Source: David Pridham - Forbes
Lost in all this reportage is the positive and powerful role IP plays outside of the courtroom — in the daily operations of the enterprise. Here, largely unnoticed, IP serves as one of the key drivers of business success in today’s Knowledge Economy.
Take corporate revenues. These are often heavily dependent upon intellectual property — margins and market share are buttressed by brands, trademarks and patents, after all — but this fact is largely unreported by the media. Similarly, IP and other intangible assets, while compromising up to 80% of the market value of public companies today, are rarely reflected on corporate balance sheets, thanks to a 600-year-old accounting system designed for a bygone era in which tangible assets like plant, equipment, and raw materials were the chief sources of wealth.
It’s no surprise, then, that some people call IP “the secret sauce of corporate value creation.”
I’ll be revealing many of IP’s secrets with this new “IP at Work” column you’re reading — the first-ever regular column in a mainstream business publication that focuses on the ways that intellectual property can be deployed inside the enterprise to enhance corporate performance.
In the coming weeks and months, I will show you how you can use IP to hedge your risk in product development, increase market share and margins, defend that market share from rivals, cement joint ventures and strategic partnerships, drive more effective M&A strategies, lower the cost of capital, secure financing on more favorable terms, and even develop whole new sources of revenue.
But today, let’s start with the core function of every business: developing products and services that consumers (or other businesses) want to buy.
We all know intuitively that today’s investments in new product R&D lead to tomorrow’s breakthroughs and profits. But let’s be honest: R&D is also one of the costliest and most bureaucratically-hidebound operations in the modern enterprise.
As the economist William J. Baumol put it in his 2002 book The Free-Market Innovation Machine, “[Corporate R&D] is not the realm of the unrestricted exercise of imagination and boldness that is the essence of entrepreneurship. It is, rather, the domain of memorandums, rigid cost controls, and standardized procedures, which are the hallmark of trained management.”
Which helps to explain, of course, why R&D has become such a target these days for activist investors like Nelson Peltz, who earlier this year tried to force DuPont to shut down its R&D department — despite the fact that the lab’s products produced 32% of 2014 revenues.
But rather than killing R&D, a much smarter approach is to look for ways to generate better, faster, and cheaper R&D. And one of the most powerful tools for doing so is intellectual property — both your own, and that of others.
Take patents. Most people view patents as exclusionary assets. And on one level, that is certainly accurate — they confer upon their owners the right to exclude others from unlicensed use of the product or process protected by the patent.
But it is also true that patents are the greatest knowledge-sharing tools ever invented. Indeed, the U.S. database of more than 2 million active patents is quite literally the largest library of technical knowledge in the world. Some experts estimate that as much as 80% of the world’s technical knowledge is contained only in patent documents. And here’s what you can do with it:
1. Improve your own products and services
You can mine this patent knowledgebase for the technological know-how and expertise needed to improve your company’s products and services. That’s certainly what America’s greatest inventor, Thomas Edison, did when he frequented the patent office to learn about the technological breakthroughs disclosed in the patents of other inventors.
In turn, Thomas Edison’s patents then stimulated downstream development work by others. This paper shows how the knowledge contained in Edison’s incandescent lamp patent (No. 223,898) enabled others to develop “new technologies of commercial significance [including] the Tesla coil, hermetically sealed connectors, chemical vapor deposition process, tungsten lamp filaments and phosphorescent lighting that led to today’s fluorescent lamps.”
In our own time, modern enterprises continue to mine patent knowledge for their firms’ benefit. A 2006 study by French economists Francois Leveque and Yann Meniere, for example, found that 88% of U.S., European, and Japanese businesses say they use the information disclosed in patents to keep up with technology advances and direct their own R&D efforts.
Unfortunately, some companies still discourage their employees from reading and learning from patents, fearing that they may incur the legal risk of willful infringement and the treble damages that can result. They do this despite the fact that no company has ever been convicted of willful infringement simply for reading the patents of others. To be liable, a company must also act — it must engage in the unlicensed use of a patented technology despite an objectively-high likelihood that such action constitutes infringement.
2. Uncover competitors’ product and market strategies
Patent research not only provides you with the knowledge you need to improve your own products and services. It’s also a rich source of competitive intelligence that sheds valuable light on the product and market strategies of competitors. This information can certainly help guide your own product development and marketplace strategies to best advantage.
3. Do R&D faster and cheaper
Patent research can even help you speed up your R&D and reduce its cost. Through it, you can locate already-developed technology for your products that you can license-in or acquire — often for far less than the cost of re-inventing comparable technology in-house.
In fact, savvy companies do this a lot more often than you might think. According to a 2014 National Science Foundation-backed study, 49 percent of manufacturing and service firms used outside inventions in their own key products and services. Doing so can help you reduce the overall cost of discovering, developing, and patenting your own innovations.
4. Increase margins and profits
Last but not least, you should employ intellectual property — patents, brands, and trademarks — to support and buttress the value of your own products and services. The benefits to your bottom line of doing so are often quite substantial.
In a groundbreaking joint study from Carnegie Mellon University, Georgia Institute of Technology, and Duke University entitled “R&D and the Patent Premium,” for example, economists found that “the patent premium for innovations that were patented is substantial. Firms earn on average a 50% premium over the no patenting case, ranging from 60% in the health-related industries to 40% in electronics.”
If you don’t believe the economists, just ask Apple. Its iPhone accounts for only a minority of global smartphone sales, but it captures a majority of its profits.
Intellectual property — it’s time to make it the focus of managerial leadership in the boardroom, not legal brinksmanship in the courtroom.
Stay tuned for more practical tips on using IP for competitive advantage.Tags: IP - Intellectual Property, IP Development, IP R&D, IP Secrets