Grasping intangibles: IP can slip through your fingers
Intellectual property may be rising up the corporate agenda but, among many organisations, it remains an esoteric issue. It is understandably difficult for many corporations to grasp something that is by its very nature “intangible”, with apparently only superficial connection to fundamental business operations. Thus the question remains: what active steps can business leaders take to ensure that IP is taken seriously?
The Aistemos IP Strategy Survey sought to solve this quandary. It asked senior executives from the world’s most innovative businesses how they have solved, or plan to solve the problem. Almost 80pc of respondents said that the most effective way to enhance the management of IP was to improve communication between IP and commercial teams. Some 65pc said that more organisations should appoint a high-level executive tasked exclusively with IP management: a chief intellectual property officer (CIPO). A similar number claimed that establishing an IP strategy team to report to the board would help IP become a mainstream issue. More than half of the respondents also recommended including IP issues on the corporate risk register.
The challenge of making IP a mainstream business issue
Many business leaders continue to underestimate the value of IP. Its impact on a company’s success goes way beyond licensing and litigation. For many it encompasses innovation, brand and people, and it lies at the heart of its ecosystem and supply chain. IP can also help organisations secure new business deals and seal lucrative partnerships. Yet, as demonstrated by the Aistemos survey, communication remains a significant challenge, as the language of IP and the language of business can be very different. The former is rife with jargon and complexity, the latter requires data and certainty. The challenge for both sides is to find a common language [on the challenges of jargon and responsibility for bridging the communication gap see our earlier post here].
IP analytics and tools like Aistemos’ Cipher [home page here; summary of sample Cipher analytics to August 2016 here], provide necessary help with business intelligence, but this is not sufficient. Without effectively communicating the value of IP and the related risks to the board, the integration of IP strategy into mainstream business strategy will continue to be beyond the reach of many. This is why David Kappos, former director of the USPTO and partner in Cravath, recommends that a combination of all four measures - better communication, a CIPO, an IP strategy team, and inclusion on the risk register - would embed IP into corporate culture and raise the prominence of IP. “IP is too important to leave to the lawyers,” he said. “It’s a business asset and should be treated that way. Establishing a business role within a company that regards IP as property and treated with the same rigour would be a step forward.”
Understanding the role of the CIPO
Many IP-rich companies including Apple, HP, Philips, Ericsson and Siemens, have created a CIPO role and appear to be reaping the benefits. The role is cross-departmental, to reflect the fact that IP touches every facet of business. It can help facilitate and enrich the role of other high-level executives, such as the general counsel, chief legal officer or chief technology officer, who deal with IP from time to time but who will usually have a broad spectrum of responsibilities and may be unable to make IP a priority. Of course, the other side of the coin is that these individuals may resent the CIPO encroaching on what they perceive to be their domain. And, while larger companies may find it useful to have this focus, it's not the first appointment for most SMEs.
Crucially, the CIPO goes a step beyond appointing a simple “head of IP”. The CIPO becomes a prominent individual within the corporate structure, putting them on the same footing as the chief operating officer, chief marketing officer and the chief financial officer, showing the entire organisation that IP is as vital to its survival as revenue, customers, and brand. The CIPO will be able to take a holistic overview of IP, rather than a focus on just patents or trade marks, and automatically involve IP in corporate decision-making and strategy.
According to Brian Hinman, CIPO at Philips, an effective, global IP strategy, when well executed, can lead to real cultural change within a company. “One issue is that few companies have the proper IP organisational structure, IP strategy or cultural mindset to be properly involved with IP issues,” he told Aistemos’ researchers. “The CEO and the entire C-suite have to understand why IP is important, how it enables innovation, and the value that it brings to the shareholders. IP leaders need to understand and articulate this vision with these executives. At Philips, the CIPO has a lot of autonomy, and makes all IP related decisions, in close alignment with the Executive Committee of the company. There is full transparency to the board of directors about how the IP strategy translates into value for Philips.”
Nestlé’s Valerio Nannini, Head of Strategies and Performance, sees the challenge in the same way: “IP needs to be valued by organisations. What is necessary is to move from a reactive to a proactive approach. Businesses must have IP embedded into all areas of the organisation. It needs the legal structures in place to defend its IP, and to build a fortress around what it does. But IP also needs to be represented at the very highest levels."
Does IP belong on the risk register?
The Aistemos research suggests that business leaders are split down the middle on whether IP should be included on the corporate risk register. Increased visibility would be a significant benefit; risk registers are at the heart of corporate governance. Executives can manage IP risk if they are aware of threats and problems that can arise from its mismanagement, especially when they disrupt business as usual. But there can be negative consequences of such a limited view: IP generates value, as well as posing risk. Labelling IP as “risk” can inject unnecessary fear and delay into IP-related plans. This would be a retrograde step, as research by Massachusetts Institute of Technology into start-ups found that young companies that focused on IP were 35 times more likely to be successful.
Incorporating IP into other roles
One of the findings from the Aistemos survey suggests creating a dedicated IP team. The principal barrier to building in-house IP teams tends to be cost. Buying in new skills or training existing staff in IP are not cheap solutions. In order to be effective, the IP team needs to have sufficient budget and resources behind it. Building an IP team or appointing a CIPO represents significant progress for many firms. But experience shows us that it can be unhelpful to create silos within businesses. By analogy, when diversity first rose to the fore as a corporate issue, many businesses appointed small teams tasked solely with improving the balance of genders, races and sexual orientations. This resulted in some progress, but it was only when every department, from HR to commercial, R&D to marketing, took it upon themselves to focus on diversity that real equality became an achievable goal.
“A firm that’s made up of 80pc intangible assets wouldn’t have a market value at all if these assets weren’t being managed at least implicitly,” said Bowman Heiden, deputy director of the internationally renowned Centre of Intellectual Property. “As with the quality movement that grew from a quality department to quality as a job for everyone, firms that are becoming more knowledge intensive will need to not only have an IP department but a more ubiquitous understanding of IP across the organisation.”
This challenge harks back to the recurrent theme of communication: it is essential that IP experts improve their methods of communication if their views are to be invited, welcomed, understood and integrated into wider corporate thinking. In a recent paper, Deloitte found that while technology companies are adept at cross-department IP management, it is time for other sectors to play catch up. The report, CFO Insights: Reassessing IP Strategies in a Disruptive Age [here], stated:
“The twin currents of patent-law change and accelerating technological transformation and disruption have made it essential for business leaders to master the dimensions of IP management through a contemporary lens. While the experience and perhaps the edge in this case may lie with companies that have been steeped in technology for years, it is increasingly clear that these tides are affecting sectors that will find IP to be a completely new challenge.”Nigel Swycher, CEO of Aistemos, thinks that there is a common thread between all responses to its survey on IP Strategy: “The impact of technology and innovation across business of all types, from pet food to autonomous vehicles, means that there is no business large or small that can afford not to consider the implications of intellectual across the entirety of the business. Anything less is just asking for trouble.”
The consensus is clear: IP is for everyone, not just for specialists.