Making IP Innovation Pay

Saturday, September 1, 2007 - 00:00

A new global IP order is taking shape right before our very eyes. IP asset values are increasing with enhanced liquidity. The framework of a global IP exchange and distribution system is being slowly assembled. Multimillion dollar auctions of IP rights are regularly occurring in the U.S. and abroad. Forward thinking people among us are now taking steps to find their place within this IP frontier. The question is: who in the legal community is ready to step up to the challenge of prescribing a new practice model for the next generation?

The evolution of a new world order in intellectual property ("IP") started with a shift in how value is extracted from the process of innovation. The worth of an invention was once solely tied to the value of its manufacturing output (i.e. the profit derived from using a protected technology to actually make things), but over time IP value has shifted to include streams of revenue derived from the value of production, actual use as a product, shared use by others through licensing, and associated intangibles like present and future customer interactions, related product sales, advertising relationships and strategic collaborations. It's a textbook example of the power of synergy.

Market Acceptance

This global escalation in the value of intellectual property assets has induced advances in the ways people perceive and treat technology. For example:

Patents Of Different Types.
From new business methods to new forms of life, the ability to protect advances in novel and discrete areas continues to grow. This push to recognize groundbreaking advances will continue despite the increased scrutiny suggested by the recent U.S. Supreme Court decision, KSR v. Teleflex.

Patents Being Marketed In Different Ways.
Whether it's in-person or online auctions to buy and sell technology, active or passive networks to exchange intellectual property rights, or investment or trading in the stock of IP developers, more people are finding it easier than ever to discover opportunities to exploit nascent IP assets for commercial use or investment purposes.

Patents For Different Reasons
. Not so long ago, patents were directly exploited. But no longer. It's now as likely for IP assets to be acquired for continued development, immediate licensing or future investment by acquirers or others. A greater ability to access IP in various stages of development means enhanced participation and a more vigorous market.

Meaningful Asset Comparisons.
The ability to collect different forms of technical and market information and the emergence of industry players who are making a market in industry-accepted valuation methods are making it far easier to understand, communicate, value and benefit from IP assets than in years past.

Strategies To Make IP Assets Liquid. Long the domain of incestuous industry groups, a host of opportunities now exist for persons to monetize IP with and without actual use, via virtual IP commercialization strategies, IP syndications, primary and secondary IP-based finance offerings, or even litigation to achieve market parity and enhanced royalty values.

Broadly stated, these trends have coalesced and given rise to a remarkable ad hoc movement permitting the systematic development, commercialization, protection, marketing, financing, regulation and monetization of intellectual property on a worldwide basis.

Favorable Global Business Trends

Certain global business trends are also working to extend the impact of this wave of change:

Growing IP Asset Values
. The intrinsic value attributable to intangibles continues to increase, emphasizing the merit of research and development activities, the global market potential of technology, and the need for increased liquidity to recognize value.

Enhanced Base of Developers
. Developers of cutting-edge technologies have migrated well beyond the Fortune 500 to millions of small and mid-sized enterprises ("SME") in the U.S. and abroad. A greater breadth of intellectual property holders seeking to exploit scientific advances translates into a broader need for market penetration and acceptance.

Global View and Reach
. With advances in technology, telecommunications and transportation, even mom-and-pop businesses may now rationally and successfully exploit global business opportunities. SME's in large numbers are venturing forth into this space at an accelerated pace.

Increased International Demand and Creditworthiness.
The demand for cutting-edge technologies produced by America is growing as developing nations with the industrial capacity to exploit these advances seek to leapfrog industrial learning curves. Greater creditworthiness among emerging nation states, non-U.S. multi-nationals and the business class of developing countries have enhanced global IP market prospects.

Improved Economic Conditions
. Favorable trade conditions exist for exporting U.S. goods and selling stakes in US technology assets and operating companies.

Building The Future

Any new advance needs staying power; to achieve critical mass requires an industry-accepted process for the performance of functions essential to enabling the development, commercialization, protection, marketing, financing, regulation and monetization of intellectual property on a worldwide basis.

Thus far, industry thought leaders have been attempting to replicate the past to forge the future. Generally it can be said that founders are assembling new IP business paradigms relying upon four elements common to the existing real property, banking and investment banking industries: information - data to identify, monitor and support IP development tracking and exchange systems; opportunity - mechanisms to facilitate IP investment and trade; resources - ways to fund R&D and make IP and tech companies liquid; and standards - adopting parameters to ensure global IP market integrity. In tandem, these elements broadly represent the most obvious features and minimal functionality required to coordinate this process in the newly emerging IP industry.

Simultaneously, these factors also represent a foothold of opportunity where innovative methods can be employed to update and customize outdated institutional processes to meet the needs of the 21st century IP marketplace.

Recognizing The Need For Change

While the content of corporate law has changed much over the past hundred years, the ways in which lawyers provide their services has not. For better or worse, a 21st century IP practice may be more automated, but the path to trademark or patent is being done as in years past, through traditional legal structures, in accordance with country-based rules, for a fixed or hourly fee, with IP lawyers acting simply to gain recognition of an IP asset. In other words, most IP lawyers help produce actual value without thought of synergies.

The central dilemma is getting the legal profession to: (1) recognize the impact of this global IP evolution; (2) understand that the legal profession needs to re-organize to deliver its IP services to clients affected by this shift; (3) incorporate improved IP values, market acceptance and global business factors into the IP practice model; and (4) comprehend that there is no turning back the clock on this global IP shift - changes will occur - choices should be made.

To be competitive in this new environment, each business lawyer who deals with technology needs to identify how this new marketplace could potentially change his/her practice and react to this prospect. Law firms as a whole also need to anticipate how these changes may alter their business and practice models. Most simplistically, using the four identified elements to "think outside the service box," it is easy to see how any firm reacting to these changes might modify their infrastructure, personnel, service mix and marketing approach to better compete, evolve their practice and perhaps solve age-old problems like hourly billing. Law firms must innovate to help the innovators.

Competitive Challenges

There are clear and compelling reasons for the legal industry to participate in molding the future global IP marketplace. The question is: what role will the profession embrace in this global shift? Consider this:

- Non-lawyer service providers from consulting firms to investment banks to specialty IP service firms are leading the way in the IP asset space, developing various products, services, and mechanisms to systematically commercialize IP assets on a mass scale. They have been successful in building a rudimentary "patent to market" process and are well situated to extract revenues at key IP process points such as valuation, exchange and monetization.

- The Big Four CPA firms tend to be ahead of the curve when it comes to the creation and delivery of new professional services. And so far they have shown much interest in the global IP industry, taking the lead in innovating new support services for IP analysts and professionals. Despite the proficiency of accounting firms in the consulting business and their skills at marketing the new, the accounting industry is competitively disadvantaged with law firms controlling the IP development pipeline through the patent filing process.

- Some foreign law firms and IP-related services companies, eager to make in-roads into lucrative emerging markets, are already operating to offer certain customized IP services. Benefiting from advantages in the cost of specialized high-tech and legal labor, they will continue to push the service envelope and be players in the development of the global IP industry.

IP Renaissance

The new global IP order is upon us. While its exact shape is still being determined, the legal profession has an opportunity and an obligation to impact this advance. By embracing a more entrepreneurial and consultative business model, and offering more customized legal and business IP products and services, lawyers will succeed in offering clients more ways to monetize their technology and benefit from the dynamic global IP marketplace. Simultaneously, the legal profession can evolve a critical practice model in a manner calculated to maximize client effectiveness while preserving institutional relevance in an era of uncommon global change.

Richard C. Bulman, Jr. is a Shareholder at Akerman Senterfitt, a leading U.S. law firm, where he helps to commercialize intellectual property and build technology companies. He can be reached at (954) 463-2700.

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