VALUE TRANSFERENCE STRATEGIES

Value transference strategies can be used in conjunction with "build a fortress" strategies to lengthen the business life cycle of a primary form of IP, and hence preserve as long as possible the competitive position. It involves investment in secondary forms of IP near the end of the busi­ness life cycle of the primary form, as shown in Exhibit 8.3. The detailed use of this strategy is outlined in Chapter 13, but for now two illustrations are used. For pharmaceutical companies, the expiry of a patent is followed by a major drop in the sales of the patented product, sometimes reaching 80 percent. Investing heavily in a trademark/brand, however, near the end of the patent life cycle (whether legal or business) can save a considerable market share (e.g., in the case of Zantac). Another example for brands is the use of the right of publicity (IP) to revitalize a brand's popularity by seeking celebrity endorsement (e.g., Nike's Michael Jordan campaigns) (see also about money investment).

Matoity

EXHIBIT 8.3    Value Transference Between IPs

BLUEPRINT FOR COMMERCIALIZATION STRATEGIES—OF PEACE

One should be vigilant not to let the best intentioned licensing program generate royalty rev­enue at the expense of suffering a diminished market strategic position.

—James O'Shaughnessy (Chief IP Counsel Rockwell International Corp.)

and P. Germeraad37

Commercialization strategies relate to using the IP portfolio to generate revenue by offering IP for licensing, using it to gain equity in joint ventures, or trade it for other strategic IPs (cross-license). IP commercialization strategies are either passive, reactive, or proactive, referring to the level of activity that the organization will expend in seeking and pursuing opportunities to com­mercialize IP beyond its use in support of products and processes. The various strategies may be used by the same organization for different classes of IP in the IP portfolio as follows:

•   Passive commercialization strategies can be used with IP for which competitive value cannot be ascertained, particularly at the early stage of the business IP life cycle. Such IP is kept and developed on a wait-and-see basis to see how it will venture in the market. Under this strategy, it still may be commercialized following offers from noncompetitors or under a joint venture for their further development with a competitor.

•   Reactive commercialization strategies can be used with IP that is of more ascertainable value as a competitive weapon. Opportunities for commercialization of these IPs should be pursued only after the organization has secured the targeted competitive position, where commercialization poses no competitive harm. Ford Global Technologies, for example, calls this strategy "Ford First," which means that Ford should establish its posi­tion in the market before the IP can be offered for commercialization, a period estimated to be three years on average.38 Reactive strategies are also used to commercialize IP to partners (customers, suppliers, and distributors) to create synergy and reduce costs. An example is Toyota's offering of its patents to its original equipment manufacturer (OEM) manufacturers to increase their productivity, and hence improve Toyota's overall com­petitive ability. These strategies enable the use of IP to augment the competitive impact of a chain or a network of partners, and in that case should not be offered to competitors.

•   Proactive commercialization strategies are used when it is clear that the IP concerned is of no competitive or strategic use for the organization but is of value to others. Proactive commercialization entails the active pursuit of opportunities through industry liaisons, contacts, agents, and any channel possible to generate revenue from the IP portfolio. These IP can be freely offered to competitors. Organizations like IBM that have a liberal patenting philosophy, encouraging innovation in noncore areas, multiply their chances of building an IP portfolio that can be offered in the great part for commercialization. Under this strategy all forms of IP, not only the primary forms, are used to create the best deal. Exhibit 8.4 shows the various forms of IP used for different types of licensing.

EXHIBIT 8.4    IP Forms Used for Different Types of Licensing

The choice of one commercialization strategy over the other depends on striking a balance between the use of IP as a competitive weapon and as a business asset. A proactive commercial­ization strategy can be used only when the IP can be used dominantly as a business asset. Cau­tion always must be used not to undermine the competitive position by commercializing particular IPs (e.g., by diluting a brand in a franchise, or producing an overkill by overmerchan-dising). Striking that balance in brand licensing can be achieved by maintaining close control of the use of the brand by the licensees. Striking such balance, however, when it comes to commer­cializing patents, can be achieved by limiting the transfer of trade secrets (know-how), that is, focusing on the licensing of the patent without the technological know-how. Achieving that bal­ance is more challenging when it comes to patents compared to trademarks and copyrights (see also about how to invest).

Business based on brand developments always views trademarks as commercial tools that convey the brand promise to the consuming public. Commercialization of the trademark, there­fore, is realized as the main object at the preliminary stages of brand development and invest­ment, provided close control is kept on the use of the trademark. A similar trend can be seen when it comes to copyrights as commercialization of the work is actively pursued, being a (if not the only) motivating force behind investing in creativity. At an early time, organizations in all indus­tries capitalized on their strong trademarks and copyrights, exploiting them through multiple commercial transactions and distribution channels. Once established as a strong IP right, the market will be flooded with consumer products and merchandise that revolve around these rights. This, however, was not the case with the commercialization of patents. Patents were traditionally viewed as a way to secure the right to use certain inventions or compositions in production and/or to obstruct competition's activity in a certain field. Many patents were left on the shelves to col­lect dust. A survey of U.S. companies found that "more than 35 percent of patented technologies are orphans that fell by the wayside after a merger because they were not part of the combined entity's core business."39 Such orphan patents were estimated to have commercial value in excess of $115 billion.40 To date, most organizations exploit only the tip of the iceberg of their patent portfolio. Some estimates report that corporate America, not to mention universities' labs, lose trillions annually for keeping patents on the shelves (see also about capital management).

It was not until recently that organizations in this area, being alerted to the value of patents as commercial business tools, started to change their patents' commercialization strategy to more proactive ones. Thus, while proactive commercialization strategies have been used in con­nection with trademarks and copyrights, they are still in the experimentation phase when it comes to patents. Chapter 13 provides more guidance on the situations under which each of the commercialization strategies can be used. Shifting to proactive commercialization strategies, however, is not sufficient to deal with the IP portfolio as a business asset. Without IPM infiltrat­ing into the business management function and becoming the job of everyone in the organiza­tion it is hard to see how every business unit, department, and team can be tuned to pursue commercialization opportunities. That involves, besides the adoption of commercialization strategies, effecting the necessary structural and cultural changes to take IPM to the operational level. To that we now turn (see also about money investment).