Praise for Outpacing the Competition Patent-Based Business Strategy

“Outpacing the Competition provides a useful IP management framework for rapidly evolving and inherently unpredictable R&D environments where companies are partners, customers, and competitors at the same time.” Marshall Phelps, Corporate Vice President for IP Policy & Strategy, Microsoft

“Robert Cantrell’s book Outpacing the Competition: Patent-Based Business Strategy?should be read by?anyone?involved in the practice of litigating or licensing patent rights or policymakers responsible for patent issues. Mr. Cantrell provides a cogent approach for applying decisional methodology and game theory to enhance the utilization and understanding of patent rights.” Bradley J. Olson, Esq., patent attorney, Washington, DC

“Robert Cantrell makes a compelling case for using intellectual property as a core for building solid business strategy. He provides a unique and valuable perspective on competitive advantage, as delivered through patent-based business strategy. This is an excellent addition to anyone’s business strategy arsenal.” Jeff Hovis, Managing Principal, Product Genesis, Innovation Genesis LLC

“Robert truly treats patents and related intellectual property as both a weapon and a shield to help the reader use patents to out-maneuver global competitors of all kinds the low-cost producer, the high-end innovator, etc. CEOs, attorneys, business and engineering professionals and the like will enjoy the military imagery and flavor provided by Robert. Thanks for clarifying how critical it is to have an understanding of patents in running a truly competitive global business today.” José W. Jimenez, Esq., Chief Intellectual Property Officer,AMS Research Corporation

ROBERT L. CANTRELL is a professional strategist and Director of Consulting at Landon IP, Inc. He has managed multiple consulting and analytical engagements across a wide range of technology sectors that include the communications, electronics, medical devices, pharmaceuticals, energy, and consumer goods fields. For Landon IP customers, Mr. Cantrell manages patent analytical projects, innovation and IP strategy sessions, and advanced training courses. He is on the faculty of Patent Resources Group (PRG), the leading provider of advanced patent education to the legal and business communities. His core expertise in classical strategy has been proven to have wide applicability across many professional disciplines.

Outpacing the Competition

Patent-Based Business StrategyBy Robert L. Cantrell

John Wiley & Sons

Copyright © 2009 Robert L. Cantrell
All right reserved.
ISBN: 978-0-470-39085-6

Chapter One

Introduction

In today’s technology-driven markets, most companies compete through ideas and relationships. Their most important assets are their intellectual property, knowledge, and people. Patents, as the most quantifiable of intellectual property assets, are the cornerstone of a new type of business strategy that, while practiced, has not been adequately described. This book intends to provide that description and to take the mystery out of patent strategy for business management.

When compared to marketing or financial strategy, patent strategy in business has barely been touched on as a professional discipline. Because of this, patent strategy presents a significant opportunity to gain a competitive advantage. Whereas an opportunity for financial arbitrage can have a lifespan of seconds before astute financial strategists notice and act, opportunities for arbitrage on the value of patentable ideas can remain open to discovery for years. An astute patent strategist can expect to find and create value far in excess of the investment required to capture that value, if for no other reason than that the patent field is less understood than other areas of business. In the patent field, all the treasures have not already been discovered; they may yet be hidden in the patent files of a company or more likely, in the minds of brilliant researchers waiting for the right connection of ideas and support.

Treasures in the patent world are both buried and emergent. This book focuses on the emergent treasures: the creation and acquisition of valuable inventions from bright people. This is in keeping with the fact that the vast majority of wealth generated by patents is gained from the patents used in a company’s core business. Much has been discussed in professional circles about licensing non-core assets buried in the patent portfolio, and tangential value here should not be overlooked, but the fact remains that the primary value is emergent and in the business core.

With that in mind, we bring a thought from classical strategy into the present. Marcus Aurelius, a Roman emperor who reigned from 161 to 180 A.D., stated that “The secret of all victory lies in the organization of the non-obvious.” Many historians consider Marcus Aurelius to be the last of the “five good emperors of Rome,” and his philosophy for success on the battlefield still holds true to this day. His statement pertains to military conflict, but it carries with it a universal truth that pertains to patent strategy: If you can understand and organize important people, ideas, and tools that your competitors cannot, then you can reach levels of success your competitors cannot hope to achieve.

This book will show you ways to organize and use non-obvious advantages from the point of view of patent strategy. To do so, it will introduce three key learning points as follows:

1. The definition of patent strategy. The first key to strategy, patent and otherwise, is to understand what strategy is. Strategy is a solution that takes you from a current situation to a new situation. As a solution, strategy addresses the necessary existence of options, uncertainty, and obstacles. It provides a way to take action even in the face of absolute unknowns so that you can produce a positive result within the constraints of your operation, even if it is not exactly the result you had conceived when your action began. Patent strategy is a component of business strategy that deals with the options, uncertainty, and obstacles involved in the creation, use, and defense of technical ideas. It addresses how to cost-effectively build and manage patent portfolios from which to advance and defend the business in a research and development environment that is inherently unpredictable. This book discusses patent strategy in context with business strategy, of which it is part and parcel, along with the components of classical strategy from which all strategies are derived.

2. The decision cycle. Patent strategy is composed of decision cycles that include three phases:

a. Assess-understand the situation b. Decide-choose a course of action

c. Act-execute the decision

In the face of many unknowns, an organization that can proficiently move through these decision cycles more quickly than its competitors can develop significant strategic advantages over its competitors in its ability to shape the competitive environment, respond to unpredicted opportunities and threats, and otherwise outpace the competition.

Decision cycles are not one-pass-through events. They are continuous cycles of assess, decide, and act, whereupon each action leads to new assessments, new decisions, and new actions, the complexity of which increases proportionally to the ambiguity of the objective. In a research and development environment, where the output of creative investment is unpredictable, the ambiguity is often high. You cannot reliably forecast important products and services that people have not yet invented and the market has not yet seen.

In patent strategy, proficiently moving through decision cycles involves proficiently creating or obtaining inventions, advancing those inventions into the market, and defending those inventions from competitors however the market ultimately develops. It also involves creating the orientation in the mind of decision makers that patents can serve as important tools from which to gain competitive advantage. The main body of this book uses the decision cycle as the primary guideline for how an organization should plan patent strategy and organize its intellectual property (IP) department.

3. The interplay between interaction and isolation. Patent strategy is an interplay between interaction and isolation. The patent itself is a tool that fosters both interaction and isolation. For example, the patent provides a definable asset from which to arrange licenses, a form of interaction, and it provides a tool with which to exclude competitors from making, using, or selling an invention in a marketplace, a form of isolation. This interplay provides the primary four rules from which you can build even the most complex and nuanced patent strategies. The rules are simple, but mastering the rules takes practice, experience, and a willingness to refine that practice throughout an entire career.

Although this book is about the business side of patent strategy, it is not specifically just about patents. Instead, it covers all aspects of business strategy in which patents play a part-namely, the creation, use, and defense of technical ideas. To try to explain patent strategy outside the context of business strategy would be like trying to explain the written word without showing its greater utility in sentences, paragraphs, and books. A single enforceable patent, like a single word, can have power; that power, however, is minor compared to the power available when that patent works in concert with other enforceable patents and all the other sources of power that people can use to advance and defend an invention in the marketplace. Furthermore, it is also important to understand that this is a book about what to do in patent strategy, not necessarily how to do it. Although it shows many examples of how to enact a patent strategy, if this was merely a “how to” book, it would not be about strategy. Each stratagem is a unique creation of the human mind that, while using common ideas, addresses situations that are never exactly alike.

Strategy Defined

Before we discuss patent strategy, we need to define specifically what we mean by “strategy.” Strategy is a solution that takes you from your current situation “A” to a new situation “B.” Strategy is nothing more than that, yet that simple definition still confounds people in practice. People often do not make proper assessments of their current situation “A,” leading them to take actions they might not have taken if they had a better understanding of that situation. “B” can prove even more difficult to grasp than “A,” since life, in patent strategy and otherwise, is filled with randomness that does not abide by a reliable plot line. You might know what you would like “B” to be, but in practice you will need to take defined action to get close enough to where a more ambiguous but satisfactory “B” is in order to take advantage of the outcome that actually develops. This becomes a balance between defining “B” so narrowly that you cannot hit it, or defining “B” so broadly that succeeding depends almost entirely on good fortune. So, bottom line: Strategy is a type of solution that, in the end, will work as planned or provide an unexpected result; in either case, it should not have so constrained a definition of success within it that the strategist cannot take the best advantage of both outcomes.

To succeed at strategy, you need to know how to make:

1. An accurate assessment of your current situation “A.”

2. An accurate and realistic conception of your desired new situation “B” that is narrow enough to be useful but broad enough to account for unknowns.

3. A correct decision on how to get from “A” to “B” that adjusts for uncertainties that become known.

4. A way to measure your progress or any lack thereof.

Uncertainty is where strategy, as a solution, starts to differ from, say, a technical solution or a mathematical solution. The dynamic nature of strategy complicates your task of finding a successful solution because you cannot necessarily test out uncertainties. You have to address active and often intelligent opposition from people who do not want you to succeed, and who may not themselves know how they will react to you until you take action. You also must contend with the fact that, outside the artificial world of games perhaps, time in strategy does not stop. You are continually executing a strategy that takes you to a new situation “B” in the sense that even doing nothing takes you somewhere. You will go to a new situation “B” even if you do not know what “B” is and cannot articulate your strategy to get there. A ship with wind in its sail will go somewhere. A good strategist needs to get a handle on the situation he or she faces in order to arrive at a desirable destination through something other than the mere vagaries of the wind, while realizing, like ancient seafarers, that the outcome of any given journey to find new land, no matter how well planned, depends on the land that is actually there, not the land that the strategist would like to be there.

Results

To go where you want to go, you need to focus on the results of your actions. Any strategy will create predicted and unpredicted results, both beneficial and harmful. Your capacity to create a beneficial result that is preferably also your predicted result will depend on your understanding of your current situation “A,” your desired situation “B,” and the pros and cons of your chosen method of getting from “A” to “B.” One of the hallmarks of intelligence in strategy is the strategist’s capacity to make accurate predictions about potential outcomes most of the time. Your accuracy when making such predictions, as well as your capacity to act quickly and decisively on unexpected results, will depend on your having a solid grasp of “A,” “B,” and how you plan to get to “B.” On the latter point, you should seek to craft a decision on how to get to “B” from the foundation of the past experiences that got you to your present situation “A.” Your past experiences, along with the value you have retained from those experiences, provide the base from which you can move forward. Your patents themselves literally encapsulate value captured from your past.

With your desired results in mind, your strategic prowess is anchored on your capacity to:

1. Achieve your predicted and useful results

2. Recognize and exploit your unpredicted useful results

3. Mitigate or avoid your predicted harmful results

4. Mitigate or avoid unpredicted harmful results

In the development of the pharmaceutical compound sildenafil that became the commercial pharmaceutical Viagra[R], Pfizer researchers achieved a predicted and useful result of increasing blood flow to the heart to treat heart conditions. The compound sildenafil was only a marginal improvement over existing treatments, and so while useful, the predicted result had little commercial value. An unpredicted result, however, allowed the same compound to be used for treating male erectile dysfunction. Pfizer patented the method of use and successfully exploited it. So while we need to know our desired new situation, “B,” we also need to pay attention to the unpredicted useful results that might offer us an even better outcome than expected.

In contrast to Viagra[R], which had useful unpredicted results, the powerful painkiller Vioxx[R] showed evidence of producing harmful and unpredicted results. During its development, Merck researchers predicted that Vioxx[R] would produce manageable harmful side effects, such as abdominal pain, dizziness, and fatigue. They considered these side effects to be acceptable when weighed against the significantly improved capacity of Vioxx[R] to relieve pain. The market agreed and made the drug a commercial success. Things changed, however, when an unpredicted and harmful rise in heart attack and stroke appeared among some patients using Vioxx.[R] To add to this, Merck’s handling of the unpredicted harm, while not necessarily the case in reality, appeared to be the actions of a company more concerned about defending a line of profitability than the well-being of its customers. Merck was sued under the accusation that its management had deliberately covered up test results that would have led to an earlier withdrawal of Vioxx[R] from the market. Unpredicted harmful results arose, and although Merck was forced to abandon its originally conceived and desired result “B,” addressing the harmful results was a necessary and ultimately unavoidable step to improve Merck’s long-term strategic performance.

Reasons for Unpredicted Results

Our present situation “A” is, more often than not, different from the way we predicted it would be. Although not necessarily to their detriment, most people spend most of their lives working on their alternative plans. For many companies, this tendency is the same. Consider that wireless telephony was barely conceivable and certainly not predictable when Nokia, the wireless telephony company, was founded around paper and power products in 1865. Pursuant to our analysis of present situations, Robert K. Merton, a Columbia University sociologist and National Medal of Science winner, provides a framework for why we achieve unpredicted results from our strategies in his paper, “The Unanticipated Consequences of Purposive Social Action.” Robert K. Merton’s paper was published by the American Sociological Review in 1936. It highlights several key reasons why conceived and executed strategies create unpredicted results. Exhibit 1.1 shows Merton’s five reasons for unpredicted results.

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Excerpted from Outpacing the Competitionby Robert L. Cantrell Copyright © 2009 by Robert L. Cantrell. Excerpted by permission.
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