwab, founder and executive chairman of the World Economic Forum, wrote back in 2015, “In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.”


“In the past we had revolutions - perhaps they would be better described as evolutions - that came at a relatively slow pace, like long waves in the ocean,” he added. “The impact of the first Industrial Revolution, which began in Britain in the 1780s did not fully begin to be felt until the 1830s and 1840s. Today technological change happens like a tsunami. You see small signs at the shore, and suddenly the wave sweeps in.”


According to Bowman Heiden, deputy director of the internationally renowned Centre for Intellectual Property, business leaders’ reluctance to shout about their innovations can be explained by the dominance of technology-first firms in this latest industrial age.

“Most technology companies start from the position of secrecy concerning their innovation activities in general, and invention in particular, given the importance of protecting legal novelty as well as planning the timing of announcing new market offerings,” he explained. “This is a rather rational strategy for most firms given the competitiveness in tech industries.”
The benefits of greater disclosure

Innovation is hailed by business leaders, academics, and governments alike as a crucial asset, one to be celebrated and encouraged rather than hidden, neglected or crippled through inaction. Yet by refusing to commit to increased IP transparency, companies are hiding their light under the proverbial bushel.


Patents, for example, not only protect new innovations, they enable companies to generate extra revenue from their investment in R&D, either through licensing or litigation. In a recent report entitled “Can patent data predict the success of start-ups?” experts from MINES ParisTech, one of the most prominent and prestigious engineering schools in France, claimed: “Patents in particular are not only legal fences against competitors: they make it possible to license out technology, to build up partnerships or negotiate access to potentially blocking positions of competitors. They can also be sold on a stand-alone basis, and therefore provide security for investors.”


Jennifer Wuamett, Deputy General Counsel for IP and Litigation at NXP Semiconductors, who took part in the Aistemos research, noted that by having more data on the patent landscape in a market space can provide insight into the strength of a company’s IP position in key areas and help identify potential partnering and M&A opportunities” she suggested.


But Heiden points out that there is actually a cognitive dissonance in the world of IP over whether shouting about innovation, even when it helps build a brand or make money, is worth the risk. “For patents, the quid pro quo of disclosure in return for exclusivity is in the public interest but not necessarily in the private interests of the firm, depending on their business strategy,” he explained. Some firms looking to assert their patents may benefit from the element of surprise, for example.” This view was echoed by Joerg Thomaier, chief executive of IP at Bayer, the life sciences giant, who told Aistemos researchers, “I don’t believe there should be greater transparency when it comes to data about licensing. Early licences, for example, are strategic. Why would you open up that information to your competitors and tell them where you are heading?”


A new direction of travel


Transparency is now rising up the corporate agenda. Be it corporate remuneration, the gender pay gap, women on boards, sustainability or corporate social responsibility, companies are increasingly being either required, or gently encouraged, to show their hand. IP could well be one of the next facets of corporate life be to illuminated by the transparency spotlight.


Many studies have shown that companies demonstrating improved transparency tend to outperform their peers in a wide range of areas, from staff retention to investor engagement - all the way through to increased revenue and profit.


Many of the high-level executives interviewed for the Aistemos research also said that any move that helped to bring IP into the public domain, and generally demystify the area, would be positive. Even Bayer’s Thomaier, who has expressed concerns about excessive IP transparency, admitted: “Greater transparency on the patents covering a product would avoid situations where companies inadvertently infringe on our patents.” His main caveat: “For this to work, the whole industry will need to embrace the idea, and not all companies are open to greater transparency.”


The barriers to change


Transparency, in any facet of corporate life, is neither cheap nor easy. It may involve establishing a dedicated team to manage disclosures, could meet resistance from the wider organisation especially if adding further duties to already heavy workloads - and it could take months, even years, to show any real benefit.


Ian Cass, managing director of the Forum of Private Business (FPB), one of the leading voices of private enterprise in the UK, stressed that education will be key in creating a wholesale transparency movement. “If we truly are moving to a knowledge economy where the intangibles are the key areas of value, then we are moving to new territory,” he said. “Some companies will have thought about this but the majority will not; this highlights the need for educated discussion and sharing of information. Without this companies will take the safe option, which is keep your cards close to your chest and be overly cautious and secretive.”


Yet more businesses must take the plunge into transparency if we are to observe and measure the benefits. At the very least, a further move towards transparency could help meet the pressing need to tackle the public’s ongoing mistrust of big business. Corporate scandals have eroded consumers’ faith in large organizations - according to the 2014 Edelman Trust Barometer, 42pc of people around the world do not trust corporations. Concerted efforts to adopt more transparent business practices across the board may help rebuild this trust.


Staying ahead of lawmakers and regulators


Another reason that many business leaders are keeping a watchful eye on the evolution of IP transparency is to avoid falling foul of the law. Recently, we have seen the Securities and Exchange Commission (SEC) proposing changes to disclosure requirements about intellectual property. But progress is slow, and many companies have become adept at revealing less and less about their IP, while staying on the right side of the rules.


Ian McClure, a leading IP strategy adviser, wrote recently that while public companies in the US may appear to be required by law to disclose any and all information that may affect their value - which includes data about intangible assets such as IP - most skirt the issue. “It is not manifest that companies perceive any ethical or other obligation to provide more information about these assets or risks than blanket and boilerplate statements in their disclosures,” he said.


They may not get away with this strategy for much longer, he claimed: “Shareholders are becoming activists around intellectual property at an increased rate and additional transparency can make those activities less adversarial.”


The United States Patent and Trademark Office, a powerful voice in the global IP community, also remains in favour of greater transparency so there may be value in embracing a culture of openness before it becomes mandatory.


This topic is not one where there is a clear direction of travel. Nigel Swycher, CEO of Aistemos thinks that things will change: “There is an increasing amount of publicly available data about IP and its strategic role within a business. As companies see that there is much to be gained, and little to lose from increased transparency, I predict more openness - and this openness will increase the value, and decrease the risk associated with IP rights”.

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