Guidance for Firms wishing to provide an IP risk management service offering.
The importance of intangible assets is growing, often equalling or surpassing the value of physical assets for a company. The state of the IP of a company determines their share and corresponding influence on the market. The size and quality of a company’s IP portfolio will have a direct impact on several factors, such as the reputation of the company, the level of returns on investments and their access to the market, amongst others.
Various US and European studies have shown that companies owning IP outshine their competitors in economic performance. One recent European study found that companies owning IP have, in general, 29% higher revenue per employee, about six times as many employees and pay wages that are up to 20% higher than firms which do not own any IP.
IP, in its broadest sense, is now acknowledged as the single most valuable asset most companies own.
IP related risks and IP risk management:
However, IP by its very nature has both value and risk associated with it. Any business professor will tell you that the value of companies has been shifting markedly from tangible assets, "bricks and mortar", to intangible assets like intellectual property in recent years. Research has indicated that intangibles now account for between 60% and 90% of the total value, depending on the industry sector. In the UK twice as much investment goes to intangibles than tangible assets.
There is no data available on the scale of the risks associated with IP but one can assume that it is significant, and probably around this 60% to 90% mark. There is indeed some data available on the size of the problem associated with certain specific types of IP related risks such as counterfeit goods, patent litigation, trademark disputes, data hacking and so forth.
The bottom line is that IP related risks are a significant issue for many companies. With so much value encapsulated in intangibles it is a fiduciary duty for directors to have clear understanding of IP risks and plans in place to offset those risks
IP risk management:
IP risk management is a practice that deals with processes, methods, and tools for managing IP risks in a project, business unit or organization. It is initially about the identification, assessment, and prioritization of IP related risks followed by the coordinated and cost-effective application of resources to reduce or eliminate the probability and/or the impact of these IP related risks to the organization.
Deploying an IP risk management service offering:
IP risk management offers a tremendous opportunity for creative and innovative Legal & IP Firms to design, develop and deploy a service offering to their corporate clients, one that will greatly improve the maturity and sophistication of their clients when it comes to IP risk management and mitigation.
However it offers much more in my humble opinion. Such a service offering broadens the discussion between a Firm and its corporate client. It enables the Firm to engage with a variety of corporate functions, not just the Legal & IP function. It also raises the level at which a Firm is engaged with its corporate client, sometimes bringing it to the level of senior management and C level executives. Such a service offering provides the opportunity for the Firm to transition into becoming a true trusted partner of its corporate client.
The components needed for such a service offering:
There is however some complexity to a service offering in the area of IP risk management. I suggest that the following components are at least needed:
An IP risk management education module, both to help raise the level of understanding and appreciation of IP risks and IP risk management within the Firm but also with the Firm’s corporate clients. The skills and competencies needed to succeed with IP risk management do not match exactly those needed to be successful with the other key IP processes, such as IP creation, IP portfolio management, IP exploitation and IP enforcement. The mind-set is just different for those charged with IP risk management.
A detailed IP risk management process description. A process is an interrelated set of activities designed to transform inputs into outputs. A process can be seen as an agreement to do certain things in a certain way and the larger the organisation, the greater the need for agreements on ways of working. Processes are the memory of an organisation, and without them a lot of effort can be wasted by starting every procedure and process from scratch each time and possibly repeating the same mistakes.
A robust fit for purpose system or tool which underpins this IP risk management process. A good IP risk management tool helps ensure that the process is an efficient and effective one. It can improve data integrity as well as better support how IP risks are articulated and reported. It should be easy to install, easy to configure and easy to take into use, otherwise there is a great danger that the system become a ‘white elephant’.
A methodology to help clients to identify their IP related risks. In the top-down approach, IP risk management begins at the highest conceptual level and works down to the details, with the major IP related risks being identified by senior management. In the bottom up approach, it begins down with the details and works up to the highest conceptual level, with IP related risks being identified by middle managers and individual contributors, and with the higher probability and/or impact IP related risks then being passed up to senior management.
An IP risk classification system as not all IP risks are not the same, far from it. Not all IP risks are the same and they may be broken down into a variety of different categories, such as the form of IP involved (e.g. patents, trademarks, copyright, etc.), the source or origin of the IP related risk, the date when the risk is likely to materialise, the geographical nature of the IP risk, whether they are generic or specific in nature, the group or sub-group most impacted by this risk in the organisation, etc.
An IP risk prioritisation methodology based on a proper understand of the probability and impact associated with each risk. Heat maps are a way of representing the resulting qualitative and quantitative evaluations of the probability of risk occurrence and the impact on the organisation in the event that a particular risk is experienced. The development of an effective heat map has several critical elements – a common understanding of the risk appetite of the company, the level of impact that would be material to the company, and a common language for assigning probabilities and potential impacts.
Details of a range of IP risk mitigation solutions. There are a variety of IP risk mitigation techniques available, but of course their effectiveness will vary from one particular IP risk to another, on timing, and from business to another. It is important that a Firm builds up a good understanding and appreciation of the various IP risk mitigation solutions which exist, and if and when they should be deployed. There are a growing number of specialist external IP risk mitigation solution providers which should also be considered.
A number of case studies. Case studies provide a means for highlighting and extracting practical principles and methods for shaping and accelerating progress in solving real world problems. It is important that the Firm builds up a suite of case studies which relate directly or indirectly to the subject of IP risk management. Learning about what others have done, what worked well and not so well for them is crucial.
A suite of project plan templates. Getting a corporate client to fully embrace IP risk management is not like flicking on a light switch. Rather the Firm will be taking their client on a journey, consisting of a number of distinct steps or phases. Such project plan templates, when properly designed, are one of the most potent tools that the Firm can possess. I say potent because, for little to no cost, the Firm has a device that can simultaneously save time, promote good communication, and contribute significantly to overall project success. Such templates can also reduce project risks in several ways.
A recommended governance structure. IP Governance is simply about defining the rules. It is the process of decision-making and the process by which decisions are implemented (or not implemented). Ideally the process should distinguish between strategic and tactical decisions.
Good governance cultures are marked by consistency, responsibility, accountability, fairness, transparency, and effectiveness. And these same characteristics should apply to good governance within a corporate IP function, with strong focus on both performance and how that performance was achieved.
Updated fee and fee structure arrangements. Traditionally Firms have charged their clients on the basis of billable hours. In recent years there have been a number of factors that have worked to shift the tide away from chargeable hours towards more innovative approaches to fees. I suggest that Firms will need to give some serious consideration on how best to charge for IP risk management services.
Who should be interested in such a service offering?
I would argue that almost all companies face IP risks of one sort or another. However, companies
Operating in an IP Litigious Environment
Going through a major Corporate event (e.g. investment, M&A, exit or listing)
Anxious to get IP Risk Management under control
Experiencing major business changes
Facing a major IP Risk and realising that they are unprepared
Interested in proper governance of IP
Whose Executive Management team are demanding visibility of IP related Risks
should be very interested in such a service offering by Legal or IP Firms.
Regardless of why a corporate client may be interested, it is best to master IP risk management when things are calm rather than when one is tackling a major IP risk, when pressure is intense and everything seems chaotic and dis-organized. This is not the right time for a GC, CIPO or IP Manager to have to go to the Board and explain that the IP risk management process is to ‘panic widely and run away’.
Stronger more valuable relations with corporate clients:
Business development has become a hot topic within Legal and IP Firms, especially given the diversity of challenges facing many such Firms. Business development can be many things. It really depends on the Firm, their current state and their strategic objectives. In my mind, however, the role of business development is to find new strategic opportunities for the Firm and start the Firm on the path to execute.
IP risk management offers one such business development opportunity, and I trust that this short paper outlines the arguments for designing, developing and deploying such a service offering as well as describing the components needed to ensure that it is comprehensive, professional and adds real value.
Such a service offering provides ways and means for a Firm to build real value into the client, to strengthen relations, to provide insight to clients’ problems, to be proactive, and moreover give the client much stronger reasons for wanting to work with ‘your’ Firm. Interestingly, IP risk management should not only lead to the creation of new revenue generating services for the Firm, but if handled properly, also lead to a significant increase in traditional work tasks flowing back into the Firm, for example through the proactive identification of filing opportunities.
The situation today for many Firms is that traditional administrative work and even aspects of prosecuting IP rights are being transferred to cheaper more efficient service providers. Firms are not sure how to respond. It is somewhat difficult for many Firms to evolve to becoming more commercially minded. The key question for Firms is how to retain relevance, margin and relationship with clients.
The obvious answer is for such Firms to provide services that meet the evolving needs of clients, to provide services that solve the clients’ problems, and to evolve the Firm’s approach to become more proactive with clients in order to identify new business opportunities.
IP Risk Management could be one answer. A relatively small investment in designing, developing and deploying an IP Risk Management programme will generate more prosecution work, more advisory work and more litigation work. It will enable the Firm to have a more productive and enduring relationships with its clients.