Thursday, October 29, 2009

A more conservative approach

Previously, I outlined 10 reasons to create an independent IP commercialization business unit. Of course this is not a trivial decision and there are a lot of barriers. Here is a practical route to achieving it.

According to the National Bureau of Economic Research, R&D is centralized in 63% of large public US firms. Indeed, 48% of all R&D heads report directly to the CEO. As an output of R&D, intellectual property is seen as an essential part of the firm and is closely held.

In those firms, this is a structural impediment to decentralizing management of IP. Job-security issues are even more prevalent in decision making these days. However, apart from that, there are very valid concerns about removing intellectual property from direct control of HQ.

Some concerns:

  • Lack of understanding about the underlying technology and market issues
  • Risk of exposing valuable IP through reckless litigation
  • Risk of disturbing industry relationships

A safer route can be a partial decentralization with some of the following activities:

  • IP administration. Patents that have been registered worldwide have to be renewed each year with fees paid on time in each country of registration. These fees become due at different times of the year in each country for each patent. Failure to pay the annual fee can cause the patent to lapse in that jurisdiction without any prospect of reinstating it. It requires careful management to ensure that all the patents are kept up to date. This management activity can be a low-risk pilot of the decentralized unit to steward the intellectual property assets.
  • Geographical territorial limit. Because the USA is the most developed IP market in the world, it is entirely possible for a firm to be the largest company in the world and yet have its activities principally concentrated in the USA. It may be a low-risk strategy for the company to extend its “global footprint” by setting up another business unit to manage its non-USA activities and avoid disturbing the home-market.
  • Establishing ground rules. Litigation is an expensive proposition. Despite the attraction of showing strength, litigation may have a negative impact on the firm’s reputation in the industry. But above all, litigation puts the core intellectual property asset in jeopardy because of the risk of an invalidation attack on the IP. Even if it is decided that the stand-alone unit should manage litigation, the decision to “pull the trigger” should still remain with the parent company.
A partial adoption of a combination of the above may be more palatable than fully delegating all IP commercialization to a remote unit.

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