The New Profit Center: Ideas
from
September/October 2005
by Randy Myers
Who’s managing your company’s great ideas? If it takes you more than a nanosecond to answer, you’re behind the curve. Reflecting the growing importance of ideas and information, more and more public companies are naming a “chief intellectual property officer” (CIPO) to manage their patents, trademarks, trade secrets, and other intellectual property. More than a legal enforcer, this new chief-level executive is expected to leverage the company’s intellectual property to create new business opportunities and, in some cases, a new profit center.
“I think of it as a business-development role in which we’re, first, accelerating entry into new products; second, defending and protecting our current market position; third, creating valuable partnerships; and fourth, setting technology standards beneficial to the company and the community, or at least influencing the direction of those standards,” says Tim Crean, who was named chief IP officer at the German software giant SAP last year. “Potentially, we also might want to obtain cross-licenses with some of our key competitors to gain access to their IP assets.” Crean, based in SAP’s Palo Alto, California, office, is the company’s second CIPO.
Don’t consider this a European thing, however. U.S. companies that have named CIPOs include Avery Dennison, a label maker, and software start-up OpenTV. Ford Motor and Boeing have created subsidiaries to oversee their IP portfolios.
At Avery Dennison, CIPO Arthur Moore says the decision to rethink IP strategy was triggered by a realization that the company’s old model wasn’t producing the proper payoff. “We were doing the routine legal work for patent and IP protection, but not getting enough value out of our intellectual property,” he says. “We weren’t getting enough licensing revenue.”
Moore declines to say just how much new revenue his team’s efforts have begun to generate, but there’s little doubt that the stakes are huge nationwide. The Big Four accounting firm Deloitte & Touche calculates that since 1990, U.S. technology-licensing revenues have grown to approximately $150 billion from $15 billion, and that they could reach $500 billion by 2007. Estimates of the value of unexploited technology assets in the U.S. range from hundreds of billions of dollars to more than $1 trillion, while worldwide the value could be as much as $3 trillion to $5 trillion.
Attorney Robert Sterne of Sterne Kessler Goldstein & Fox in Washington, D.C., says it’s high time corporate board members paid more attention to this profit potential. Although it hasn’t happened yet, he notes that if a company mismanages IP assets—fails to protect a critical patent, say, or loses an important product because it’s found to infringe on someone else’s patent—directors could be sued by shareholders arguing that they violated their fiduciary duty. “I think a board is running a huge risk if it doesn’t have at least a process and procedure in place for regular briefings on IP developments,” Sterne says.
Naming a chief IP officer could be a good first step. Not surprisingly, most of the CIPOs named to date have been lawyers. “The advantage that an attorney brings to the position is knowledge of trademark and patent law,” says Crean. “Without the ability to create, litigate, and enforce IP assets, those assets aren’t worth anything. On the other hand, to have the role meet its full abilities, you need someone who understands the business and can integrate the legal aspects of the job with the overall business strategy. It wouldn’t have to be a lawyer.” In at least one instance, it’s not. Computer maker Hewlett-Packard took its IP strategy out of the hands of its legal department in 2003 when it named a longtime HP executive and nonlawyer, Joseph Beyers, to the new post of vice president for IP licensing. His former position at HP was vice president of strategic planning for the computer-systems business.
Thomas Ewing, who was OpenTV’s CIPO until May 19, when he left for an academic post in Europe, says there are good reasons to make the IP manager a high-level executive, to provide better access to other key executives. Crean agrees. “In the past, IP was seen as a legal management function only,” he says. “Companies have come to realize that it’s much more strategic. Creating a C[chief]-level position recognizes that an integrated IP business strategy requires taking legal issues, technology issues, business acumen, and financial trade-offs and putting them together as an integrated whole.”
It could even be one of a company’s great ideas.
