Intellectual Property Portfolios in Business Strategy

1. Intellectual PropertyPortfolios in Business Strategy Innovation and Knowledge Management Anabela Piedade Ana Sofia Mascarenhas Sullivan, P.H. and Daniele, J.J. (1996), “Intellectual Property Portfolios in Business Strategy”, in Technology Licensing: Corporate Strategies for Maximizing Value, eds R.L. Parr and P.H. Sullivan, pp27-48, J. wiley & sons, New York. 22th of February 2002

2. Presentation Overview • Introduction • The dimensions of the Portfolios • Factors affecting Portfolio content and structure • Four representative portfolios • Summary and Conclusions

3. Introduction Companies obtain patents with at least 4 corporate objectives in mind: - Near-term competitive protection - Design freedom - Litigation avoidance - Creation of a basis for establishing alliances and joint ventures What is a patent? • Collection of innovative ideas for whose use the company has been granted legal monopoly • Individual patents protect a product or process innovation (in most cases) Companies interviewed: - Different sizes (big and small) -Range of Industries (aerospace, biotechnology, pharmaceuticals,...) - Portfolios of different sizes (from a dozen to several thousand)

4. The dimensions of the portfolio Patent portfolios have at least 5 primary dimensions: • The Technologies - A gap in a companies technology coverage may be seen as a weakness in it’s technological dimension. • Strategic Objectives and Intent - This dimension involves 4 primary objectives of the portfolio, each firm ranks this objectives in accordance with their fit with the strategy. • Strategic Use - This dimension involves the fundamental offensive, defensive, and negotiation uses of the portfolio as required in carrying out the firm’s strategic objectives and intent. • Value - This dimension is concerned with how the portfolio brings value to the firm. The first is the degree to which the patent can exclude others (effectiveness). The second is its importance in product-specific commercialization.

5. Factors affecting portfolio content and structure • Strategic Objectives and Intent. • Protection from competition and from commercializing. • The protection aspects of a patent has several complementary elements: • -Exclusivity (exclude others) • - Blocking (block competitor from achieving its own technology) • - Complementary Protection (Complementary groups of patents formed around a key patent gives it a higher degree of protection) • - Design Freedom and Litigation Avoidance (A portfolio often contains patents on future technologies, created in order to ensure that a firm has prior claim to a specific area of technology) • -Basis for Alliances (A large and strong portfolio and the means to continue generating a large number of quality patents is a measure of technological and commercial strength of a technology-based firm).

6. Factors affecting portfolio content and structure • Strategic Use. • Offensive Use of the Portfolio - Offensive use includes both direct commercialization and tactical blocking. • Defensive Use of the Portfolio - patents covering potential future uses of technology, processes, and materials that broadly cover as-yet-undefined products. • Negotiation. A portfolio may contain a set of patents focused around a specific technology or business area. • Enhancing the technological image of the firm - A large and strong portfolio is a measure and indication of the technology and commercial structure of the firm.

7. Four representative Portfolios Hewlett-Packard Hewlett-Packard is a technology-based company that specializes in producing technological solutions to customer problems. HP designs and manufactures computers, medical instruments, information systems, and printers. Business Strategy - To develop new products that focus on the solutions to the problems of current customers in the near-term. Portfolio Ownership and Management - the technologies are developed in SBUs with some central research contributions. Technology and Portfolio Focus - Narrowly focused around near-term product lines in predetermined business areas. Technology and Portfolio Profile - HP has approximately 3000 USpatents covering a range of technology areas Portfolio Uses - HP uses its portfolio defensively (protection for the company’s commercializable technologies and ensures the exclusivity of its patent monopoly; “design freedom” patents) as well as offensively (to ensure protection and exclusivity and it uses the portfolio to attract potential alliances to obtain access to outside technologies at low cost)

8. Four representative Portfolios Xerox Xerox is a technology-based company that sees itself as defining the document market through the development of technologies that will generate demand for new document creation and management. Business Strategy - To develop new technologies that will create futuredemand for applications in document business. Portfolio Ownership and Management - The technologies are developed in Xerox’s central research facilities and are considered to be corporate assets Technology and Portfolio Focus - Broadly focused. Xerox targets research on technologies that it believes will create future demand. Technology and Portfolio Profile - HP has approximately 6000 USpatents covering a wide range of technology areas Portfolio Uses - HP uses its portfolio defensively (protects the company’s current and future commercializable technologies;future technology patents) as well as offensively (To ensure protection and exclusivity. Xerox actively out-licenses its byproducts and its primary technology for by-product uses.)

9. Four representative Portfolios Merck & Co. Merck & Co. is a pharmaceutical company that has a presence in every major disease therapeutics ranging from cardiovascular to diabetics and bone biology. Business Strategy - Merck’s strategy is to develop highly proprietary phar- maceutical solutions in major disease areas using both internal R&D and licensing-in as needed to create patent estate around key activities. Portfolio Ownership and Management - Portfolio generation and ownership is corporate-based and directed by long-term technology road map that broadly covers every major disease category. Technology and Portfolio Focus - Merck focuses on long-term product development. Active licensing-in is a major part of portfolio generation. Technology and Portfolio Profile - Merck has several thousand US patents formed into product estates to ensure design freedom. Portfolio Uses - Merck uses its portfolio mainly to ensure a few years of proprietary market position. The portfolio also ensures designfreedom.

10. Four representative Portfolios Eastman Chemical Eastman Chemical is a company that specializes in performance and industrial chemicals. Business Strategy - Eastman Chemical’s strategy is to generate new tech- nology with real commercial benefit and build a patent portfolio of compositions, uses and processes to support it. Portfolio Ownership and Management - The technologies are developed in Central Research. The portfolio is owned and managed by SBUs. Technology and Portfolio Focus - Technology is focused in the core com- petencies of the firm and the portfolio is structured accordingly. Technology and Portfolio Profile - Eastman Chemical’s has a portfolio of 1300 US patents. The portfolio is focused around the company’s core competencies. Portfolio Uses - Eastman Chemical’s uses its portfolio defensively (freedom of practice) and offensively (establish proprietary positions). The company uses its overall portfolio to support technology transfer through out-licensing and joint ventures

11. Summary and Conclusions Companies with a narrow view, that see the portfolio as a defensive tool, limit their ability to extract the most value. Companies with a broader view provide themselves with an opportunity to extract superior value. In addition, value is affected by the full dimensionality of the portfolio, including technology content and structure, as well as by the firm’s business strategy.