2 Authors: July 2010 Published by 2010 University of St.Gallen, Institute of Technology Management All rights reserved.
3 Executive summary This study analyzes how intellectual property (IP) is managed in practice, which aspects influence IP managers and especially how IP software can support IP management. By investigating 114 industrial firms and law firms worldwide, we found that the overall economic situation impacts IP management and that the IP budget often depends on performance indicators like total revenues. Furthermore, the study confirms the result of earlier research that the external commercialization of IP is becoming increasingly important. The analysis of software support for IP processes indicates a decreasing use of IP software along the IP value chain. Firms use software mainly in the early IP generation phase, e.g. for search processes for absorbing technological developments. Furthermore, patents are the form of IP rights which are supported most by software. Regarding software solutions there is a strong trend towards integrative systems which support different functions and towards customized solutions. The findings reveal improvement potential on both firm level and software provider level. While firms should take into account the use of software to optimize their IP management processes, software providers should adapt their tools better to the user requirements, especially by developing integrative software systems.
4 Table of contents Executive summary... 3 Table of contents... 4 List of figures... 5 List of tables Introduction and scope of the study Methodology and Sample IP management and IP exploitation The use of IP software Requirements of IP software Conclusion Contact persons... 22
5 List of figures Figure 1: Industry sector profile of the analyzed industrial firms Figure 2: Firms of all sizes considered in the study Figure 3: Industrial firm analysis according to IP portfolio size Figure 4: Reactions of the surveyed firms in the economic crisis regarding their IP management Figure 5: Reasons for valuing patents at the surveyed firms Figure 6: Forms of external patent exploitation Figure 7: Strategic motives of external IP exploitation Figure 8: Barriers discouraging firms to externally exploit their IP Figure 9: The IP value chain Figure 10: The use of IP software along the IP value chain Figure 11: IP software tools used by the surveyed firms Figure 12: The use of IP software for valuation and evaluation activities Figure 13: Satisfaction of IP software users Figure 14: Satisfaction with integrative IP software compared to the satisfaction with different software systems Figure 15: Analysis of technical requirements of IP software Figure 16: Analysis of functional requirements of IP software List of tables Table 1: IP software providers and the firms use regarding IP rights... 20
6 1 Introduction and scope of the study The number of intellectual property (IP) right applications has been constantly growing over the last century. This underlines the increasing importance of intellectual property. As the World Intellectual Property Organization (WIPO) reports in 2008, nearly 1.8 million patent applications were filed worldwide. The major patent application countries are the United States with 456,321 patent applications, followed by Japan with 391,002 and China with 289,838 patent applications. At the European Patent Office, 146,150 patents were filed in The same increasing tendency can be observed regarding trademarks and industrial designs. In 2008, approximately 3 million trademarks and 600,000 industrial designs were filed worldwide. This implies that firstly, more and more firms have been establishing an IP portfolio, and secondly, firms have to deal with growing IP portfolios. Thus, the management of IP becomes increasingly important. With this trend the overlaying structures, underlying processes, and supporting tools for managing intellectual property effectively and efficiently gain increasing top management attention. The objective of this study is to analyze how intellectual property is managed in practice, which aspects influence IP managers and especially how IP software can support IP management. One aspect is the exploitation of IP which is an increasingly discussed topic in management practice and theory. Competition and price pressure increasingly force firms to leverage their patent portfolio more efficiently. Additionally, many firms recognize the strategic benefit of externally exploiting their patents. Another aspect of IP management is the use of IP software. The rise of IP software solutions during the last decades provides support for managers handling the IP portfolio. At the same time, the IP software landscape is very fragmented, i.e. software systems differ regarding their services, functionality, and adaptability. This evokes the question of where exactly in the IP management process IP software is used and what users requirements of an IP software system are. In the following chapter we describe our research methodology. Chapter 3 presents the results of the analysis of IP portfolio management at the firms, IP exploitation and IP valuation activities. Chapter 4 analyzes the firms use of IP software to support their IP management. The technical and functional requirements of an IP software solution is investigated in chapter 5. Finally, in chapter 6 the results are summed up and conclusions are drawn.
7 2 Methodology and Sample Understanding the management of intellectual property is a complex and contextbound issue. For this reason 1210 industrial firms and law firms were contacted worldwide and investigated regarding their IP management and IP software experience. In total, 114 questionnaires were completed which corresponds to a response rate of 9.4%. In the following, the profile of the industrial firms is presented according to industry, firm size, and size of the IP portfolio. Firms of all industry fields and of all sizes were contacted. 51 firms returned a completed questionnaire. The firms were clustered according to the WIPO industry classification (Figure 1). Most of the firms stem from the chemical industry (including pharmaceuticals), the mechanical engineering industry, and the electrical engineering industry. Furthermore, there are firms from the instruments industry, e.g. diagnostics and sensor technology, and other fields, e.g. service companies or technology transfer companies. Industry sector analysis Chemistry 31% Mechanical engineering 27% Electrical engineering 22% Instruments 6% Other fields 14% 0% 5% 10% 15% 20% 25% 30% 35% Figure 1: Industry sector profile of the analyzed industrial firms. The study considered firms of all sizes. Approximately one third of the firms are small and medium-sized enterprises (SMEs), i.e. firms with less than 250 employees 1. Most of the firms have 250 to 5000 employees (38%). 34% have more than 5000 employees (Figure 2). This shows that IP management and IP software is an important topic not only for large-sized firms but also for smaller firms. Furthermore, nearly 70% of the firms have up to five IP employees, while only few have more than 20 IP employees (7%). 1 According to the definition of the European Commission.
8 Number of employees 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 28% 38% 21% 11% 2% Figure 2: Firms of all sizes considered in the study. The size of the IP portfolios of the analyzed firms mainly varies between a few IP rights and 5000 IP rights (Figure 3). Most of the firms hold up to 500 IP rights. Only few firms hold more than 5000 IP rights. The analysis of a relationship between firm size and size of the IP portfolio shows that the IP portfolio increases with firm size. However, there are some exceptions where SMEs hold 1000 and more IP rights. A relation between industry and IP portfolio size could not be found. Number of IP rights 35% 30% 25% 20% 15% 10% 5% 0% 24% 29% 9% 24% 7% 7% Figure 3: Industrial firm analysis according to IP portfolio size.
9 3 IP management and IP exploitation 80% of the surveyed firms have their own IP department reporting mainly to the R&D or technology department (42%) or to the legal department (32%). However, about one fourth of the firms directly reports to the executive board. This shows the importance of IP management also on the organizational level. The IP budget depends at most of the firms (81%) on performance indicators like the R&D budget, the total revenues, or the net profit. This dependence of the IP budget on economic performance indicators can be an explanation for the strong influence the economic situation apparently has on IP management. While 38% of the firms do not adapt their IP management to the economic situation, 62% do so by increasingly abandoning IP rights, enhancing the external exploitation and the application of IP rights, decreasing filing of new IP rights, and diminishing the country coverage of the IP rights (Figure 4). In order to choose the IP rights for abandonment or for external exploitation, the valuation and evaluation of the IP portfolio are crucial steps for the firms. The qualitative evaluation approach for assessing IP rights is still more used than the quantitative valuation approach. 78% of the firms regularly evaluate their IP portfolio, while valuation is only done by 42% on a regular basis. One fourth does not even valuate IP at all. However, despite the large number of different valuation methods and the lack of standards, IP valuation increasingly is an important instrument for firms. Figure 5 shows that portfolio management, licensing, and IP transactions are the most important reasons for valuing IP. The influence of the economic crisis on IP management Increased abandonment of IP rights 62% Increased external exploitation Increased application for IP rights Others 17% 14% 21% No implication 38% 0% 10% 20% 30% 40% 50% 60% 70% Figure 4: Reactions of the surveyed firms in the economic crisis regarding their IP management. Finding 1: The economic situation strongly influences the amplitude and way firms manage their IP.
10 Patent valuation reasons Portfolio management Licensing IP transactions IP infringement Taxation Balancing External reporting Others 3% 13% 26% 24% 32% 42% 47% 58% 0% 10% 20% 30% 40% 50% 60% 70% Figure 5: Reasons for valuing patents at the surveyed firms. Traditional internal patent exploitation in own products and process ensures freedom to operate and generates a temporary monopoly for the patent owner. 96% of the surveyed firms exploit their IP internally in products and processes. But also the aspect of blocking competitors is crucial for 75% of the firms. However, the finding in Figure 4 showing that increased external exploitation of IP is the second most important consequence after abandoning IP rights under economic pressure indicates the growing importance of external IP exploitation. External IP exploitation means the exploitation of IP, or mostly patents, outside the own firm via out-licensing, cross-licensing, selling, financing, partnerships, spin-offs, or joint ventures. The survey found that the majority of the firms (83%) exploit their IP externally. Out-licensing and cross-licensing are the most common forms of external patent exploitation (Figure 6). About half of the firms use these forms to generate additional value from their patents. Selling patents is done by 27% of the firms, other forms like financing via IP, e.g. patent funds, are rarely applied. The results also show that only 17% of the firms do not exploit their patents externally at all, which underlines the proposition of the increasing importance external IP exploitation.
11 Forms of external patent exploitation Out-licensing Cross-licensing Selling Financing Others No external exploitation 8% 8% 17% 27% 46% 52% 0% 10% 20% 30% 40% 50% 60% Figure 6: Forms of external patent exploitation. While the motives for internal patent exploitation are obvious (protecting own products and processes, ensure freedom to operate, generate a temporary monopoly), the reasons why a firm should give away its internal knowledge often are not. The motives can be divided into monetary and strategic motives. The monetary reasons are reducing costs, maximizing the return on investments, and generating new revenues. Strategic motives are for example access to external knowledge, establishing standards, entry new markets, or enforce patents. 34% of the firms have solely monetary motives when exploiting their IP. On the other hand, 22% answered that they only have strategic motives for external IP exploitation. 44% consider monetary and strategic motives. The direct comparison of the importance of monetary and strategic motives shows that strategic motives have more impact than monetary motives. On a scale from 1 = unimportant and 5 = very important strategic motives reach a mean of 3.4 while monetary motives reach 2.9. Despite the fact that strategic reasons are more difficult to value than monetary reasons, strategic motives are more important. Strategic motives of external IP exploitation Access to external knowledge 82% Setting standards 36% Learning effects 14% Others 32% 0% 20% 40% 60% 80% 100% Figure 7: Strategic motives of external IP exploitation. Access to external knowledge is the major motive for external IP exploitation, followed by setting standards and learning effects (Figure 7). As further motives enforcing patents, cooperation agreements, and ensuring freedom to operate were mentioned. However, there are barriers hindering firms from exploiting their IP externally. The iden-
12 tification of transaction partners is the most important barrier for external IP exploitation (Figure 8). Approximately half of the firms answered this aspect to the question what their barriers of external IP exploitation are. One third sees the misfit with corporate strategy and the labor costs as a significant hurdle. Further barriers are the price building, the fear of losing knowledge as well as lack of resources and experiences and the low priority of IP exploitation projects. Only 16% do not see any barriers for IP exploitation. Barriers for external IP exploitation Identification of transaction partners Does not fit corporate strategy Labor costs Price building Fear of losing knowledge Transaction costs Others No barriers 0% 22% 16% 12% 16% 33% 33% 47% 0% 10% 20% 30% 40% 50% Figure 8: Barriers discouraging firms to externally exploit their IP. Finding 2: External exploitation of IP is becoming increasingly important.
13 % of mentions 4 The use of IP software During the last decades, the range of IP software products has been steadily growing. Software providers aim to meet the demand for IP solutions of firms which are challenged by increasingly complex IP management structures. This study investigates where and for which processes IP software is used by firms and if their demand is met. Therefore, the use of IP software was analyzed along the IP value chain depicted in Figure 9. The generation phase includes the idea finding and realization process and the IP registration. In the second phase of the IP value chain the IP rights are assessed through evaluation and valuation methods and conducting portfolio audits. The last phase represents the internal and external exploitation activities of the firm. Manage IP Generate IP (E)valuate IP Exploit IP Figure 9: The IP value chain. The results reveal that the firms use of IP software decreases along the IP value chain (Figure 10). These findings are identical for all analyzed forms of IP rights, i.e. for patents, trademarks, industrial designs, and domain names. Furthermore, patents are the form of IP rights which is supported most by IP software, followed by trademarks and industrial designs. The least software support is employed for domain name management. 80% The use of IP software along the IP value chain 70% 60% 50% 40% 30% 20% 10% Patents Trademarks Designs Domain names 0% Generation of IP (E)valuation of IP Exploitation of IP Timeline of IP value generation Figure 10: The use of IP software along the IP value chain.
14 Firms mostly use IP software tools in the IP generation phase. For patent management, 72% of the firms use software, for trademark management 49%. While in the valuation and evaluation phase, 34% of the firms use IP software for patents, only few firms do so for the other types of IP rights. In the IP exploitation phase software is used rarely. Even for patents, only 13% of the investigated firms use software for exploitation. In total, 74% of the firms use software for patent management, 60% for trademark management, 53% for industrial design management, and 45% for domain name management. Finding 3: The use of IP software decreases along the IP value chain. Search tools are the most commonly used IP software tools. 88% of the firms use search tools to optimize their search processes (Figure 11). This corresponds to the finding that the IP generation phase is the most active IP software phase because search processes are an essential part of the IP generation. In the second place are the docketing and term management tools followed by the electronic file, document management systems, inventor s bonus tools, idea management tools, and others like e.g. budget forecasting tools. 98% of the investigated firms use IP software to support their IP management. Only 2% do not use any IP software at all. This number underlines the relevance of software for IP management. The use of IP software tools Search tools Docketing and term management tools Electronic file Document management system Inventor's bonus tool Idea management tools None Others 2% 6% 27% 33% 41% 59% 65% 88% 0% 20% 40% 60% 80% 100% Figure 11: IP software tools used by the surveyed firms.
15 Valuation and evaluation activities are rarely supported by software. In total, only one third of the firms uses software to support the assessment of their IP rights. Figure 12 illustrates the results of the analysis differentiating valuation and evaluation activities. The results reveal that there is no different behavior of the firms regarding the use of software for each of the method: 16% respectively 15% of the firms make use of software for IP valuation or evaluation. In these valuation and evaluation processes lies probably a huge potential for software development. Are your evaluation/valuation processes supported by software? Evaluation 15% 85% yes Valuation 16% 84% no 0% 20% 40% 60% 80% 100% Figure 12: The use of IP software for valuation and evaluation activities. The last phase of the IP value chain, exploit IP, showed to be the least supported by IP software. Detailed analyses reveal that 83% of the firms do not use software in this phase. Only few firms use software tools for licensing, IP transactions, or financing. Finding 4: Patents are the form of IP rights supported most by software.
16 5 Requirements of IP software At the investigated firms, IP software is used on average by 10 employees. Patent management is supported most by software compared to trademark, design, domain, and contract management. Nine employees are involved in patent management software. For trademark, design, domain, and contract management, the average number lies between two and five employees. The analysis regarding the degree of satisfaction of the firms with their IP software reveals that on a scale from 1 = very unsatisfied to 5 = very satisfied, the average degree of satisfaction is 3.21, i.e. neither totally satisfied nor unsatisfied. There is no remarkable difference between the single IP rights. In percentage, 49% of the firms are very satisfied or satisfied with their IP software. 36% are neutral, 15% are unsatisfied or very unsatisfied (Figure 13). These findings imply that there is an important improvement potential regarding the functionality of IP software. Reasons for the users dissatisfaction are for example that the software demands too much working hours, that it lacks adequate functionality, causes redundant work, and that the software lacks the integration of several functionalities like document management, literature management, and search processes. User satisfaction with IP software 10% 5% 16% Very satisfied Satisfied Neutral 36% 33% Unsatisfied Very unsatisfied Figure 13: Satisfaction of IP software users. However, a difference can be found in the degree of satisfaction and the use of an integrative software system, i.e. a system including all necessary processes for all IP rights and different single software systems. About two third of the firms currently work with several software systems, only one third has an integrative software system. But the findings of the satisfaction analysis reveal that the users of the integrative software system are more satisfied than those using different software solutions. 64% of the integrative software users are at least satisfied with their software system, while not even half of the different software users are satisfied with their software sys-
17 % of mentions tem (Figure 14). Hence, IP software users seem to prefer integrative software systems instead of single software solutions. 70% 60% 50% 40% 30% 20% 10% 0% Satisfaction with integrative versus different IP software systems 64% Integrative software sytem and (very) satisfied 43% Different software systems and (very) satisfied Figure 14: Satisfaction with integrative IP software compared to the satisfaction with different software systems. Finding 5: Integrative software systems are more effective than single software solutions. In the following, the functional and technical requirements of the firms regarding IP software are presented. Overall, the general finding is that based on a basic standard functionality, individual adaptability is the most important requirement of IP software. On the one hand, this is the result of the technical requirement analysis illustrated in Figure 15. For 86% of the firms it is important that the software system can individually be modified. On the other hand, numerous comments of the firms emphasize the importance of the possibility to customize the software. The technical requirement analysis also shows that the users are not reluctant to install the software locally on their work stations. In this case, the automatic update function is desired by 54% of the firms. Less required are purely web-based user interfaces and Active Server Pages (ASP) solutions.
18 Technical requirements of IP software May the user interface require installation of a local software on your PC/work stations? 76% 19% 6% Is a purely web-based user interface required 29% 67% 4% Do you have interest in an ASP solution? In case of a locally installed system, is it required that the user interface updates itself automatically? Is it important for you that the system can be modified according to your needs by the vendor? 29% 54% 86% 64% 40% 7% 6% 12% 2% yes no n/a 0% 20% 40% 60% 80% 100% Figure 15: Analysis of technical requirements of IP software. A further technical requirement is the compatibility of the software with the operation system. More than 80% of the firms require a compatibility of the user interface and the server with Microsoft Windows. About 10% require a compatibility with Linux, 5% with Mac OS from Apple. Additionally, Microsoft s SQL server is the most required data base platform (65% desire compatibility), followed by Oracle (28%). Finding 6: Customizing the software to individual processes and firm characteristics is the most important requirement of IP software. Figure 16 depicts the results of the functional requirements analysis. Docketing and term management, automatization of manual jobs, and document management functionality are the most important aspects for an adequate IP software. Additionally, process performance and workflow processes play an important role. The connection to other systems, however, is considered as less important, except the connection to an annuity payment provider. Many firms use the annuity payment services of IP service providers like CPA, CPI, Dennemeyer, Pavis, and Thomson. Furthermore, it was suggested to realize a connection to programs (e.g. MS Outlook), a connection to online filing software like the EPO Online Services of the European Patent Office (EPO) or DPMAdirekt, the online filing service of the German Patent and Trade Mark Office (DPMA), and to realize a web access for virtual patent administration for clients through the connection to the client server. Other requirements of IP software users are an automatic generation, multilingual user interfaces including non-latin characters like e.g. Chinese characters, and
19 that the software system can store all needed documents like e.g. official notifications and letters. Furthermore, transparency and an easy handling of the software as well as a good service of the software provider are crucial requirements. Functional requirements of IP software (1 = unimportant, 5 = very important) Docketing and term management Automatization of manual jobs Document management functionality Performance of the report generation Performance at high data volumes Workflow engine Patent monitoring functionalities Connection to an annuity payment provider Logical operation of IP rights Exporting functionalities Connection to an accounting system Reporting Connection to external management system Connection to master data management system Connection to search providers Connection to an ERP system Connection to collaboration platforms Connection to domain registrar services Figure 16: Analysis of functional requirements of IP software. The firms were also asked which IP software they use for which types of IP rights. Table 1 displays the list of 39 IP software and IP software providers used by the investigated firms. The use of the software is differentiated between patents, trademarks, designs, domains, and contracts (please note that the table only reflects the results of the questionnaire and does not consider which software can be used for which IP rights in general). The table confirms the finding that patents are the form of IP rights supported most by software: 33 of the 39 software systems are used for patent management. 22 of the software systems are used for trademark management. For industrial designs, domain names and contracts 20 or less providers are used.
20 Table 1: IP software providers (in alphabetical order) and the firms use regarding IP rights Provider Software Patents Trademarks Designs Domains Contracts ABP Patent network DISIS x AZ software IP4me x x x Bridgeway Software ecounsel x x Brügmann Software PatOrg x x x x x Caspar project, EC Caspar x x x x x CPA Memotech x x CPA Foundation IP x CPA Inprotech x x x x CPI Patent Management x System creativ software pat/o/s x x x x Dennemeyer DIAMS x x x x Eidologic EidoPat x x x Elite Prolaw x EMC corporation Documentum x x EMC corporation Open Text Document x Management European Patent Office IPscore x GSI Winpat x x x x x IBM Lotus Notes x x x x Ipendo Intasma x x IPSS Europe IPSSdotNET x x x IS Information Service IP Master x x x x Microsoft MS Excel x x x x Microsoft MS Access x x Microsoft MS Sharepoint x NetNames NetNames Platinum x Service Patrafee PatraWin x x x x x Patrix Patricia x x x x x Pattsy Pattsy x x x x Unycom IPAS x x Spider Lifecylce Spider x Managementsysteme Tattam software petros x enterprise Thomson IP Thomson IP Master x x Unisys n/a x Uranus Software Uranus x x x x Xensis xen-se x x x n/a Blueprint x n/a Miscab x n/a ProJS x x x n/a TTM x x
21 6 Conclusion The study investigated 114 industrial firms and law firms and analyzed how they manage their intellectual property, which aspects influences their IP management and especially how they use IP software. Six key findings were derived from the results: Finding 1: The economic situation strongly influences the amplitude and way firms manage their IP. Finding 2: External exploitation of IP is becoming increasingly important. Finding 3: The use of IP software decreases along the IP value chain. Finding 4: Patents are the form of IP rights supported most by software. Finding 5: Integrative software systems are more effective than single software solutions. Finding 6: Customizing the software to individual processes and firm characteristics is the most important requirement of IP software. The findings of the study reveal improvement potential for both firms and software providers. Firstly, at firm level there is a potential for improving the exploitation of IP. We have seen that most of the firms abandon IP rights under economic pressure. Firms give away intellectual assets they have invested in for years probably without generating the optimal value from them. Instead of losing this asset, firms should optimize their exploitation strategy through improved consideration of external exploitation of the IP to generate additional value. Secondly, there are improvement potentials regarding IP software. First of all, software providers should emphasize the development of integrative IP software systems, i.e. software system that the users can apply for all desired IP rights and functionalities. The satisfaction analysis in chapter 4 shows that users of an integrative software system are more satisfied than users of several different software systems. Next, IP software should be improved according to the users functionality requirements. In addition to the basic functionalities, the major requirement of the users is the possibility to customize the software. This also implies a high service quality through the software provider. A further aspect to improve is the software offering regarding trademark, industrial design, and domain name management. The findings show that these IP rights are less supported by software than patents. Besides patents, IP software including also the management of trademarks, designs, and domain names could encourage firms to expand their IP software use. Another point of improvement is the software support for valuation and evaluation methods. Valuation and evaluation are crucial processes of IP management. Growing IP portfolios and therewith a growing complexity could be handled more successfully with the support of an IT tool. One the one hand, firms should take into account the support of software for their valuation and evaluation activities. On the other hand, software providers should enhance the offering of such tools.