By Karthikeyan (Karthik) Iyer

Among different types of intellectual property (IP), patents offer the most potential for value; correspondingly, organizations have started to devise patent strategies to create, protect and exploit IP (in the form of patents and patent portfolios) for business benefit. At the core of patent strategy is the ability to define and understand the value contained in the IP, in the form of value determinants. These value determinants cover multiple dimensions of IP value – alignment with organizational needs and strategy, how good the patent/patent portfolio is, opportunity window and customer value. Viewing and analyzing these elements together offers a holistic view of IP value paving the way toward the creation of a comprehensive, structured and informed patent strategy.

Intellectual Property, Strategy and Value

The value of assets created by the collective intellect of an organization easily outweighs the value of all other assets owned by the organization. On a different note, historically, organizations have found it difficult to exploit the value of its IP. BTG International reported that 67 percent of U.S. firms in 1998 owned technology assets that they failed to exploit with 35 percent of those patented technologies wasted due to no immediate use. In this context, it is critical for an organization to understand its IP and align its strategy to protect and maximize its value, such as Deloitte’s value, protect, exploit model.

There are different types of IP (copyrights, patents, trademarks, geographical indications, etc.); each serves a different purpose. Of these, patents offer protection to inventions (in any system – technical, business, etc.) and are, therefore, considered to have the most potential for value generation.

Figure 1: Patent Portfolio Makeup

Organizations in technical fields (including businesses using technology in some form) typically consider building a portfolio of patents to protect strategic IP both from a defensive (protective) as well as offensive (exploitive) perspective. Patent strategy typically has a mix of proactive and reactive elements. Also, there are legal and functional dimensions to strategy. At any point in time, there are multiple alternative paths to choose from with diverse potential outcomes. The decisions governing these choices are typically influenced by value determinants – key parameters or drivers that reflect the holistic value of IP owned by the organization.

Value Determinants

Value Determinant 1: Alignment With Organizational Needs and Strategy

How well is the patent portfolio aligned with the overall business strategy?

Organizations use different mechanisms to define and articulate business strategy. For instance, in a balanced scorecard approach, there are typically several initiatives planned within a quadrant – each initiative contributing differently to the overall objective of the quadrant. A finance quadrant may be split into “cost,” “revenue” and “brand-value,” with weights assigned as shown in Figure 2. In this type of scenario, patents that contribute to the cost objective (e.g.,a defensive patent that saves a significant amount of licensing cost or eliminates the cost of defense against infringement cases) will be of higher value to the organization than patents contributing to revenue or brand value.

Figure 2: Business Strategy Quadrants

Business strategy parameters and weights, however, are unlikely to remain fixed for all eternity. For instance, cost may be of greater importance this year, but revenue might be more important a couple of years from now. At the same time, it may not be possible to predict the outcome of applications for grant of patents and the time frame in which the outcome will be conveyed. Even with these constraints, a top-down approach linking business and patent strategies greatly increases the chances of them working synchronously, feeding resources, opportunities and value into each other.

Value Determinant 2: How Good Is the Patent

How good is my patent/patent portfolio vis-à-vis the landscape?

Intellectual property sits in an intellectual context or landscape. In this IP landscape, each piece of intellectual property/patent/group of patents is a small chunk. The size of the chunk could be an indicator of the importance/value of that intellectual property. What makes a specific IP chunk larger? Some factors are:

1. Uniqueness/novelty: The amount of functional differentiation with respect to competition. One of the parameters used in the Patent Power Index [prepared by 1790 Analytics] is called pipeline originality, which measures the number of citations of patents from other fields by this patent/portfolio.
2. Diversity: The number of functions performed and number of contexts in which it can be used. While this is subjective, one of the objective parameters used in the Patent Power Index is called pipeline generality and measures number of citations of patent/portfolio by patents from other fields.
3. Comprehensiveness: Difficult to work around, probability of infringement and the extent of exclusivity. This is subjective, but there are a couple of ways to get closer to objectivity:
   1. The number of citations to a patent represents the inability (of other patents) to workaround the patent.
   2. The Theory of Inventive Problem Solving (TRIZ) trends of evolution analysis can serve as a proxy for determining the comprehensiveness of a patent (number and extent of trends covered).
4. Criticality: The number of other patents dependent on this patent/portfolio. Another parameter in the Patent Power Index is called pipeline impact – it measures the total number of citations of a patent/portfolio by other patents.
5. Dependency: The number of patents on which this patent is dependent. This can be measured as the total number of citations of other patents by this patent/portfolio.
6. Utility/adoption: The number of systems using the IP. While this remains a subjective measure, one could get closer to objectivity by looking at:
   1. The total revenue generated or cost saved by the patent/portfolio as a measure of its industrial application/adoption.
   2. Costs/revenues of systems using the patent/portfolio compared to competitive systems using other patents/portfolios.
7. Leveragability: A patent’s cross-use, cross-license or bargaining potential.
   1. With competitors, the extent to which the competitive patents/portfolios cover respective portfolio gaps.
   2. With partners, the extent to which the patents/portfolios align with each other toward common objectives/goals/customer needs.
   3. With customers, the extent to which the patents/portfolios contribute to the customer’s business.
8. Brand perception: In comparison to other patents in the same area.
   1. Priority position in searches
   2. Number of citations in media reports (articles, journals, press, etc.)

Figure 3: Patent Strategy Canvas

These and other parameters can be analyzed using a patent strategy canvas. All parameters need not be equally important. A weighted patent strategy canvas can be used to reflect this bias accurately along with a combination of subjective and objective measures can be used.

Value Determinant 3: The Opportunity Window

How big is my window of opportunity?

Every patent has a legal window of opportunity of 20 years. While this previously was suitable for technical areas with slow rates of change (inventions remained relevant and useful for long periods of time), recent technology developments introduced faster rates of invention and change. Opportunity windows are starting to shrink in size.

To determine the opportunity window for a patent/portfolio, a company should consider the following:

1. The rate of change of the technical landscape to which the patent belongs
2. The rate of change of the business landscape where the patent is being used or proposed to be used
3. The position of the patent in the technical landscape
4. The position and timing of the invention in the business landscape

The technical landscape can be described in terms of a functional S-curve, broadly demarcated into 3 regions – inception, growth and maturity. Typically, as a company moves along the S-curve, the landscape starts getting more crowded (number of inventions and frequency of invention goes up) and the magnitude of a single change gets smaller (extent or level of invention goes down). IP at the top of the S-curve tends to have dependencies on IP in earlier parts of the S-curve.

Figure 4: Technical Landscape

To determine the technology and business opportunity windows, ask following questions:

1. In what phase of evolution is the technology landscape in which the patent lies? This can be determined by looking at the growth in the number of patents in the technology landscape over time and the level of invention embodied in each patent; patents can then be categorized into inception, growth or maturity phases.
2. Does your invention belong to the same phase? This can be determined by looking at the level of invention embodied in the patent under consideration – it could be a lower level patent furthering the same S-curve or a higher level patent starting a new S-curve.
3. In what phase of evolution is the business landscape? Typically the technology evolution and business ROI curves go hand in hand. It is good to independently determine the phase of the business landscape based on customer demand, market readiness, sales performance, levels of investment, etc. From the business perspective, in the growth phase, once the technology is proven, the ROI is highest, with lower levels of risk of failure.
4. Is your invention positioned “right” in the business landscape? In order to generate value, inventions not only need to be technically superior, but also need to be timed right, synchronous with business and market needs and perceptions. Sometimes, business evolution curves lag behind corresponding technology evolution curves. At other times, business needs anticipate future technology evolution. The level of synchronization of patent strategy with business rhythms is a key value determinant.

Value Determinant 4: Customer Value

What is the value of my IP as perceived by my customer?

The most critical (and possibly the most difficult) part of valuing IP is to understand its value from the customers’ viewpoints. There are a couple of key elements:

1. The relevance of the function(s) performed by the patent in the customer’s business context.
   1. What business functions does it impact? How and by how much?
   2. How does the impact translate to the customer’s business metrics – cost, time, quality, revenue, customer satisfaction, market share, etc.?
   3. Does it impact the most relevant metrics as defined by a customer’s business strategy?
2. The differentiation of the patent with respect to competitive patents.

Figure 5: Relating IP to Customers

Combining the above two elements into a weighted patent strategy canvas gives clear insights into the value of the patent/portfolio as viewed by the customer.

Next Steps

Understanding, measuring and articulating the value determinants is the first step toward creating a holistic IP strategy. The next steps are to create and analyze strategic alternatives, build consensus, and align on short-term and long-term goals and initiatives. Valuation, commercialization, portfolio growth, evolution and management need to be looked at in greater detail. Also, other types of IP (copyrights, trademarks, etc.) need to be similarly analyzed and brought under a holistic IP strategy umbrella.

About the Author:

Karthikeyan (Karthik) Iyer is a Founder / Director of an innovation co-creating firm, Crafitti Consulting Pvt Ltd. He has more than nine years of experience in the IT industry and has consulted on innovation in processes, product strategy, technology, intellectual property and organizational innovation capability. His areas of interest include innovation culture and chaos theory, open innovation, inventive principles and technology evolution trends. Contact Karthikeyan (Karthik) Iyer at karthikeyan.iyer (at) crafitti.com or visit http://www.crafitti.com.