In late 1999 the IP strategist Kevin Rivette and author David Kline redefined attitudes to IP in their landmark book Rembrandts in the Attic. Few other publications have been as important in establishing IP as a valuable business asset to be leveraged and monetised by rights owners.
Now 20 years on, in a two-part interview with IAM Rivette, who these days is the managing partner of Sherpa Technology Group, explains why some of the book’s key messages have been lost and states that IP lawyers are still not asking the right questions of their companies. What follows is part 1 with part 2 due tomorrow.
Rembrandts in the Attic changed the way a lot of people viewed IP and firmly established this way of seeing patents as a business asset like any other. One of the big takeaways was that it prompted a shift in mindset for some business leaders who started to think: “Hey, we have all these assets on our balance sheet, how much can we get for them?” Was that the main takeaway for you?
Kevin Rivette (KR): Well, yes and no. That’s certainly what a lot of people took out of Rembrandts.
But I’m going to suggest that when we wrote it that was only a part of it for me. It's also about how to help enhance mergers and acquisitions, it’s about how to enhance brand, it’s about how to create standards that protect your R&D— I mean there’s a lot more. People took the monetisation part of the book because it was the low hanging fruit. And people have come back to me and have said a lot of positive and negative things about the book, but I got it - that’s how the world wanted to see the book. But it actually goes into a lot more strategies than that.
And the strategies are where we’ve made a lot of our money for the last 11 years at 3LP and now Sherpa: the sort of the things that we’ve been doing which are not pure monetisation. That’s the easy stuff; that’s the let’s go out and sue. It’s not about how to do deals for a lot of IP guys, they don’t understand it. I almost got booed off the stage one time when I gave the keynote for the ALPLA and I said, look, guys, it’s too easy to do the, you know, threatening to sue for a licence. You guys have got to become business people and unless you do you’re going to find that life gets tougher and tougher, because you’re not speaking the right language. You’re not talking the language of the boardroom, you’re not talking the language of what the CEO has to do.
When I was at IBM we did a whole three tiered structure on how to drive innovation down the path for electronic medical records so that the company would benefit. When we did that we opened up certain patents, we closed off certain other ones, and we made sure that we had secondary and tertiary patents in place so once those de facto patents got put into place with those technologies they ran right smack into other stuff so we could effectively determine where R&D was going.
So if you look at Rembrandts there’s a section for the CEO, there’s a section for R&D, there’s a section for M&A. As I said, what people basically looked at was just the low hanging fruit not the more complex questions like: How do you support your brand? How do you drive deals? How do you induce partnerships that you don’t have an ability to do today? How do you create oligopolies in a monopoly market? Again, to do this you’ve got to understand business, not just the law.
How have the questions being asked of the senior IP guys changed - or how are they changing?
There are two issues here, right? There are the questions that the senior management is asking IP people. And then there are the questions that the senior IP people are asking upper management. And I think we’ve got a chicken and egg problem. From day one this is what I thought. And that’s why I brought it up at the AIPLA - because when the senior management goes to the IP people it’s a black box to them, right?
What the hell is IP, most c-level management doesn’t know. Unless the CEO or the CTO was actually involved with this early on they all basically rely on the lawyers. Most lawyers are really good at defining the problem, looking for an edge case, and they always – because of their training and because of the way they’ve come up through the ranks— have to have a definitive answer. Do you know what, the one thing they don’t have to have is the right question.
So what are the things that IP people don’t know? They typically don’t really know the direction of the company. They usually don’t understand where profit pools and revenue streams lie. They don’t understand what management’s thinking is in marketing or in sales. They don’t have a clear vision of an overall R&D project schedule.
Last year we had a company engage us and they asked us to look at over 22,000 patents. We sat down with every single member of the C-suite and some of the board members, and we built a matrix on what their business was going to do over the next three to five years. What they wanted it to do. What their sensitivities to patent litigation were and potentially who against. What types of M&A would they like to do and what R&D they needed to protect or guide the industry into accepting. Once we had answers to these questions and others, then we could go back and figure out what the hell to do with the patents and develop a real IP strategy.
Did they know why they had over 22,000 patents?
Yeah, because over a period of time they’d gone through multiple acquisitions and mergers. They’d gotten a whole bunch of this stuff together. Management said, you know: "What can we do with it"? The original question was: "Is it valuable to license or monetise in any other ways"? And we broke it up into multiple vectors, this you might license, this you might sell, this you’re going to hold for a period of time etc.
We suggested, here are the trigger points so if the technology goes this way or that way here is what you’re going to do because the technology underlying the patent is nascent right now. Because we did the work up front we knew what type of deals they wanted to do so we could look at that and say okay here is how we would augment this and when we would use them and how we would use them -- this part is business not law. The law part is easy.
So what are some of the steps you need to follow if you’re trying to develop an IP strategy for a business?
I would say the first thing you have to do is look at who your competitors are likely to be three to five years from now. How do they make their money? What R&D do we need to protect? Do we need/want to do partnerships of acquisitions? What do you think our product mix and our roadmap look like? And if it’s about a specific product, how can the patents help brand it?
Then there are other questions like: Do we need to raise money now? If so, how can our patent strategy help? What are marketing and sales people going to need to protect as the market changes? Are we public? What should we be doing to communicate our patent strategy to the Street? Do we need to do an acquisition programme instead of just our own patents programme? These are some of the questions that I need answers to develop an IP strategy.
And as I said, I think a lot of people have got it all wrong. It’s ass backwards. As you can tell people in the profession are not real thrilled with me.
Do you see anyone getting it right? Any companies getting it even partly right?
KR: Oh, yeah, there are companies, absolutely. In our case, we’re working with some startups and larger companies that absolutely have got it right.
But is it driven by the lawyers? Typically not. It’s driven by the CEO or the board, or maybe a COO/CFO asking the right questions. They actually have an understanding of what patents are and that’s what starts to change things. And it’ll change significantly, in my opinion, as we go through this next phase of strengthening inventors' rights. Because we’ll see more deals done with IP than we see today. Not just deals like Nortel and Round Rock, but deals based on quality patents driving business decisions in M&A etc.
I think to do this right what you need is an openness of attorneys to ask questions, not to just provide answers, and to be more business savvy. And they’ll all tell you: "Oh, I know business." But I can tell you almost to the person they don’t really understand management, unless they have that experience.
Why do Peter [Detkin] and I have the ability to walk in to boards and c-suite meetings? Because we’ve had to make business decisions on less than perfect information and understand what questions management, boards and investors have on their mind. So when they talk about these issues to us we can ask intelligent questions in their language. And then what we end up doing is translating for the lawyers.
Now lawyers don’t like that because at first they perceive a loss of some power. However, an IP strategy does not weaken the lawyers' standing, in fact it tends to enhance it. Usually, what they do like after working with us is the fact that their budgets typically get bigger and they get to see the broader scope of why the IP is important to the firm and why management now appreciates their hard work. I hope that more IP attorneys can enjoy the full business implications of what they do and I believe an IP strategy makes this possible.
Tomorrow: why it should cost a whole lot more to get a patent and how the IP market is likely to develop