2016: The Year in Review

Welcome to 2017.

While the New Year is a natural time to look forward and plan the coming year, I always like to spend some time looking back at the past 12 months. Inventorying a just-ended year helps you appreciate the commitment and hard work of employees, as well as the trust customers and partners have invested in your relationship. Looking back at 2016, here’s the year in review for IPfolio presented as a necessarily abbreviated celebration of our milestones and successes.

Infamous Patent Wars Part 1: 1850-1900

“Regardless of the outcome such a patent war would be cripplingly expensive. Both sides risk wasting immense amounts of money and time while their competition invests in innovation and marketing. To avoid this outcome, large companies obtain as many patents as possible as a deterrent against other companies filing patent litigation. From the perspectives of tech companies, a patent war is like a nuclear war; the only winning move is not to play.”

10 Reasons To Start A Patent War

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“In the tech sector, it is quite possible that nearly every major company is now violating someone’s patent.” Only Lawyers Win in Patent Wars, Bloomberg BusinessWeek

Patent wars have been part of the intellectual property landscape since the middle of the 19th-century and the frenetic innovation of the early days of the industrial revolution. Many of modern history’s most famous inventors were central figures, and their fortunes based on fortuitous legal decisions that concurred with their oral arguments and written claims.

Most of Thomas Edison’s fortune and renown came from success in a saga of 600+ lawsuits associated with the incandescent light bulb. Alexander Graham Bell would have not gained “Father of the Telephone” fame without victory in a series of telephony and telecommunications lawsuits – both as litigant and defender – in the 1880s. In the ensuing 125 years, announcements of new technologies and the creation of new product categories have kept patent litigators busy arguing about the originality of automobiles, airplanes, radio, lasers, medical stents, disposable diapers, smartphone and biomedical innovations.

While new markets worth tens of billions of dollars are difficult to ignore, it’s worth noting that all patent wars have commonalities.

In this article we synthesize some history and some of the wisdom of leading Silicon Valley intellectual property leaders — some customers, some colleagues — on the virtues or otherwise of patent wars.

One: Patent wars are expensive

Patent wars aren’t cheap. According to 2013 data from the American Intellectual Property Law Association, the median costs for each each party in a litigation regarding patents worth < $1 million is $700,000. For patents valued at more $25 million, the costs can increase up to $5.5 million.

Recent disclosures (CRISPR patent fight: The legal bills are soaring) by sides in the CRISPR patent war, a fight for control of a promising and high-profile genome editing technology, illustrate the table stakes when the outcome will likely be monopolization of a multi-billion dollar market. By August 2016, the costs of litigating the war had reached almost $20M.

Two: Patent war outcomes are unpredictable

Study the portfolio of any large company employing a professionally managed IP department and you’ll probably find a patent portfolio of sufficient size and breadth that they could probably sue almost every important competitor.

Why don’t they? Patent infringement lawsuits are risky endeavors. They can scale out of control very quickly. Outcomes in terms of current product sales, future product development, distribution and market access are often unpredictable. The risk of damages and injunctions can be high. The law of unintended consequences can be both sobering and financially humbling.

Caveat Three: Getting the timing right is hard

If you’re a potential aggressor, the decision to start a war is challenging. Much of the impetus will likely arise from macroeconomic trends such as the rise and fall of technology categories, as well as microeconomic realities such as shrinking product sales or the portent of something everyone will want in the next 24 months.

Are you a dinosaur or disrupter? Are you the newcomer ready to shake up today’s status quo en route to becoming tomorrow’s standard? Do you understand how your company makes money? What technological and industry trends are affecting your revenue streams? Are your markets mature? Is there growth potential or is market growth flat? Are you, like American cell phone carriers, resigned to enticing the customers of your competitors however you can.

While there’s no patent war blueprint, and warring parties on both sides are usually large companies that operate with rational deliberation, here are 10 reason to start a patent war.

  1. Protecting Market Share

A company that has invested a lot to develop a profitable revenue stream is likely to invest a lot to ensure it keeps flowing. Common solutions are to protect complementary products and alternative manufacturing processes for the short-term future and even longer. Companies will often protect inventions in areas they have no plans to develop. If a market is growing but your share of it is shrinking, someone is growing faster than you. As the incumbent leader, what can you do to check their success, slow their growth or possible increase their costs?

Note: Recent Jawbone/Fitbit litigation is a good example of a war pitting a company (Jawbone) with declining share of an existing market (audio devices) looking to expand into new market opportunities (health tracking) and running into a well-funded and entrenched competitor (Fitbit).

  1. Protecting Product Features and Exclusivity

If your product category requires certain key features or narrow functionalities, you could protect (you probably should have already protected) their exclusivity. This is often the case when there is a leap forward, such as we’ve seen since the 1990s in technology and telecom (3G and 4G cellular, for example). If you can convince others in the industry to agree to your terms, and potentially prevent or delay copycats, you’ve entered a state of licensing bliss (see Microsoft Android reference below). If not, litigation may be your best route.

  1. Increase Competitors Costs

Yahoo’s March 2012 patent infringement lawsuit against Facebook is an example of the “do whatever you can to increase your competitor’s costs” approach. Yahoo alleged that its longtime business partner infringed ten Yahoo patents related to advertising, privacy, customization, messaging and social networking. Facebook’s response was to buy 750 patents from IBM and then countersue Yahoo for infringement. Within four months, the fight was over, and a new partnership accord had been reached.

  1. Slow a Competitor Down

Your company hasn’t had a hit product in three years. The CEO wants to know what the IP department can do. You reply to the CEO that you can pursue an injunction and perhaps create time the R&D department needs to catch up and reach parity with the competitor’s offerings. As with #2, you could try and argue that some of the claims and patents cover very specific features and that an injunction is an appropriate judgement in your favor. Another option is to go for the kill. If the competitor’s fortunes are in the other direction, it’s really struggling and resource-poor, you could even try and put it out of business. Alternately, you could try and force it to make changes favorable to your fortunes and priorities.

  1. Create Distraction

A distraction can be anything that forces a competitor to adjust its priorities, reallocate resources or even compensate you for halting litigation. Sometimes you don’t have to win your case; your objective by asserting your IP rights may just be to cast a cloud of uncertainty over a competitor and affect its stock price, or potentially destabilize an important one-time event like an IPO.

On the eve of its 2004 IPO, Google paid off Yahoo to end its lawsuit alleging that Google’s search technology, its revenue foundation, infringed on patents Yahoo had obtained from acquiring Overture. Ten days before going public, Google agreed to grant Yahoo millions of additional shares.

  1. Tax Competitor’s Success

When companies know they’ve lost, have resigned themselves to second-tier status, or envisaged a long, maximally profitable decline, they may want to extract a “success commission” from the leader. Probably the simplest method is licensing revenue. Yahoo’s 2010 Facebook lawsuit could be viewed as an attempt by then-CEO Scott Thompson to secure some easy revenue this way.

Another way to piggyback on a competitor’s success is to threaten their revenue streams by targeting high-dollar revenue silos. If you’re a smaller company considering taking on a much larger competitor, they have a lot more at risk if they lose. Both sides will know this and the risk management downside in your favor can give you the upper hand in negotiating a “mutually beneficial” outcome.  

  1. Generate Licensing Revenue

Cross-licensing is probably the most common outcome of patent litigation. Once the early euphoria has diminished, and the realities and legal costs of drawn-out trench warfare are clearer, licensing agreements are often the quickest and cheapest ways to return to normal. Licensing revenue is also a favored solution for established companies that have seen their market share decline while still possessing significant patent portfolios, and the revenue model for most NPEs.

Note: Microsoft didn’t need a massive patent battle to generate a licensing cash cow from its Android patent portfolio. In recent years, Microsoft has received billions in royalties from licensing agreements signed with Android device manufacturers such as Samsung, which has sent several billion dollars to Redmond, WA. Unfortunately, the market has changed; manufacturers are now selling far more low-cost Android phones. Microsoft attributed a 26% decrease in licensing revenue in the most recent quarter to a decline in licensed unit sales and license revenue per unit.

  1. Influencing or Controlling New Markets

If you operate in an industry where the market’s viability depends on standards that everyone can or must adopt, then the IP tends to become very relevant and valuable. We’re in the early days of this kind of maneuvering as far as the Internet of Things (IoT). There are so many parts necessary to create a massive network of millions and millions of IoT-connected things that there will be much jockeying and entreaties exchanged among those with relevant IP. A similar reality exists in terms of the IP necessary to create, control and grow ecosystems such as Amazon Marketplace in etail, Apple iTunes and Netflix in media distribution.

  1. Dissuasion

How do you demonstrate that you’re not a soft target? You can set a precedent by moving first to preempt or discourage similar future claims against you, or send a particular message to others about you. Setting a precedent that you aren’t a pushover or will not be coerced into rolling over in a spurious dispute may be the most important reason for you to choose litigation.

  1. Revenge

“We have always seen litigation as a last resort, and we work hard to avoid lawsuits. But BT has brought several meritless patent claims against Google and our customers—and they’ve also been arming patent trolls.”

This was Google spokeswoman Niki Fenwick’s version of “revenge is a dish best served cold” in February 2013 to explain why her company sued British Telecom. Sometimes, it just comes down to companies wanting to flex their muscles and smack somebody.

Patent Wars and the Upside of the Downside

Patent violations do not inevitably lead to litigation. Nor does litigation inevitably expand from individual case to a full-blown patent war. Often, the risk management analysis concludes that licensing at a royalty rate that prospective partners will find reasonable is optimal for everyone. Deals are then announced in press releases and the subsequent years are a quiet exchange of documents and wire transfers from one company to the other.

The alternative is publicity, hyperbole, uncapped legal fees and the unknown. For some companies, the upside of this downside is worth it. An impulsive factor can be the CEO. If s/he is determined to make a stand (see the Yahoo and Apple litigation examples above), litigation is probably unavoidable, and it’s “prepare for battle” time.

“I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.” Why Steve Jobs Went ‘Thermonuclear’ Over Android

How Many Patents Do You Need? Logitech’s Kevin McLintock Tells Us

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Director of Worldwide IP Strategy Kevin McLintock developed the IP strategy at Logitech in 2011 on a guiding principle of “establishing a strong freedom to operate platform.”

He’s translated it into a tactical program that has completely overhauled priorities, program management, budget allocation, and patent filing activities. Informing his short and long-term decisions in the last five years has been the always present need to ”build the right patent portfolio.”

The right number will probably be more than you thought, and much more than your CFO expected. It’s typically expensive in terms of R&D investment and IP protection. It’s not simply, however, answering “How many patents do you need?” as a quantitiave exercise.

What’s more important is creating the right balance in the portfolio. “Getting it right” – more realistically, as close to right as you can – is critical because the consequences of “getting it wrong” are enormous.

Kevin spends a lot of time on his portfolio because Logitech’s future rests on invention and innovation in highly competitive and dynamic areas such as digital music and virtual reality.

Here is his process for optimizing the size and balance of his patent portfolio.

How many patents do you need at Logitech?

Q: Why is getting the number and balance so important for in-house counsel like yourself?

Kevin: Getting the portfolio right is one of the most significant parts of my job. The risks are very material. In literal terms, if somebody were to sue us, we may have nothing to countersue or to defend ourselves with. If we are entering a new product category or market, we want to have the groundwork of a portfolio already established to provide flexibility in how we move forward.

Q: Is there a right number?

Kevin: Arriving at the right number is especially difficult for a company of Logitech’s size, with such a diverse product portfolio. There’s no standard playbook I can just copy. I know we don’t have the right number of patents at Logitech right now, but I also can’t tell you what that number is. More importantly, I don’t dwell on it either.

Don’t focus on questions you can’t answer. Far more relevant is actionable information so I focus on the question that does matter: “Do I have the right portfolio to support Logitech’s business goals?” I could have a very large portfolio in one category, but they may be of little strategic value. A smaller portfolio of highly strategic patents would be of much greater value to us, and be more than sufficient to support our objectives.  

A Deeper Dive Into Technology

Q: How do you answer the “right portfolio for our business” question?

Kevin: I repeat the process I used to create our overall IP strategy, but go deeper into the underlying technology. A lot more time spent with Logitech engineers and scientists helps me balance patent numbers with our portfolio needs. I look at:

  1. Current Products and Markets

We need the right number of patents to cover our current products and protect current revenues. We file patents, utility applications to cover the basics of what we’re doing, design patents for very specific products, and foreign patents to address manufacturing or market issues in specific geos.

  1. Forward-Looking Opportunities

We then look to the future. What do we think we will need in forward-looking areas? We may not be doing something now, but it could be different in 3-5 years. Do we have some seed IP that will open up these areas for us?  

  1. Future Markets Where We May Not be Active

How many patents will we need to have a meaningful presence in future areas that we may not even want to formally operate in? Look at this very closely. The answer could be interesting to both competitors and future partners. If you believe your seed technology is notable, and strategically significant to competitors, protect it.

  1. Future Enforcement

Looking at each product category from an enforcement standpoint. Do we have enough, either to take action against someone else, or to defend ourselves if someone takes action against us?  The number will vary based on the strength of the IP and the type of entity we are targeting.

Q: What do you do next?

Kevin: Put my objective thinking hat on. Who are the significant competitors in each business area? Who do we think could become one? Identify and aggregate the overlaps, then calculate the number of patents I think we need. I recommend you do the same; start at the end, then work backwards to your current portfolio. Identify the gaps, then decide on a granular level what needs to change.

Building a Portfolio is a Group Effort

Q: Clearly, this isn’t a solitary job. Whom do you work with on this? I assume you work closely with strategic planning, sales, and the Head of R&D?

Kevin: I recommend another four-step process:

Step One is the big picture. Map your operational future. Talk with everyone to understand where the business is and where it is going. Which markets do you think are important? What manufacturing locations are important? Who do you compete against now, and what competitors do you expect to exist at some time in the future? Sit down with unit leaders to understand the goals for each business unit and product categories. You probably did a lot of this work when creating your overall IP strategy so reuse what you can.

Step Two is figuring out the portfolio’s ideal composition. With the information you learned and the data you collected from Step One, an IP professional’s next step is figure out ideal composition in terms of protecting future products and supporting operations in relevant countries.

Look at the strength of your current portfolio. Are there concentrations in different technology areas, or different product categories? This is a very “today” thing. In certain strategically important areas, you might conclude that you’re doing well.

It’s a rigorous intellectual exercise with few rules, many hypotheses and even more unknowns. Here is an example: “We have a good history of developing IP in this area. We’ve got a horde of patents already filed in this particular area. We’re clearly on track. If something were to happen today, however, if we were concerned about certain competitors, or regions, would we be in good shape or not? What would happen if the same scenario played out in two years? You consider and juggle many, many scenarios.

Step Three is the engineering reality check. I usually start with the VP of Engineering. We map what should comprise our portfolio against the company’s actual level of innovation. Then we objectively determine whether we can realistically achieve our goals.

Step Four is financial. I compare what we want to do with the budget. Can we afford to do all of the wonderful things that we’d like to do to support these goals? Do “what we want to do” and “what we can afford to do” align? Usually, the answers and alignment are not as hopeful as you’d like. Then it is time to prioritize.

You Can’t Do Everything

Q: How do you organize and prioritize everything that you’ve learned?

Kevin: Organization is on me. Prioritization is a group activity. I return to the business group leads. We discuss the information I gathered and the previously discussed priorities. It’s usually pretty obvious that we can’t do everything, so I typically recommend adjustments, including focussing on areas where we can maximize portfolio effectiveness.

I work with business leaders to determine which trade-offs they’re willing to make. If they’re unwilling, you have to adjust. Can you get more budget? Can you raise the innovation level within a business group? If there’s consensus on the business side at Logitech to prioritize certain things, then we can usually focus the brilliance of our engineering team to deliver. If we can’t, we have to prioritize differently or alter our portfolio development plans.

Q: Developing the portfolio roadmap appears very similar to developing an IP strategy?

Kevin: It is. The difference is big picture vs. tactical implementation. A common need with both, though, is visibility. Visibility among business unit heads is vital. You’re balancing risks and rewards now and in the future. You’re trying to figure out how many patents do you need. Their consensus and implementation support helps a lot. I coordinate these discussions and ensure everyone has the right information. Once we provide those details, we agree on a strategy to go out and file the right patents on as many quality inventions as we can.

Thanks Kevin for the fantastic advice. For younger IP professionals finding their sea legs, perhaps overseeing a corporate IP program for the first time, it’s vital to create and nurture lines of communication throughout the company.

Work hard to create and raise visibility for IP in your organization, because it will make it far easier to collaborate with everyone you need on your side to be successful.

Partnering With Salesforce to Deliver IP Management in the Cloud

Eighteen months ago, we published a two-part series, “Why the Legal Industry is Embracing the Cloud.” (If you missed it, read Part One and Part Two). In detailing the many advantages and benefits that our early customers were seeing, we addressed some important concerns and answered many questions about using cloud-based technology to manage IP programs.

Since then, our sales have tripled as cloud computing and Software-as-a-Service enthusiasts have become far more common inside corporate legal departments.

The release earlier this week of the IDC Salesforce Ecosystem report illustrates that our experience as a fast-growing software vendor isn’t unique. Many other companies have similarly built their technology and revenue streams by partnering with Salesforce.

The report’s authors at International Data Corp. crunched a lot of data to estimate what all this sales activity means now, and what future opportunities may look like. It’s a pretty rosy view.

The Numbers

AppExchange 4 million installs - IPfolio.com

We have certainly seen some important shifts in the readiness of legal and IP leaders to embrace the cloud. Salesforce has obviously seen similar buying behavior in other verticals.

Overall, while public cloud computing accounts for less than 5% of IT spend, growth is much faster; since 2009, cloud growth has been 4.5X higher than IT spending rates. This number is expected to rise to 6X through 2020. Granted, this growth is expansion of a small share of the $2 trillion IT market, but the future is clearly upwards and to the right. Salesforce customers have also installed more than 4 million apps from the Salesforce AppExchange.

This mirrors what we’ve seen with the trajectory of IPfolio.

IPfolio: Member of the Salesforce Economy Since 2012

We’ve been with Salesforce since IPfolio’s birth.

At a company level, we identified an opportunity to save the IP industry from the tyranny of traditional, slow, inflexible and maintenance-heavy on-premise deployments.

Our “Fresh new approach to IP management” vision rejected the world of legacy system maintenance and the inevitability of inefficient on-premise software upgrades. Translating this into a product roadmap, we wanted to deliver a customer and user experience that emphasized ease-of-use, accessibility, efficiency, flexibility, and scalability.

A Software-as-a-Service delivery model built on the cloud was the obvious choice. The most effective cloud option was clearly the Salesforce ecosystem. We were confident that by partnering with Salesforce we would minimize development time and engineering requirements, while maximizing our Go-to-Market opportunity.

From the perspective of a fledgling startup with aspirations as an industry change agent, we couldn’t ask for anything more.

Partnering With Salesforce = One of the Best Decisions We Made

Well, here we are almost five years later. We haven’t been fledgling in a long time, and look forward to celebrating our five-year anniversary in April 2017.

IPfolio has evolved into a well-respected, very competitive, enterprise-grade product. Our customers range from hot startups in renewable energy to multinationals and global brands. They include a Global Top Ten financial institution, two of the 10 most valuable companies in the world, one of Canada’s largest energy companies, and a German multinational with over 400,000 employees.

It is easy to attribute much of this success to the fact that our partner is the world’s fifth-largest and fastest-growing enterprise software company. Salesforce handles what they’re really good at while we stick to what we know.

By focussing on domain expertise – our team’s decades of legal/IP industry experience – while effectively outsourcing much of our IT overhead such as hosting and security to category experts, we’ve been able to stay lean and agile. We have been able to dream big, while retaining a corporate culture where we’re still “young, scrappy and hungry.” (Shoutout to the musical Hamilton).

Evangelizing the Cloud to the Intellectual Property Community

Since 2012, we’ve been preaching the merits of the cloud in terms of robust, reliable, scalable and secure applications. We’ve spent a lot of time at industry conferences talking about them.

Frankly, we’ve punched well above our weight in terms of industry thought leadership, evangelizing the new world of application delivery, and inviting everyone to take a close and objective look at cloud-based IP Management.

Every IPfolio customer has heard us tout the advantages of true cloud-based solutions:

  • Total Cost of Ownership (TOC)
  • Anywhere productivity: Log on, log in and start working
  • Streamlined Process and Ease-of-Communication: Locally and globally
  • Time-to-Value

Software TOC On-premise vs. cloud

They’ve also heard us lay out the benefits specific to intellectual property management:

  • Increasing Strategic Visibility: Connecting IP assets to products, geographies, markets, and revenue streams to ensure alignment with business strategy
  • Data Integrity and Accuracy: Efficient reporting, inventor awards administration, and tracking of prosecution milestones and costs
  • Simplified Access for External Parties: Total control and management of external access to online IP records
  • Idea Tracking: Inventor Portals and Review Boards to track and monitor evolution of IP assets from invention to outcome

Happy Customers: Alignment of Expectations and Experience

A source of great satisfaction has been the alignment between what we say when speaking with prospects and their later experience as customers.

You know you are emphasizing the right things when customer feedback mirrors your marketing messages. Customer reviews of IPfolio on the Salesforce AppExchange universally confirm this. Here are a few:

“Perfect IP Management Tool”

“Customizing fields and layout just wasn’t possible with our large, clunky docketing system. From a data management standpoint, the idea of being able to set up a clean, user-friendly interface, and make workflow and UI modifications on the fly made switching to this product a no-brainer.”
Kelly Simpson, Patent Paralegal Manager at Facebook

“Great IP Management Tool”

“IPfolio is a fabulous tool. It is customizable, user friendly, and the reporting capabilities are great. It meets all our IT security guidelines, it is modern and has greatly enhanced our productivity and organization.”
Jodi Rappe, Intellectual Property Specialist at NuScale Power

“The Right Tool for Managing Your IP Portfolio”

“We needed a tool for managing our IP from conception to commercialisation; a tool that would allow us to produce the reports we wanted and to adapt as our IP workflow changes. We got exactly that and more with IPfolio. It is an intuitive tool to use, with excellent technical and customer support.”
Wayne Jaggernauth, Intellectual Property Officer at Nikon Metrology

“Customized to Fit”

“The flexibility to configure our data and the integration with PAIR information was a selling point. However, it was the ability to create an active dashboard with a unique workflow that sealed the deal. Implementation has been the easiest part of the entire process.”
Shelley Smith, IP Operations Specialist and Paralegal at a Big Data company

Moving Forward

The benefits of Salesforce enabled us to execute on our initial business plan and iterate our product roadmap much more effectively than any other route. Phase Two is even more exciting.

Although it wasn’t part of our original plan, the flexibility of the Salesforce Ecosystem enabled us to evolve IPfolio into an entire IP-centric business platform emphasizing Automation, Collaboration and Connected Services. We’ve already begun evolving IPfolio by partnering with complementary IP-related technologies and service providers.

It’s definitely an exciting time to be part of the Salesforce Ecosystem!