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Operationalizing IPM - With All Due Respect To The Legal Department

Under the CICM, IPM is the stage where the value of an organization's intellectual capital (IC) is leveraged and maximized to the full by realizing that the intellectual property underlying a cer­tain product or a process can now be used on its own as a competitive weapon and a business asset. This understanding has to be infiltrated at all levels of the organization. Just like the inno­vation process being liberated from the confines of the R&D department, IPM too needs to be lib­erated from the confines of the legal department. The legal department may act as the process owner, but without a shift in how IP lawyers see themselves, it is hard to see how they can facil­itate infiltrating IPM in the whole organization. That being said, IP lawyers whether in patent-, trademark- or copyright-intensive industries are the best equipped as IP managers given their knowledge about the complex anatomy of the various IP animals. Indeed, IP lawyers in the best-performing organizations join top management in forging and aligning IP strategies with the overall business strategies and needs.

To effectively take IPM to the operational level, a number of changes are required to the structure, culture, and systems of the organization. When it comes to structure, two major changes are required: (1) forming units at the business unit level, reporting to a central strategic planning or business development department, to define which IPs will be used as the basis of the business unit's (or SBU) core competence or competitive advantage. These units, called IP Strategy Units, oversee operationalizing the competitive IP strategies; and (2) forming cross-functional/divisional teams responsible for leveraging various IP inside and outside the organi­zation, called IP Synergy Teams.

It is essential as with any of the other stages of CICM to have a culture that supports the man­agement and leveraging of the IC in question. For the IPM stage, the organizational culture has to incorporate values that discourage infringing the IP of others, and promote the preservation of the organization's IP. The definition of the culture for IPM is one of the main tasks of the legal department as cultural change needs to be effected by developing the systems and procedures that engrain an IP-oriented culture in the daily operations of the organization.

Finally, the organization should provide a number of tools and methods to enable effective decision making pertaining to IPM, particularly valuation and assessment tools.

Structural Changes - Of Strategic Focus and Synergy Teams

Structural changes mainly relate to the formation of IP strategy units and the business unit level, and IP synergy cross-functional teams. The two groups will be directly responsible for leverag­ing IP across the whole organization, for competitive and commercialization purposes.

The IP Strategy Unit - IP and the Business Plan. IP strategy units (IPSUs) participate in the formulation of IP strategies and oversee their operationalization by aligning IP strategies with the overall business plan. The focus of IPSUs is to take strategy from the top to the frontline levels as shown in Exhibit 8.5 below. They are responsible for operationalizing competitive IP strategies by focusing on the part of the IP portfolio that is the basis of the business unit's core competency or competitive advantage. Though the same group of IP may be of strategic relevance to more than one business unit, an SBU or a division, the primary responsibility for developing this group of IP should be entrusted to one business unit as the focal point. In other words, every business unit should build a fortress around the part of the IP portfolio that is the basis of its core compet­itive advantage. IPSUs should report to a central strategic planning or business development and growth department to ensure coordination between the various business units and overall align­ment with the organizational vision and overall strategy.

IP Synergy Teams or Licensing Units. IP synergy teams (IPSTs) are cross-functional teams, as shown in Exhibit 8.5, with the primary responsibility of operationalizing the commercialization IP strategies of the organization. The main task of IPSTs is to explore and pursue commercialization and leveraging opportunities for IPs internally by offering it to business units other than the one where the IP first originated. For patents, this means the business units other than the one where the technology developed and the patents were acquired and initially used. For brands and copyrights, this means product divisions or market segments other than the one where the brand of the copyright was first developed and launched. Exhausting internal opportunities, IPSTs should explore opportunities for commercializing the IP to partners, then to any other interested party over the globe.

The task of IPSTs may also be carried by:

•   Small focus groups like Dow Chemical's Intellectual Asset Management teams42

•   An independent business unit like DuPont's Intellectual Asset Management Business

•   An independent company like Bell South's, AT&T's Intellectual Property Company, and Ford Global Technologies

Regardless of the organizational form used, IPSTs should be treated as profit and not cost cen­ters. In all cases, their focus should be cross-functional and multidivisional, market oriented and network based.

In addition to the structural changes, the culture of the organization needs to change as dis­cussed next.

Cultural Changes

To effect cultural changes, the legal department should design an IP guide for use by everyone in the organization. The IP guide should have the following sections, each designed to incorporate a certain set of values in the organization's culture as follows:

•   IP Literacy Guide - To raise awareness about what IP is and prevent the loss of the orga­nization's IP through leakages and unfair competitive practices

•   Detection program - To promote a culture protective of IP rights by being alert to the infringing activities of third parties

•   Clearance procedures - To create a culture that is preventive of infringing the IP of others

The IP Literacy Guide. IP cannot be used to maximize value without a minimum level of knowledge about what it is, what makes it stronger, and what dissipates it. Specialized knowledge can always be gained on a needs basis, but a level of IP literacy should be maintained at all times. The IP literacy level required for each organization depends on the organization's industry, hence the primary IP and its IP business strategy. In all cases, however, the IP Literacy Guide should contain guidelines for the various departments, business units, and individual employees on the proper use of IP and the risks that need to be managed in relation to its use. In particular, the Guide should address the following (outlined in detail in Chapter 13):

•   Security and confidentiality measures to prevent leakages and misappropriation of trade secrets. Loss of trade secrets cost corporate America $45 billion in 1999 alone.43 The problem of trade secret misappropriation posed an economic threat that moved the U.S. government to enact the Economic Espionage Act in 1996 criminalizing trade secret mis­appropriation.

•   Proper advertising and marketing procedures to avoid the loss of trademarks through the overuse of the trademark as a generic term. An example is DuPont's loss of the mark Cel­lophane, and Xerox's coming very close to losing its trademark through the "Don't Copy It, Xerox It" ad campaign.

•   Merchandizing and franchising relations to ensure that there is actual supervision of the licensee to avoid loss of trademarks through what is known as naked licensing.

•   Clean procedures for development of copyright works to defend against infringement claims by proving that there was no access. This, of course, is not observed where the developing team is trying to design around the work of the competition, but should be kept as a general rule.

•   Digital rights management and cyber security systems to protect against copyright piracy and hackers having access to the organization's databases.

•   Proper marketing and sales procedures to avoid tying the sales of unpatented to patented products and hence constitute patent misuse. Patent misuse may subject the organization to antitrust proceedings and disable it from claiming damages for patent infringement until the misuse is purged.

•   Reporting suspected infringement of any form of IP to the legal department as soon as possible to prevent the loss of the IP right concerned through lack of policing or acqui­escence and mitigate losses. This constitutes passive monitoring of the infringing activ­ity, which is pursued more actively under the Detection Program.

Detection Program - Of Competitive Intelligence and Reverse Engineering. IPs are negative rights that entitle the owner to exclude others from using and commercially benefiting from the use of IP in any manner. The onus is therefore on the owner to protect the exclusive territory con­ferred by the IP right, detect unlawful violations of this right, and take appropriate enforcement action. This forms an integral part of the ability to preserve the right and enhance its effective­ness. Though the organization should entrust the task of monitoring infringing activities either to an internal unit or to a specialized outside third party, some organizations do neither and instead rely on their customers' feedback to detect infringement of their IP rights. The latter approach is risky as it usually results in delayed detection of infringement, if any.

Overall, the detection program should be entrusted to a unit in the legal department in coop­eration with the R&D department44 for patents and copyrights, and marketing and sales depart­ments for brands. The detection unit should cooperate with the licensing department in recommending the most appropriate enforcement action. The level of aggressiveness of the response depends on whether the infringed IP is predominantly used for competitive or commer­cialization purposes. In the former case, the IP should be protected fiercely through litigation, while in the latter an offer of a license should be the first resort. If the IP is used merely for FTO purposes, however, then the decision to litigate should be based on a cost-benefit analysis. In all cases, a letter should be sent to the infringing party informing it of the violation and requesting that the situation be remedied. In many cases, the threat of litigation suffices to keep the compe­tition away or at least safely far from the organization's competitive territory.

In making litigation decisions, the organization needs to balance between sending a strong mes­sage to the market that infringement of its IP will not be taken lightly, and not committing extensive resources to a suit where costs far exceed expected awards. The organization should take into con­sideration other factors like the breaking of the business relation and the infringing party's possible retaliatory action. For example, in 1989, Motorola sued Hitachi for infringing a number of its patents, moving Hitachi to countersue Motorola. As a result, the court stopped the sales of the cor­responding suspected products of both companies subject to resolution. Both companies, particu­larly Motorola, suffered losses exceeding the damages awarded.45 It seems that this case was a perfect one for cross-licenses if both Motorola and Hitachi had sought a more conciliatory approach.

Recently, the use of insurance to transfer litigation risks has grown. Historically, some of these risks were arguably covered under the comprehensive or commercial general liability policies, but only to the extent that they relate to advertising injury relating to trademark and copyright infringements.46 Now there are policies that specifically deal with both infringement and enforce­ment risks and the associated legal expenses, covering patents, copyrights, and trademarks.47 To date, there is no insurance policy that covers the risk of misappropriation of trade secrets, which may result in very high losses. But as the business service sector's (insurance, banking, and investment) ability to treat IP rights as business assets develops, things may change.48

As important as detecting infringement and taking appropriate action is avoiding infringing the IP rights of others. This is what the clearance procedures aim to prevent or minimize.

Clearance Procedures - Treading Around Dangerous Waters. Clearance procedures are more than IP searches. In addition to searching registries, they include procedures for the assessment of the scope and strength of the IP of others. Following that assessment, the clearance procedures assist the department concerned in making decisions on whether to proceed with product devel­opment plans (patents and copyrights), with marketing and advertising campaigns (trademarks), and with using a particular process developed by a former employee of the competition (trade secrets). In cases in which the IP owned by another is very strong and wide in scope, to the effect of blocking the business plan, a license should be actively pursued. Failing that, management, in conjunction with the legal department, need to assess the risks involved in designing around the blocking IP, and whether the business plan should be changed. Using the clearance procedures at an early stage of the business plan avoids the possibility of having to divest later and lose the related investment, as well as instill a culture that is preventive of infringing the IP of others.

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