Kellogg World Alumni Magazine, Spring 2004Kellogg School of Management
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Global Kellogg: Learn from your peers
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Theory: Scott Stern
Practice: James Conley
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Prof. James Conley

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Read what Professor Scott Stern says about the theory behind this practice

Practice: James Conley
Managing intellectual property in the global marketplace: The practitioner's perspective

By James G. Conley, clinical professor of technology, and professor of industrial engineering management

A recent Alan Greenspan address to the Institute for Economic Policy Research makes a clear point. The future of America's economy, and those of other advanced industrialized nations, is increasingly dependent on the production of new ideas, inventions and other commercially significant innovations that may be secured by intellectual property rights (IPR).

This commentary is a wake-up call to business leaders operating in the global market who seek to build and sustain competitive advantage through innovation. If Greenspan's observations are foreshadowing, the strategy and tactics for how global enterprises realize value from investments in innovation is shifting toward the proactive management of IPR.

Unfortunately, the idiosyncratic lexicon of property law (including such concepts as infringement, disparagement, functionality and invalidity) is typically the domain of intellectual property (IP) lawyers. Procuring the services of these professionals is expensive, and their opinions are difficult to translate into actions. Legal maneuvers and the associated costs are the epitome of what may be called "frictions" in the engine of commerce. While it is generally agreed that these agents are essential to a commercial rule of law, there remains a tendency to delegate complex legal matters to experts somewhere outside the executive suite.

Our research suggests that effective IPR management should be the domain of top management, since success with these intangible assets requires more than just knowledge of a particular market and its legal ground rules. Success in IPR management requires an understanding of corporate strategy and the logic of a business. Similarly, microeconomic issues, such as pricing and reasonable royalty rates, play a key role in keeping the friction forces from slowing commercial progress. Awareness and the ability to act on IPR issues transforms the playing field to one where the legal ground rules are not necessarily the more general rules of the game.

Success in IP management goes to those who can play at the nexus of three traditional fields: strategy, economics and the law. This point builds on Professor Stern's observation about interdependence.

Practically speaking, firms have two alternatives for responding to the dynamics of innovation and IPR management.

The first is to do nothing or maintain the status quo. Investments in innovation and new product development, after all, are risky and do little to address the harsh reality of quarterly reporting.

The second alternative is to be proactive about intellectual property management, preferably with programs championed by top management. Such initiatives benefit from coordinated planning of commercially significant innovation in concert with the various IPR regimes. This is not simply a focus on patentable inventions but rather an effort to manage all aspects of an offering's life cycle together with the available methods of IPR (i.e. patents, copyrights, trademarks and secrets) to build a portfolio of monopoly rights.

Our research has identified multiple examples of firms that are best-in-class, such as Dolby Laboratories (patents and trademark licensing), Ticketmaster (exclusive contracts), Qualcomm and IBM (patent management), Disney (copyrights and merchandising on character rights), AstraZeneca ("The Purple Pill") and 3M Espe (IPR portfolio management). Not all these firms are resource giants. Dolby, for example, is a relatively small technology company.

The same research characterizes the practice of value transference, uniquely branded products and other means for securing the differentiation associated with innovative offerings and building it into the equity of a strong brand. With more influential trademarks these firms grow and leverage the advantages of powerful brands. Small and even start-up firms can be proactive in their IPR management (albeit with limited resources) and can occasionally out-maneuver industry Goliaths that possess extensive capital but limited focus and agility.

In today's emerging and competitive market, it is axiomatic that where there is commercial significance, there will be legal significance. When proactively managed, IPRs are the legally significant assets that secure investments in commercial innovations. Firms that are thoughtful in acquiring these rights and executing on their embedded optionality gain competitive advantage. Firms that choose a passive approach risk becoming sidelined in the global game of innovation and advantage.

Read what Professor Scott Stern says about the theory behind this practice

©2002 Kellogg School of Management, Northwestern University