Intellectual Assets for Innovation
Interview – Jackie Hutter – The Hutter Group
I had the opportunity to interview Jackie Hutter, Chief IP Strategist and Founder of The Hutter Group about the intellectual property and innovation. The Hutter Group is an IP business strategy consultancy that assists innovation-driven organizations, entrepreneurs and investment professionals in identifying opportunities to identify, capture and maximize value from intellectual property and other intangible assets. Jackie, who calls herself “a recovering patent attorney,” has over 15 years of multi-faceted IP and business experience in both law firm and corporate settings.
Here is the text from the interview:
1. When it comes to open innovation, what is the biggest challenge that you see organizations facing?
From the perspective of an intellectual property (“IP”) lawyer with both law firm and large corporate experience, I believe that an organization’s legal team can be a major impediment to successful implementation of open innovation. For lawyers, IP or otherwise, uncertainty invariably signals risk. As a new business concept, open innovation necessarily presents uncertainty for organizations and, as such, it would not be unexpected for the lawyers to be inclined to see a move toward open innovation as creating risk.
Some more “traditional” IP lawyers, often see their primary roles as minimizing risk to their clients, a perspective that can result in nascent open innovation programs being shut down at an early stage. This is my experience as a senior in-house IP lawyer at a large consumer products company, where the head of the IP group was able to convince senior vice presidents that a fledgling open innovation program would result in too much risk. But even if an IP lawyer does not shut down an open innovation program before it even gets off the ground, viewing a business opportunity from the perspective of risk, as opposed to the opportunities it creates, certainly influences potential success. Viewing open innovation as risky typically results in lawyers’ attempting to mitigate risk, which can add considerable legal expense and delay to an organization’s program.
2. What are some of common intellectual property myths?
From the patent side, a significant myth is that patent filing must pre-date any real business activity related to a new product. An organization’s lawyer’s will typically place this hard and fast rule before the business team, without reference to the need to validate the efficacy and ultimate business value of the product. What typically follows from such early filings is that the resulting patent application does not include improvements to the product that only could have been determined from the testing phase. While the product improvements identified during testing and scale up can often be included in follow-on applications (but only up to a point), too early filing invariably raises costs to protect innovations, or results in wasted resources when it turns out that the product is not a good one. There are usually ways to manage consumer testing and still get a patent on the product, but many IP attorneys will not explain such options to their business clients because it raises risks.
A second big myth is that a product that patents should be filed on products that comprise patentable inventions. There are many reasons not to file for a patent today such as, the product will only be in the market a short time, there is a limited market where it would not make sense to enforce a patent against an infringer or that strong commercial relationships mean that control of the market through patents is not necessary. Business people need to realize that it is an IP lawyer’s job to get IP, and, all too often, if it is possible to get IP they will recommend doing so.
A third big myth is that IP “just is.” That is, many business professionals believe that IP exists as a corporate asset to be harvested without any groundwork. This is not the case. In order for IP to exist in measurable form–and therefore to comprise an asset capable of valuation–the organization must identify, capture and protect those aspects of the business that serve as its competitive advantage. In other words, for an organization to have IP, it must have an IP strategy that is directed toward supporting and enhancing its forward-facing business strategy.
3. What are some of the key ways that legal departments sometimes act as barriers to innovation?
At most corporations today, legal departments are cost centers. Put simply, every dollar spent on legal protection is a dollar that does not go to the bottom line of the corporation. In the IP context, this means that IP procurement efforts are often pushed down to the lowest cost provider, irrespective of the value of the innovation being protected to the corporation. Legal departments, especially today, are loathe to spend significant money on IP protection, even if the IP at issue protects an innovation that is critical to the long-term success of the business. In many companies, lawyers will not obtain their yearly bonus if they exceed their budget, or if they do not meet budget reduction objectives. The way to fix this would be to have IP protection budgets come directly out of the business or to have the IP team report directly to the business, but this is a concept too radical for many organizations. What business people need to realize is that the traditional corporate legal model does not necessarily serve the needs of the business as a whole.
A second big barrier to innovation is that lawyers–IP or otherwise–more likely than not are incentivized to reduce risk to the organization. Innovation is an inherently risky proposition, so the mere fact that lawyers are involved in innovation decision-making means that barriers are likely to exist.
4. When, if ever, does it make sense for a company to choose speed over IP protection?
IP protection is irrelevant if there is no business. So, if speed is of the essence, then IP protection should take a backseat to the need to get a product to market. Also, there often are ways to extract protection when a product is already to market. Such ancillary schemes may not be optimum, but may indeed be enough to provide adequate protection from competition in many instances. The key to make this possible is to include IP strategy as part of the go-to-market plan and ongoing product extensions.
5. What are some examples of companies that manage their intellectual assets particularly well?
Clearly, P&G is a standout in the consumer products space and IBM is one in the technology space. My view is that any company that introduces innovative products on a regular basis and yet either does not get their products regularly knocked off or get sued for infringement on a regular basis is probably doing a pretty good job with its intangible assets. It takes a lot of behind the scenes work to make this happen, though.
6. What are some of the changes coming in the patent system that will make things better or worse for innovation?
the new Commissioner of Patents, David Kappos (formerly of IBM), I think the future will be much better for innovation because the US Patent Office is actually being run by a person with experience in the patenting process from the perspective of a customer. Mr. Kappos has signaled that we are in for a number of significant changes in the next few years. Most notably for innovators, I believe it will be easier to search the Patent Office database for information. When one remembers that the reason the Patent Office exists is to facilitate information access for innovators (which is embodied in the US Constitution), such better access will be a re-establishment of the original purpose of patents. Other changes I expect to see will be a higher quality examinations from a more engaged examiner corps, as well as a significant reduction in the pendency of patent applications. Better patent examinations and shorter time to issuance can only help innovators, both those who seek patents and those who need to understand and react to patents obtained by their competitors.
As for the recent issues with it being harder to qualify for patents due to certain court decisions, well–it is what it is. In the history of the US Patent System, we have seen ebbs and flows in how the Patent Office and the courts treat the question of whether an innovation qualifies for a patent. Right now, we are in a particularly difficult period, but history tells us that is bound to change and we just have to ride out and also develop innovation protection strategies that take into account the fact that currently there is a higher hurdle for patentability.
7. What skills do you believe that managers need to acquire to succeed in an innovation-led organization?
Managers need to obtain enough knowledge about IP and how its proper use can work to maximize corporate value so that they need not rely primarily on their legal team. If 50% or more of corporate assets are in the form of intangibles, it is illogical for managers to cede responsibility for this major corporate asset to lawyers: would these same managers place their lawyers in charge of their accounts receivable or the like? (The amount of corporate assets held by modern companies is frequently debated. The consensus, however, is that all modern companies have “a lot” of intangible assets, with some information technology companies believed to have 90% or more.) Put simply, for IP to properly work in any modern organization, managers must be in the driver’s seat. They must understand enough about IP to develop an IP strategy that is alignment with their business strategy. Such an IP strategy is then properly tee’d up for execution by the lawyers, which requires the manager to also have the skills required to oversee the lawyers’ efforts.
8. If you were to change one thing about our educational system to better prepare students to contribute in the innovation workforce of tomorrow, what would it be?
From the business perspective, I believe that education must include IP strategy as a strongly recommended course. Importantly, such a course should include or be in addition to the usual “Introduction to IP” courses that might already be available at some schools. IP strategy means understanding how intangible assets can be used to create and maximize corporate value, and goes beyond the typical “this is a patent” explanations that business people usually obtain.
From the legal perspective, I think what is needed is a mandatory business strategy course for any person entering the IP space. IP lawyers are scientists with a law degree, and probably only 25% or so have real business experience. This means that the business reasons for IP lawyers’ efforts is often lost in view of the technical and legal focus most place on the patenting process. Too many lawyers see their role as successfully getting a patent for their clients, as opposed to ensuring that their efforts only matter if they create value for their clients. While many lawyers will not “get” the business aspects of their efforts, exposure to an alternative viewpoint can only help clients in the long run.
Tell Me More
If you’d like to hear more of what Jackie Hutter has to say about the challenges of intellectual property and open innovation, she will be leading a panel at the Open Innovation Summit, taking place December 2-4, 2009 in Orlando, Florida along with several other open innovation leaders, authors, and consultants. Jackie will be leading a panel currently titled:
September 18, 2009 is the last day for the $400 early bird discount.
See you there!
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