IP management and SMEs

Duncan Bucknell – over at IPThinkTank – has an interesting posting The biggest issue in IP management? He argues that the biggest pool of IP and therefore the biggest challenge for IP management is in small and medium size enterprises (SMEs). As he notes, “The vast majority of IP management is done where there is no IP function.” He call for the development of tools for IP management that can be applied to all size firms, like accounting.

Neil Wilkof over at IP Finance counters with the comment

that if we are to go about the “development of tools” correctly called for by Bucknell, we will first need to address the prerequisite question: What is the relationship between IP and innovation? Only after we have created a structured approach to answering that question can we then proceed to the “development of tools.”

I’m not sure that I would go as far as Wilkof in that we have to spell out the precise relationship between IP and innovation. But he is correct in that we have to take a broader perspective. SMEs often don’t just lack capacity for IP management, they don’t have the capacity for any form on intangible asset management. The broader framework needs to go well beyond IP to embrace all their intangibles.

There are some models for developing the tools that Bucknell calls for — and for disseminating those tolls to SMEs. In Scotland, for example, there is the Intellectual Asset Centre. Their mission is threefold:

  • to raise awareness and understanding of intellectual assets among Scottish organizations
  • to help those organisztions identify and exploit their intellectual assets
  • to work with independent intellectual assets management specialists and encourage their sector to grow

The Centre provides direct support to companies as well as undertaking research and developing tools. There is a similar program in Hong Kong – the Asia Pacific Intellectual Capital Centre and the Intellectual Capital Management Consultancy Programme.

This is somewhat similar to the US manufacturing Extension Partnership (MEP) centers in the US. MEP, however, is limited to manufacturing firms and focuses on issues of quality and productivity. In my posting yesterday, I noted that as part of the next wave of innovation policies we need to expand MEP’s services to include intangible asset management. But we need to do more.

We need a dedicated institution(s?) on the Scottish IA-Centre model with the sole purpose of intangible asset management. Placing IA management specialists at MEP centers is a good step. But MEP has a number of activities they need to focus on – and its narrow target is helping manufacturing companies. The focus of the IA Centre is both narrower and has much more broader target. It focuses on intangibles but goes beyond helping companies to also raising awareness and fostering expertise in the field. A US IA Center could undertake the same activities. It could feed into the MEP activities – as well as into other business assistance programs run but the federal, state and local governments as well as those by other organizations, such as universities. Such a center could be the catalyst for IA management activities.

Something worth considering.

Grand challenge prizes?

I did want to draw special attention to one part of the Administration’s new innovation strategy report (see earlier posting). At the end of the paper, there is a list of possible “Grand Challenges” of the 21st Century:

•   Complete DNA sequencing of every case of cancer; smart anti-cancer therapeutics that kill cancer cells and leave their normal neighbors untouched; early detection of dozens of diseases from a saliva sample; nanotechnology that delivers drugs precisely to the desired tissue; personalized medicine that enables the prescription of the right dose of the right drug for the right person; a universal vaccine for influenza that will protect against all future strains; and regenerative medicine that can end the agonizing wait for an organ transplant.

•   Solar cells as cheap as paint, and green buildings that produce all of the energy they consume.

•   A light-weight vest for soldiers and police officers that can stop an armor-piercing bullet.

•   Educational software that is as compelling as the best video game and as effective as a personal tutor; online courses that improve the more students use them; and a rich, interactive digital library at the fingertips of every child.

•   Intelligent prosthetics that will allow a veteran who has lost both of his arms to play the piano again.

•   Biological systems that can turn sunlight into carbon-neutral fuel, reduce the costs of producing anti-malarial drugs by a factor of 10, and quickly and inexpensively dispose of radioactive wastes and toxic chemicals.

•   An “exascale” supercomputer capable of a million trillion calculations per second – dramatically increasing our ability to understand the world around us through simulation and slashing the time needed to design complex products such as therapeutics, advanced materials, and highly-efficient autos and aircraft.

•   Automatic, highly accurate and real-time translation between the major languages of the world – greatly lowering the barriers to international commerce and collaboration.

The list is generally a free standing section of the report tied only indirectly. Tom Kalil, Deputy Director of OSTP and also on the staff of the NEC, has long been a proponent of incentive prizes as a research funding mechanism (see his posting earlier this year on the White House blog). Could we be seeing the list of soon to be sponsored research prizes?

Obama Innovation Strategy

Yesterday, President Obama gave a speech on his innovation strategy and the National Economic Council released a white paper A Strategy for American Innovation. The speech reiterated the importance of increasing investments in education, infrastructure and scientific research – and of health care technology and clean energy/green technology. In his posting on the White House blog, Larry Summers stressed the importance of entrepreneurship (and lauded Schumpeter).

The plan itself lays out the case for innovation-led growth – as a sustainable (non-bubble) economic path – and the role of government in the process. In terms of specifics, the paper reiterates policies and programs already proposed or underway, as part of the Recovery Act , the FY 2010 Budget submission or as previous Presidential actions. One of the new actions was the President’s support for FCC Chairman Julius Genachowski’s pronouncements on “net-neutrality.” Thus, rather than a new set of initiatives, the paper seeks to promote current proposals by tying them closely into a package to boost growth through innovation – and thereby remind everyone why the proposals are important.

While it is important to keep the focus on enacting these proposals (as Congress has not yet acted on the FY2010 appropriations bills), it is also not too early to be thinking of the next set of actions. Let me suggest a couple ideas from our earlier Athena working paper from last December Crafting an Obama Innovation Strategy:

•   Rename the Baldrige Quality Award the Baldrige Quality, Productivity, and Innovation Award. Over the years, the criteria for the Baldrige Award have changed with the times. As these criteria have shifted and broadened, the award has become much more productivity and innovation focused. Much of this shift, however, has not been recognized. The change in the name would both better advertise the broader nature of the award and provide an opportunity to review and modify the criteria to reflect this broader view. In addition to changing the name, the award should be given greater visibility by the President. By presenting the awards personally, the President could use it as an opportunity to showcase innovative American companies and collaborations. The National Science and Technology medal criteria could also be broadened to recognize a small number of individual contributions to innovation that are not solely technology based. .

•   Expand the Manufacturing Extension Partnership (MEP) program. The MEP program has been a successful mechanism for increasing quality and productivity in small- and medium-sized manufacturing companies. We should build on that success by expanding the scope of MEP’s services to include innovation activities, including intangible asset management. Doing so would require a phased expansion of the program’s budget and staffing into areas of marketing, finance, and business model development beyond simply new product development and process adoption. .

•   Enable the National Science Foundation’s (NSF) Engineering Research Centers program to support the creation of Design Research Centers as well as promote research and teaching of integrated design thinking. Innovation success is heavily reliant on design as a key component but not simply involving the physical appearance of products. A new approach to applied problem solving and innovation is emerging under the rubric of design thinking. Successful models include the Stanford Design School and the Institute of Design at the Illinois Institute of Technology (IIT), among others.

•   Implement the America COMPETES Act call to study of how the federal government could support research and teaching related to the services industries and service functions in the manufacturing sector. Some suggest that there is already a well-defined discipline of “service science” that merits support and replication across more higher education institutions. Whether or not that is the case could be answered by such a study, which, like other provisions of the 2006 Act, has not been implemented.

•   Endorse, operationalize, and fund the recommendations of former Commerce Secretary Gutierrez’s Advisory Committee on Innovation Measurement in the 21st Century. Among other things, this means supporting and accelerating efforts of the DOC’s Bureau of Economic Analysis to revise the national economic accounts by converting intangible business assets (R&D, software, intellectual property, human capital, brand identification, and organizational capacity) from expenses to investments with future returns. Although Federal Reserve Board staff studies–corroborated by similar analyses in the UK and Japan–find that intangible investments exceed spending on plants and equipment and account for a significant portion of economic and productivity growth, that fact is unlikely to be given full weight in economic policymaking until reflected in the nation’s official accounting.

•   The Securities and Exchange Commission (SEC) should be asked to undertake a study examining barriers to disclosure of intangible assets on corporate financial statements, assess past disclosure requirements (such as the 2003 guidance on the Management’s Discussion and Analysis [MD&A] section in financial statements), and the merits of a safe harbor for limited disclosure of financial information on intangibles not currently allowed in financial statements.

•   As proposed at a June 2008 conference sponsored by the Bureau of Economic Analysis (BEA) at the National Academies, a broader study of intangibles could include (1) a survey of efforts in other countries to advance the understanding of intangibles and their role in corporate performance and economic growth, promote financial investments in intangible assets, and foster the utilization of intangibles; (2) an inventory of federally owned intangible assets and how to exploit them for economic growth; and (3) recommendations of policies to accelerate private investment in and management of the types of intangible assets most likely to contribute to growth.

•   To foster best practices for management of intellectual assets and intangibles in the United States, the relevant federal agencies–such as SEC, Department of the Treasury, and DOC–should establish an advisory committee to make recommendations on ways of providing investors with an improved method for assessing the impact intangibles have on the accuracy of a company’s financial picture and supporting industry trade associations in an effort to adopt guidelines for intellectual asset management and intangible disclosure appropriate to particular industry sectors.

•   Undertake a budgetary cross-cut of government investments in intangible. The federal government is a major investor in intangibles, but we don’t know the size of that investment or even where it really goes. For some time the federal budget, as prepared by the Office of Management and Budget (OMB), has included a capital budget that includes physical capital, R&D, and education and training. The budget documents also include a separate analysis of funding of statistical agencies, which is not included in the investment budget. These and other budget analyses already undertaken by OBM can serve as the starting point for a cross-cutting budgetary analysis of federal investments in intangible assets.

•   As part of the effort to enact a permanent R&E tax credit, adding an incumbent worker training tax credit that would transform the provision into a knowledge generation and acquisition incentive. We already support training of unemployed workers, but not for those who have a job. A corporate tax credit would reduce the incentive firms now have to lay off workers in a recession and rehire different workers with higher skills when the recovery comes, with an attendant loss of company-specific knowledge. Instead of sending some workers to the unemployment line in a recession, we could be sending them to the classroom.

Longer term actions might include:

•   establishing an analyze capability for reviewing regulatory activities with an innovation impact;
•   better managing the allocation of R&D spending among and within federal agencies through a joint OSTP and OMB review agency spending plans in key areas with an eye to making mid-course adjustments;
•   strengthening the White House role in reviewing and balancing intellectual property policy as broadly defined;
•   consider establishment of a National Foundation for Science, Technology, and Creativity patterned after the United Kingdom’s National Endowment for Science, Technology and the Arts (NESTA);
•   greater use of government procurement to push new business models, including use of new collaborative work tools, such as Virtual Worlds.

These short and longer term actions would move the innovation agenda to the next level and bring in the element missing so far from the Administration’s proposals: intangible assets.

One somewhat disturbing note. When the speech was given, Senator Orrin Hatch, chair of the Senate Republican High Technology Task Force, immediately attacked it (see also Obama Innovation Plan Gets Mixed Reviews). That the Senator felt compelled to issue an attack is of concern. Innovation policy should be a bipartisan activity. If it gets caught up in the current raw politics that has seemed to grip the nation, then the chances of any meaning full action are greatly diminished. And we all lose.

In another side note, it was interesting to see the media’s coverage of the speech and the report. There have been a number of online stories, but not much in what I would call the general print media. For example, the Washington Post ran an online article Monday afternoon but didn’t have anything in the Tuesday morning print edition. Much of the coverage was on the Letterman appearance and the how the President and the New York Governor were getting along. Looks like those two stories, and Genachowski’s statements, trumped coverage of the speech.

Another problem with an intangible asset deal

So, enough about Skype already. Now there is this story about how the $4 billion intangibles play by Disney may face an unexpected glitch in securing those intangible assets (see Disney Faces Copyright Claims Over Marvel Superheroes):

Heirs to the comic book artist Jack Kirby, a creator of characters and stories behind Marvel mainstays like “X-Men” and “Fantastic Four,” last week sent 45 notices of copyright termination to Marvel and Disney, as well as Paramount Pictures, Sony Pictures, 20th Century Fox, Universal Pictures, and other companies that have been using the characters.
The notices expressed an intent to regain copyrights to some of Mr. Kirby’s creations as early as 2014, according to a statement disclosed on Sunday by Toberoff & Associates, a law firm in Los Angeles that helped win a court ruling last year returning a share of the copyright in Superman to heirs of one of the character’s creators, Jerome Siegel.

Did Disney do a complete enough job in its due diligence? According to the story:

Even before the Kirby family sent its notices, Disney was facing criticism from some Wall Street analysts who expressed concern that Marvel’s complex web of copyright agreements might prevent Disney from capitalizing on some Marvel assets.

Given that Disney has been one of the savviest copyright protectors, this comes as a bit of a surprise to me. However, the story notes that:

Disney said in a statement, “the notices involved are an attempt to terminate rights 7 to 10 years from now, and involve claims that were fully considered in the acquisition.”

We will have to see how this all turns out.

Helping commercialization

A couple of recent articles highlight the issue of increasing the commercialization of good ideas.

Steve Lohr at the New York Times writes on the growing use of patent auctions (Now, an Invention Inventors Will Like):

Wrangling over patents is beginning to move out of the courtroom and into the marketplace. A flurry of new companies and investment groups has sprung up to buy, sell, broker, license and auction patents. And venture capital and private equity is starting to pour into the field.
The arrival of these new business-minded players, according to patent experts and economists, could lead to a robust marketplace for patents, where value is determined not so much by court judgments but by buyers and sellers, perhaps, someday, like eBay.

Well, Steve, maybe not like the eBay/Skype deal — but you have the right idea.

Vivek Wadhwa and Robert E. Litan have an piece over at Business Week that focuses on the technology transfer problem (Turning Research into Inventions and Jobs):

Rather than wait decades for the new basic science to trickle out of the Ivory Tower and into products, a mechanism to quickly assess inventions and build associated companies with real potential would show real returns and major job growth within as little as one or two years.

Their solution is to turn scientists into entrepreneurs:

If we want to create jobs, we must first train scientists how to start companies. Tom Katsouleas, dean of Duke University’s engineering school, has a potential solution, called PhD+. For PhDs who wish to start companies and have marketable technologies, Katsouleas proposes that the federal government provide funding for training in entrepreneurship to teach the lab geeks how to get along better in the startup world.

Interesting, but I think a third-best solution. Yes we can do a better job at helping those scientists who also have the aptitude and willingness become entrepreneurs. But beware of simply invoking the Peter Principle of promoting people beyond their competence. A second best solution is to ramp up the patent auctions, as describe above.

The best solution comes at the end of the Wadhwa and Litan piece:

We also need to rethink the importance we ascribe to technology licensing. It should be subordinated to entrepreneurship as a scheme for pushing technology into the world. Instead of being rewarded for generating license revenue, technology transfer offices should be measured on the number of startups they help spawn, and by the employment and revenue created by these startups.

This solution attacks the problem at multiple levels. It puts the emphasis on the outcomes (spin-offs) rather than the intermediate product (more researchers as business people). It widens the focus to multiple activities — licensing and patent sales are part of the spin-off process. Finally, it is applicable to non-science based innovations as well as science-based ones.

In my view, anything that broadens the technology transfer mindset to innovation-creation is a good thing. That includes both increased patent sales (and other alternative financing mechanisms) to spur commercialization and encouraging more entrepreneurship. Neither is the silver bullet. Both are a step forward.

More on Skype – update 3

And the saga continues . . .
From the Wall Street Journal

Two companies owned by the founders of Skype have filed another lawsuit that could complicate eBay Inc.’s $2 billion deal to sell the Internet communications company to a group of investors.
The suit from Joltid Ltd. and Joost N.V.–both owned by Skype founders Niklas Zennstrom and Janus Friis–was filed Friday in a Delaware court. The suit claims that former Joost chief executive Mike Volpi breached his fiduciary duty by using confidential information to broker a deal announced recently by eBay, which owns Skype, to sell a 65% stake in company to private investors.

Quality control or innovation

I know that there is an ongoing debate whether quality methodologies like six sigma are antithetical to innovation (because they stress standardization and elimination of variation). But take a look at BusinessWeek’s recent article
Six Sigma Makes a Comeback – and more importantly its slideshow of examples Six Sigma Goes Shopping. If we define innovation as doing something differently and better, most of these examples could be considered process innovations.

Call it Six Sigma, call it process reengineering (remember that term?), call it process innovation, call it what you like — bottom line it is doing things differently and better. To me, that is what it is all about.

I especially liked the last paragraph in the story:

For a sense of the new approach to Six Sigma, consider Target. It hasn’t enforced its program with the rigor common in manufacturing. “Some companies require their employees to use Six Sigma,” says spokesperson Beth Hanson. “You don’t have to be a black belt or green belt or be certified at all to use Six Sigma [here]. We just offer employees the tools.”

Innovation today isn’t about people in white coats in labs making breakthrough research findings – although it still a part of the game. Innovation is more about front line workers coming up with a better way. We used to call that high-performance work organizations. It sounds like that is exactly what Target is trying to do.