IP Advantage Newsletter - Number 1, 2009

Make IP More of a Profit Center in 2009

We expect that 2009 will be a banner year for firms taking action on IP value extraction efforts. Whether looking inward for assets that could be out-licensed/sold to others, or by in-licensing / acquiring defensible technologies to accelerate innovation efforts, firms are significantly increasing their assessment of IP opportunities and risks in order to get the most out of past and current investments.

To assist in this effort, Perception Partners presents the four most cost-effective things you can do today to understand the relative impact that IP value extraction could have on your business in 2009.

1. Use technology white space analysis to determine gaps in your IP landscape - and what you can do to fill them

By defining the IP landscape around a core technology as suggested above, you are in an excellent position to identify white spaces - under-exploited technological opportunities. Discovery of critical white spaces leads to clear direction for innovation and a stronger, possibly revenue-generating patent position. A few very straightforward techniques can assist greatly in locating and quantifying the importance of white spaces.

Taxonomies and ontologies are structured elements of language that are commonly used to categorize or group technical terms into hierarchies. By using e.g., a taxonomy to organize publicly-available disclosures and filings by the language contained within, data can be grouped in ways that reveal patterns of activity.

Mapping is an effective technique to identify white spaces. Mapping relies on visualization tools to plot where technological activity is and isn't present. When data that has been grouped into a taxonomy is subsequently mapped, an at-a-glance story is revealed which can lead to surprising insights. Maps are best used as a group discussion tool, i.e. a basis for brainstorming by technical or cross-functional experts who can simply ask of the map, "What do we see that we didn't expect?" or "What did we expect to see that we don't find here - and why?"

The basis of value in this activity is the discovery of hidden opportunities to leverage your core technologies in new and differentiated ways. The proposed mapping exercise also encourages discussion within your innovation team and can build a compelling story to drive market positioning and increased shareholder value. By completing a systematic white space analysis, you begin the year reinforcing the fact that opportunities exist even around familiar technologies, and you can effectively challenge your team to respond accordingly.

2. Assess or re-assess the freedom to operate to confirm rights and minimize commercialization risks

Like you, your competitors, fringe players and even non-operating entities are looking to extract more value from their IP portfolios over the coming year. Are you confident that your revenues will not become a target to other players looking to assert their IP? Assessing this question proactively could lead to immeasurable savings down the road.

The biggest risks to your freedom to operate (FTO) as related to your top products and services will come from two causes: FTO was never established prior to product launch (you've been lucky) and/or your products and services have improved or evolved at the "speed of need," and have perhaps outgrown the underlying patents that provided confidence in the original launch.

An FTO analysis requires comparing the features of your products to the claims of in-force patents in the countries in which you operate. While this effort can be non-trivial at times, it is something you can begin today to ensure that commercial successes remain that way.

The basis of value in this activity relates to the downside. If even one small feature of a product can be found to infringe the rights of others, damages could be claimed on the basis of the entire product's cost. Analogous situations include litigations involving RIM and Microsoft - and can run into the hundreds of millions of dollars. By identifying threats proactively, measures - or licenses - may be taken to significantly mitigate any perceived risk. There might be no more critical activity you undertake in 2009, as most companies can ill afford to have a top product line under attack given current economic and market conditions.

3. Review your IP portfolio for assets unrelated to your top products or services that can be licensed, sold or disposed of

The awareness of value from licensing latent IP has grown significantly throughout the decade. Nonetheless, many organizations have not yet understood how to distinguish between IP of strategic value to their business and IP that can generate significantly more value elsewhere.

There are several ways to determine which IP assets need to be monetized within the organization vs. outside. Mapping patent claims to marketed products is a marquee example. Other tactics include using scoring models to rank legal, technical and business strengths as well as subjecting IP to cross-functional committee reviews. Regardless of the method used, it will not be the core assets that take the most work to review; it will instead be the non-core items. This is because after determination that something is non-core, the question of value extraction inevitably arises.

Value extraction from non-core assets will require some understanding of fit with the market needs of others. If there is indeed meaningful fit, the tactical requirements will relate to developing a licensing or sales plan. If no meaningful fit can be identified, questions of disposition arise. Might it be more valuable to let a patent expire or stop paying maintenance fees on a trademark? If so, this is a more profitable course of action than holding on to assets "just in case."

The basis of value in this case is monetization. Putting your IP assets to work in order to maximize profit no matter where it may be found can generate potentially significant cost savings and increased revenues this year - if you start today.

4. Determine if there are any current infringers of your IP and if so, how lost profits will be recaptured

The most significant source of lost value comes from that which is taken through infringement. Whether an infringer is capturing profits that rightfully belong to you as an IP owner, or even if they are operating at a lower cost of doing business because they are piggy-backing on your innovation, value that you deserve may be eluding your grasp. How can you recapture it this year?

It is important to search for product disclosures that might contain elements covered by the claims of your patents. A first-level infringement assessment can be kicked off with not much more than clever Google searching, reviews of product directories such as the Thomas Register and mining of product announcement and trade journal databases.

Second-level infringement analysis involves some primary competitive intelligence. Scanning at product-based trade shows is often an effective tactic. On a more comprehensive level, reverse engineering may be appropriate to confirm suspicions.

Should infringement be suspected, a valuation of the scope will then be required. Whether using cost, market or income approaches, analyzing the potential damages from infringement and projecting the likelihood of success at trial can reveal whether licensing or litigation makes more sense to generate value. It of course will be licensing or asset sale that has the highest likelihood to return measureable value this year.

The basis of value in this activity is profit discovery and recovery. There may be significant bases of revenue on which your patents apply. In a year where extracting ever-more value from your assets is the foundation that grounds your business, seeking a higher return from patent enforcement has never appeared more attractive.

With a sharp focus on your IP assets and clarity regarding which IP assets others do (and don't) possess, you can make 2009 a record year for the profit potential of your portfolio. Perception Partners looks forward to congratulating you on your success. Please contact us to learn more.