Visualizing Invention

As we were writing THE POCKET GUIDE TO INVENTION WORKSHOPS Bob Sesek (HP super-inventor with 600 disclosures and forty-some patents issued) came up with a great graphic to visualize the inventing which was and was not happening.  Here it is:

The blue boxes are ideasthat could be disclosed, but which are not disclosed.  The yellow boxes are disclosable ideas that are captured by an IP system.  Our workshops have shown that what IP attorneys suspect, is correct.  Very few of the technology ideas people have, are captured.

So far, so good.  I was back flipping because Bob came up with a way to show graphically, something I’ve been groping to articulate for a long time.

Next step in visualizing invention was a build on Bob’s idea that allowed “strategic” IP to be visualized as well.  Here is my build on Bob’s idea:

What I like about this, is that what is strategic is separate from the idea of patentability.  Many of our clients don’t necessarily want 100% patenting of inventions captured.  They even want non-patentable ideas that are strategic.  Patentability is not the only source of worth of an invention disclosure.

So, I’m liking this graphic very much.  But, Bob hates it.  He does not like my most excellent 45 degree strategic patenting targets.  I liked my targets because they allowed me to show what happens when inventors get calibrated.  What happens when inventors learn the criteria their inventions are being evaluated with is that the inventing becomes like this:

The inventors “get” that strategic ideas are important even when not patentable, and they mop up their minds of the un-disclosed remainder ideas.  Then, they efficiently disclose down the target list.  And when the idea quality is high enough, they can judge for themselves that the ideas should be turned in.

So, I’m happy, but Bob still thinks this stinks.  So, we got to talking about it, and realized that we see inventing in complementary ways.  Not a surprise, while I’ve got 4 issued patents, I see the world primarily as an IP manager, and Bob sees the world primarily as an inventor.  To stitch what Bob sees in strategic inventing, to what I’m seeing take a look at this:

Bob sees ideas spread across technology space (Y axis) and then quality (X axis).  I was content to clumsily overlay strategic patenting targets on the frequency plot of ideas.  Bob then pulled the strategic patent targets off my density plot, and put the strategic targets where he sees that they naturally belong. That is, in the technology space.

So that is where we stand as of today.  We’re able to generate inventions across technologies and quality, in approximately normal distributions (see last image).  This feels like a stepping stone to predictive IP management, or something else cool.  Hope you enjoy!

 

Eight Species of Patent Strategy – Part 3 how intellectual property management develops from level 3 to level 4

Part 1, Part 2

Intellectual Property Management in a Growing Soon-To-Be-Big Company:

Once a growing company signs its first cross license with a balancing payment going out, or has a “near death experience” with IP litigation, and/or loses a patent litigation, IP management gains its first proposition with senior management.  The value of IP becomes intuitively obvious in direct proportion to the IP costs externally imposed on senior management.

Level 3: “Defined” IP Management

This first value proposition allows IP management, for the first time, to put in place infrastructure in anticipation of where the business is going. Figure 1 displays how growing companies catch up on IP management by building out their IP programs from the prep and process capabilities.  The litigation function isn’t a base to build an IP management program from.  And we’re not exactly sure why.  Perhaps because litigators tend to be success narcissists that are too self absorbed to design any system that can succeed without them.  Whatever the reason, we’ve only seen clients trying to build patent management by expanding out from prep and process.

Figure 1: Level Three “Defined” IP Management Maturity

A key article on IP management “Intellectual Property Management From Theory To Practice” by Steve Fox is now available on the internet as well as in Patrick Sullivan’s 1998 Profiting From Intellectual Capital.  The two key contributions of this article are: (a) envisioning IP management as a closed-loop feedback system, (b) explicitly developing intellectual property targets for IP to be invented to.   This article is a key advance in IP management because it gets the legal department thinking outside of the two default mental boxes (Prep and Process and Litigation).  Figure 2 displays the four species of patent management Fox articulated.

Figure 2: Yellow Indicates Areas of IP Management Added by Steve Fox’s 1998 Article

In fact, one could argue that Fox in addition to the yellow, articulated “Define the IP Business Model” and “Generate and Capture IP” while he was managing HP’s intellectual property.  The IP business model during Fox’s tenure was implicit: “grow the patent portfolio to reduce, then remove, the reverse the balancing payments accompanying HP’s cross licenses.”  And to generate and capture IP, Fox sponsored invention workshops.

Level 4: “Closed Loop” IP Management

Returning to the discussion of IP management levels, the point that is important, is that IP management needs some sort of funding model.  Initially a funding model is needed for the litigation and prep and process functions.  Later, as the IP managers grow in experience, sophistication, and understanding of how to produce value with the IP a company can generate, an additional funding model is needed.  The second funding model of IP management allows infrastructure and staffing to manage the six functions of IP management beyond litigation and prep and process.

Figure 3: Level 4 “Closed Loop” IP Management

Level 4 IP management is the first time since a firm’s founding, that IP management is beginning to catch up to the firm’s growth.  The reason the colored pie slices do not reach all the way to the edge of the black circle in Figure 3, is that while all eight IP management functions are being accomplished in a level 4 company, the legal organization and the “true believer” technical volunteers helping it, do not have the capacity to fully engage the entire organization.

Think about it, the legal organization has been behind and working hard to catch up to externally imposed litigation and licensing requirements for the company’s entire history.  The chances that external licensing and litigation are likely to grow the company’s legal department to just the right size to train and equip tens of thousands of employees, is zero.  Legal departments that are cost centers, are eternally cursed with always being too small to fill the potential of IP in their organizations.  Too small for the next wave of crises.  Too small for firm wide training and enrollment in IP programs.  Too small to annually restart the IP program in the firm.  And further, legal departments don’t have the correct kinds of people in them to be the sole owners of an IP management program.

To define the IP business model it is great to have lawyers and CTOs, but in addition you need finance people, you need sales people who are going to make the IP monetization stick on real licensing partners.  To target profitable IP you need attorneys and CTOs, but in addition you need to search out the “paradigm pioneers” in the organization.  The technical and marketing geniuses who are already simulating how the next wave of technology will work in their minds, who are upsetting the old guard and senior architects with their prophecies of doom and ultimatums to switch architecture before the “technical apocalypse.”   To generate and capture IP it is great to have guidance from CTOs and lawyers, but you also need evangelists, showmen, and administrative infrastructure.  To set up an excellent IP triage system you need CTOs and lawyers, but you also need decision scientists who can show patent committees how maximize effectiveness at the same time as increasing efficiency.  To manage IP, law people are necessary but not sufficient.  Same goes for for business people.  IP management is inherently a cross disciplinary collaboration.  Professionals and “un-professionals” allied in getting all eight functions of patent strategy up and running profitably.  IP management responds to the division of labor, just like any value-producing activity.

Level 5: “Profit Maximizing” IP Management

The highest level of IP management is the profit maximizing.  IBM is the current master of IP management, with published statistics in 2000 showing that IBM’s licensing revenues from its IP portfolio as funding as much as 35% of IBMs research and development.

Level 5 IP management sees profits where level 1 through level 4 IP management sees costs.  With for-profit outbound licensing well under way the inflows of revenue do a wonderful job of clarifying management’s attention on intellectual property.  In addition to profitable IP management, level 5 companies can practice IP portfolio hygiene management.  Portfolio hygiene management in IBM’s case can be illustrated with 3 very large divestitures: networking equipment from IBM to Cisco, hard drive technology from IBM to Hitachi, and finally, the divestiture of IBM’s PC business.  All of these divestitures were accomplished in large measure through the transfer of intellectual assets.  Likewise IBM buys companies like Netezza that have strong patent portfolios (21 issued US patents and 22 US applications at the time of this writing according to Delphion).

Figure 4: Level 5 “Profit Maximizing” IP Management and the other 4 levels of IP management

Concluding Thoughts:

We hope you’ve found the two analytical frameworks in this series to be interesting and illuminating.  We’ve been concept testing these frameworks on IP professionals for the past several months and have received substantial support from attorneys and patent agents alike.  The five levels of IP management framework in particular paints pictures of clients that every attorney recognizes.

The lingering question from our concept test meetings with IP professionals has been “Why are more companies not doing what IBM is doing.”  A great question for another day.  Thanks for reading!

 

Eight Species of Patent Strategy – Part 2 Five levels of IP management and how intellectual property management develops from stage 1 to stage 2

Part 1, Part 3

Introduction:

In part 1 of this article series on patent strategy we derived eight species of strategy from the steps a successful/profitable patent goes through over its lifetime.  In part 2 (this article) we are going to use the eight species framework to illustrate how intellectual property management evolves through five phases over the life cycle of a successful company.  In this article, we’ll review the basic framework from part 1, and then describe how IP business processes help us develop an IP management maturity taxonomy.  Then, level 1 “boot up” and level 2 “managed” IP maturity levels will be described in terms of business processes used for each IP management function.

Framework Review:

For a full description of each species of patent strategy, refer to yesterday’s post.  Figure 1 displays the framework and Table 1 has vignette length explanations of each strategy species.

Figure 1: The Eight Species of IP Management Business Processes

Table 1: Short Definitions of Each IP Management Business Process Type

Levels of IP Management:

Carnegie Mellon has since 1984 worked to measure the maturity of software organizations.  This research began at the request of the US Department of Defense as software projects proved to be strategic bottlenecks in getting high-quality defense systems completed on time and within budget.  Figure 3 and Table 2 display the characteristics of organizations as they range from level 1 to level 5 in software management maturity.  The big change across the 5 levels, is how process improvement changes.  In level 1 organization, there is no process improvement, because there are no processes.  In level 5 organization process improvement has become a coequal function to the actual software specification, development, and test.

Figure 3: CMMI Maturity Level Characteristics
Source: Wikipedia

Table 2: Capability Maturity Model Process View of Model
Source: Wikipedia

IP management is a complex, multidisciplinary, knowledge-based process, just like defense system software development.   Individuals working in IP management, like individuals working in defense software development, are unlikely to know about the existence of maturity levels.  At lower levels of maturity in both software and IP management systems, short-run individual behavior is largely determined by the system.  As IP management maturity increases, latitude for long-term initiative and individual autonomy open up.  Reactive behavior, is largely, predictable behavior.

We believe the eight species of IP management strategy help in understanding the five levels of IP management maturity.  In the sections that follow, we describe the business processes characteristic for each type of IP management strategy for each level of IP management.

Intellectual Property Management in Startups:

When you read about startups, in say Jessica Livingston’s excellent FOUNDERS AT WORK you quickly realize that there are important problems specific to startups, and intellectual property is not one of them.  Picking good partners, finding funding, using better tools, selling, all of these are critical in startups.  But, intellectual property is not, and in many ways, can not be important.

IP is not important because startups think in terms of break even and number of payrolls that they can cover with current assets.  Optimizing a startup by capturing and managing IP as an ongoing business process is like asking a 16 year old to invest in an annuity that will mature in 600 years.  While it may be profitable, there just isn’t any way to do this within the 16 year old’s mental framework.  Like the 16 year old, people sweating firmware, releases, products, and sales, do not have the emotional space and intellect to invest in a patent that might issue in 5 years and might be licensable in 15 years.

We think the big reason that isn’t important to startups, is that the first job of every startup is to pivot its business model until it generates product market fit.  Before a startup has a product market fit, all it has is prototypes and hypotheses.  If patents are files on prototypes and the markets they are hypothesized to fit, they are likely to be wasted.  Startups have to pivot their business models over and over before they find markets.  Reading books on high tech marketing by Guy Kawasaki, Geoffrey Moore, and Steve Blank have lead us to the conclusion that  more certain management is that it knows how a high tech market will evolve, the more likely it is to be wrong.

And while patent attorneys are only too eager to write patent applications on any novel, useful, non-obvious technology, and they are eager to get started on drafting patents as soon as possible, the fact remains that patents are not worth having if they don’t protect product market fit that a startup ends up with before growing.  Protection of early prototypes and hypothesized markets is worthless.  And most startups consequently, ignore IP.  Example: We’ve known Guy Kawasaki for 20 years, and we have never been able to get him excited about intellectual property management for his startups.

So, the standard starting point in an electronics startup company is displayed in Figure 3.  That is, no IP business model, no profitable IP targets, no capture, no triage, no prep and process, no portfolio management, no litigation until they are successful, no monetization strategy.  In a startup’s beginning, there is no IP management.

Figure 3: Level One “Boot Up” IP Management Maturity

Table 2 displays the business process to IP strategy matchup of a startup pre-success.  The startup is sweating finding a product market fit, until that fit is found, there isn’t any equity for a patent troll or other patent holder to siphon from a startup.  So, most startups coast without intellectual property management until they hit a level of success that becomes widely visible.

Table 2: Pre-Litigation-Event IP Business Process to Strategy Species

Take for example, VIZIO the TV company.  They started in 2003 and did not attract litigation until 2006 when they were selling more than US$500,000,000 a year of products.  Look at Figure 4 and guess how many patent applications VIZIO filed in 2003, 2004, and 2005.

Figure 4: VIZIO Sales (red) Patent Litigation (blue) and Patents (green)

Figure 5 shows that the first patent application on record for VIZIO was a design patent filed in October of 2006.  This is not proof that startups ignore intellectual property.  It is just an example of one startup and its experience with intellectual property.

Figure 5: Visio Patenting Activity 2003-2008
Source: Delphion

But everything about intellectual property management changes for the startup once it becomes a sales success and it experiences its first patent infringement lawsuit.  For VIZIO the first suit hit in 2006 (blue bar in Figure 4). The startup company finds out that it has been sued, and needs to hire a general counsel, change legal firm or add a patent litigation literate firm to existing transactions counsel, just to have an “at bat” experience in its patent litigation.

Startup companies have no IP business processes and are reactive to IP crises.  Table 3 displays the state of IP management business processes immediately after a successful small company has been sued.  While before litigation, all eight species of IP business strategy were being ignored, immediately after litigation initiation, two business processes begin to receive management attention: Litigation and Prep and Process.

Table 3: Post-Litigation-Event IP Business Process to Strategy Species

As ugly as litigation/licensing is, it is the gateway event to put an IP management program in place.  It is a gateway because litigation is so astronomically expensive.   For a big electronics company the cost is often $1,000,000 per month. These kind of costs create an instant management justification for the successful startup to begin to manage intellectual property.

A managerial light goes on and the founders of the company realize fully for the first time, that patents can prevent other companies from suing.  Because suits are so costly, preventing litigation with patents, is … valuable!  Litigation/licensing then moves IP management being nice “in theory” and stuck in a level 1: Boot Up, to a “business expense” that gets to level 2: “Managed” (see Figure 6).

Figure 6: Level Two “Managed” IP Management Maturity

In this article in this series on eight species of patent strategy we have covered the basic framework, and then the idea of five levels of IP management existing through an analogy with software management and CMMI work at Carnegie Mellon.  The reason to bring in the idea of IP management maturity and five levels of maturity was to illustrate how the eight species of patent strategy are helpful for characterizing IP management.

Every IP program manages eight species of patent strategy.  And they manage these with business processes.  Initially the business processes used by startups (Level 1: Boot Up) are to ignore all eight species of patent strategy.  But when startups become successful they attract licensing programs, and litigation by patent trolls as well as legitimate patent-holding businesses.

Make it Personal:

By now, you are beginning to see the eight different kinds of patent strategy.  How these kinds of patent strategy can be extended to IP strategy in general.  And how each of these kinds of patent strategy are instantiated in business processes.  Now you can apply this framework to the IP management in your company.  What are the business processes your company uses to define its IP business model?  Does your company ignore IP business model?  Is your company in “boot up” mode or are you in “managed” mode with prep and process and litigation departments in your legal department?

In Part 3 of this series, we will work through the business processes that companies develop in level 3 “defined” and level 4 “closed-loop” IP management maturity, and finally level 5 “profit maximizing” IP Management.