Business IP and Intangible Asset Blog, Michael D. Moberly

Post America Invents Act: Necessity For IP – Patent Counsel

February 13th, 2013. Published under IP strategy., Law Firms. No Comments.

Michael D. Moberly   February 13, 2012

I found an interesting read in an article published in Bloomberg Law Reports titled ‘Your Opinion Matters to Us – The Continued Value of Patent Counsel Opinions in a Post American Invents Act Era’.  The authors, lawyers of course, describe how patent counsel opinions have declined since the Federal Circuit’s 2004 decision in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corporation in which the court held that…

• no adverse inference of willful infringement of a patent may be drawn either from the failure to obtain legal advice, or
• the invocation of the attorney-client privilege concerning the advice sought.

The America Invents Act (AIA) actually extended the Knorr-Bremse decision by…

• prohibiting one’s failure to obtain the advice of counsel, or
• failure to present such advice to the court or jury,
• from being used to prove either willful and/or induced infringement.

More specifically, AIA’s Section 298 (35 U.S.C.) includes the “Advice of Counsel,” which states…

The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.

Previously, of course, potential infringers who possessed actual notice of another parties’ patent rights, had an affirmative duty to obtain competent legal advice before initiating any infringing activity.  Failure to do so could lead to a finding of willful infringement.

AIA framers suggest that Section 298 was inserted to (a.) protect attorney-client privilege, and (b.) reduce pressure on accused infringers to obtain opinions of counsel solely for litigation purposes.

Insofar as understanding Section 298’s affects, the authors suggest it’s useful to examine current law, one of which is the doctrine of willful infringement.  This particular doctrine exists to inhibit objectively reckless behavior.  For example, if an innovator or entrepreneur inadvertently engages in infringement by neglecting to consider (a.) the likelihood that their actions (will/may) constitute infringement of an existing valid patent, and (b.) this probability (risk) is known and/or obvious, then (c.) it’s possible that the entrepreneur or innovator may be found liable for willful infringement with the accompanying substantial damages.

Insofar as matter-of-factly stating whether or how the AIA has affected the demand for IP (patent) counsel, I don’t believe the following quite meets the ‘rocket science’ test because I have no objective data to support it either way, i.e., that there has been a general reduction in legal (particularly, outside counsel) budgets due to one or a combination of (a.) the global economic downturn, (b.) the new provisions incorporated in the AIA, and/or (c.) the demoralizing and momentum stifling costs associated with securing competent IP (intellectual property) counsel by individual entrepreneurs, innovators, and R&D intensive SME’s (small, medium enterprises).

Some IP law firms are politely serving up warnings that dispensing with opinions from expert patent counsel does carry some downsides.  Certainly, no argument from me!  One of the (potential) downsides I hear mostoo is the proverbial ‘I wish I had done – known that’. Such sentiments become particularly acute when, not so much if, challenges, disputes, or litigation arise at some point, regarding the propriety or status of a patent.

The inference that patent counsel wish to convey is that (IP) clients will be better positioned to (a.) avoid having their IP challenged, disputed, and/or litigated, and (b.) defeat claims of willful infringement, enhanced damages, or induced infringement if experienced and competent IP (patent) counsel are involved at the outset in terms of rendering opinions. Such timely and experienced perspectives that a patent, and the embedded intellectual capital, are not infringed, invalid, or both, will likely continue to be an influential defense to allegations of willful infringement.

There’s no argument from me that competent and experienced IP counsel can, and routinely are necessary and beneficial.  I am particularly supportive of those seemingly few IP counsel who can articulate for clients’, an evidence-based, 360 degree picture for clients absent over-dramatized FUD  factors, i.e., fear, uncertainty, and doubt.  That said, there is absolutely no question a persistent, aggressive, globally asymmetric, and increasingly predatorial environment of risks, threats, and vulnerabilities exist, including ‘trolling’, which are variously directed to proprietary intellectual, structural, and relationship capital, i.e., intellectual properties.   This leaves ample room for competent, current, knowledgeable, and experienced IP counsel to remain valuable collaborators to entrepreneurs, innovators, and corporate R&D processes in the post AIA era.

(The inspiration for this post evolves from article written by Edmund J. Haughey and Stephan Yam of Fitzpatrick, Cella, Harper & Scinto in Bloomberg Law Reports, February 14, 2012.)

My blog posts are researched and written by me with the genuine intent they serve as a worthy and respectful venue to elevate awareness and appreciation for intangible assets throughout the global business community.  Most of my posts focus on issues related to identifying, unraveling, and sustaining control, use, ownership, and monitoring asset value, materiality, and risk.  As such, my blog posts are not intended to be quick bites of information, unsubstantiated commentary, or single paragraphed platforms to reference other media. 

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of any of my posts, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance or business transaction.  I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

Technology Review’s 50 Most Innovative Companies Deliver Intangible Assets!

September 25th, 2012. Published under Intangibles as strategic assets, IP strategy., Managing intangible assets. No Comments.

Michael D. Moberly – September 25, 2012

Wouldn’t it seem reasonable, even plausible, to suggest that particularly innovative companies, like, for example, Technology Reviews’ 50 Most Innovative Companies for 2012, www.technologyreview.com/tr50/2012 would likely produce (and logically) possess more, and perhaps a higher level of intangible assets than say, less innovative companies?

Let me say at the outset, being an advocate of and strategist for intangible assets, I generally hold the view that most every company, regardless of size, industry sector, or location, produces and possesses intangible assets.  It’s often a matter of revealing and unraveling them, and identifying strategies to exploit – utilize them in ways that fit best with the holder (company).

Technology Review’s annual list of the 50 most innovative companies are, relative to TR’s criteria, businesses whose innovations influence (force) other businesses to alter their strategic planning and/or course. TR50 firms are nominated by editors of Technology Review, who distinguish companies which, over the preceding year, have…

• demonstrated original and valuable technology
• are bringing that technology to market at a significant scale, and
• are clearly influencing their competitors.

Eighteen of the companies selected for 2011’s TR50, remain on their 2012 list, with seven firms achieving a third appearance. Perhaps more interesting, at least in my view, are 32 companies which TR selected for the TR50 2011 list that are no longer on the list, which readers can assume no longer meet the above (TR’s) criteria.

One example being, TR states that some companies are excluded from the list because of a decline in the prospects of an entire (their respective industry) sector.  A more specific example TR sites, has to do with advanced-biofuel companies which were strongly represented on TR’s list in both 2010 and 2011, but not in 2012.  The reason, TR offers, is that the bio-fuels sector as a whole has generally not scaled up production to a level that can begin to make sustainable inroads relative to the use of conventional oil or otherwise influence the fuel and transportation industries’ respectively. That’s not to suggest however, that advanced bio-fuel technology is now absent potential, rather, for 2012, this sector merely conveys less (sustainable) potential than it did in 2010 and 2011.

Dr. Ken Jarboe, President, Athena Alliance, www.athenaalliance.org, a highly respected, Washington-based ‘think tank’ on the intangible economy, agrees in part with my opening premise, by saying there would be a presumption that TR 50’s are stronger in intangibles than most, however, he expresses some skepticism whether this presumption should go so far as to include the full range of intellectual capital.

More specifically, Dr. Jarboe points out that TR 50’s are traditionally strong in IP (intellectual property) and technology.  Too, he says, they are probably strong ‘right now’ (emphasis added) in strategic capital and structural capital primarily because TR’s criteria for inclusion in the 50 most innovative companies includes both “vision” and “execution”.

Having strong strategic and structural capital translates, Jarboe says, as company sustainability, not just right now, but for extended, perhaps indeterminate periods.  In the case of TR50’s,

Jarboe quite correctly states they admit that they remove companies from the their list because, among other reasons, they no longer demonstrate sufficient vision and/or execution.  TR specifically mentions Netflix and Amazon as examples.  Companies that have strong strategic and structural capital Jarboe says, should not quickly lose (their) vision and/or ability to execute, both of which are key contributors to any company’s overall sustainability.

The dropping of Amazon from the list raises another question, Jarboe says, specifically about relationship capital.  The reason given by TR for removing Amazon from the list had to do with the consistent complaints about their (new) Kindle Fire.  But, Jarboe wisely and characteristically asks, was that a case that demonstrated weak intellectual capital, or was it the case that strong relational capital will help Amazon prevail over the launch glitches associated with Kindle?

So, while Jarboe believes there is a possible relationship between intangibles and the TR50, but  with this important caveat, i.e., the intangibles component is much broader and much deeper, with the TR50 really being about the successful deployment, commercially speaking, of attractive technology and accompanying applications, and not about intellectual capital, per se.

TR states in other instances, companies lose, neglect, and/or become less attentive to the vision that made them initially worthy of the TR50.  One such example is Netflix, which TR selected for its 2011 list because it piggybacked a video-on-demand service onto its existing DVD-by-mail subscriptions. Netflix had already disrupted the conventional business model of video rental stores and then cleverly engineered a maneuver to prevent itself from being disrupted in turn by streaming video technology.  But later in 2011, Netflix endeavored to split the streaming side of its operations from its DVD service.  This proved to be a less than popular decision with its substantial number of users who rather quickly became irritated which manifested in well-publicized ridicule which led to hundreds of thousands of subscribers abandoning Netflix before they could reverse course. As we now know, this led to a most unfortunate predicament in which Netflix was no longer able to direct its own (strategic) agenda, and certainly within the entertainment industry.

And finally, TR says, some companies merely fell off their list because they were crowded out by newcomer firms communicating new and all-the-more larger ideas that stir up conventions.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance.  And, I always welcome your inquiry at 314-440-3593 or m.moberly@kpstrat.com

(For this post, a special thanks  goes to Dr. Ken Jarboe, President, Athena Alliance www.athenaalliance.org for his insights and perspectives and to the fine book that I routinely rely on, Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

Islamic Law: Intangible Assets and Intellectual Property

August 17th, 2012. Published under Intangible asset protection, Intangible asset strategy, Intellectual Property Rights, IP strategy.. No Comments.

Michael D. Moberly   August 15, 2012

I certainly do not consider myself an expert in Islamic law pertaining to intellectual property and other intangible assets.  However, I do possess a very genuine desire to learn key practicalities of Islamic (and Sharia) law related to engaging in – conducting transactions in which intellectual property and other intangible assets are in play.

In an excellent paper by Silvia Beltrametti, (The Legality of Intellectual Property Rights Under Islamic Law, The Prague Yearbook of Comparative Law 2009. Mach, T. et al. (Eds). Prague, 2010. pp. 55-94), while I did find many answers, I also concluded there are numerous questions remaining insofar as the actual application of Islamic law to IP (intangible asset) conventions.

Ms. Beltrametti, a JD from the University of Chicago with an emphasis in IP, states that intellectual property rights are not regulated by Islamic law and jurisprudence per se. Rather, the issue, she says, is whether the principles of Islamic law can be constructed in a way to provide support for such protection?

Beltrametti’s paper further discusses the extent to which Islamic law has an impact on the protection of intellectual property.  She does this initially by presenting Shar?’a’s main sources; the Qur’an, the Sunna, Ijma and Qiyas.  I should not that the term Shar?’a, as applied throughout Beltametti’s paper, is synonymous with Islamic law.

Very appropriately, Beltrametti points out, tensions and challenges remain between (a.) the predominantly Western, and (b.) the Islamic views on intellectual property, as well as (c.) the role of economics within Islamic law and society.  That said, an intriguing suggestion Ms. Beltrametti offers is that a Shar?’a based system is flexible and adaptable, and such flexibility can be used to address economic realities of the day, e.g. 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and sustainability reside in – evolve from intangible (IP) assets.

Another equally good paper, titled ‘Can TRIPS Live in Harmony with Islamic Law: An Investigation of the Relationship between Intellectual Property and Islamic Law?’ written by

Chad M. Cullen (Baker Botts) provides much additional insight and is certainly worth one’s time to read and study.

Both authors/researchers, in their respective style…

• agree that intellectual property (rights), per se, are not particularly new concepts to Islamic rule. Some IPR’s were actually strengthened by Islamic rule, others were never explicitly formulated (as law), instead, they evolved as accepted social norms.
• point out that since the advent of Islam, the concept of intellectual property has expanded to include trademarks, patents, and forms of copyright.  A commonality is that they grant limited exclusive rights in exchange for the commercialization of original creations that benefits society.  They also allow the owner (presumably the originator) to stop any unauthorized use, e.g., presumably acts such as counterfeiting, piracy, infringement, etc.
• agree that Shar?’a does not refer to Islamic legal rules only.  Rather, Shar?’a encompasses a timeless concept of justice and fairness that is best understood as constituting a higher rule of law with a divine connection.

After reviewing numerous (other) sources, it’s reasonable to conclude, in my view, that (a.) there is latitude insofar as interpretation and application of IP and intangible asset matters under Islamic (Sharia) law, and (b.) such laws are not being aggressively enforced, i.e., infringement and product piracy in the Middle East contributes to substantial losses of revenue for major companies relying on such (IP) rights.  It’s important to point out that such transgressions pose significant problems globally, not just in the Middle East.

Cullen, as well as Beltrametti note that an Islamic WTO member state is obligated to uphold the requirements of TRIPS.  Under Shari’a, this has led many Islamic states to enact intellectual property laws meeting the minimum standards of TRIPS.  Thus, being a signatory to TRIPS essentially verifies (operationalizes) the belief that IPR’s are compatible with Shari’a and related Islamic notions and concepts.

In practice, however, intellectual property laws have not been well-received in Islamic states in that a percentage of Muslims believe the concept of intellectual property itself, particularly innovations (IP) associated with advanced technologies, originates in the West, and not from their religious sources.  This perspective serves to elevate reluctance for broader acceptance of IP.

Too, while many Islamic states have stringent IP laws and regulations in place, some remain ineffective or experience particular problems related to enforcement.  Appropriately, one question is whether this is a governmental choice rather than enforcement issue.  Taking this perspective several steps further, some assume that forcing WTO membership and TRIPS upon Islamic states through threats of import/export restrictions and high tariffs, the perception of intellectual property rights as constituting another facet of Western oppression, has grown so strong that many Muslims perceive intellectual property infringement not as a legal wrong, but instead as a means of seeking revenge against the West.

So, how should all of this be interpreted by businesses wishing to engage in business transactions in predominately Muslim countries when there is significant IP and other intangible assets in play?  In my judgment, the best course of action is to closely examine the various posts made to my blog that encompass intangible asset due diligence and risk assessments.

(I am very grateful for the work/research produced by Silvia Beltrametti and Chad Cullen in the development and writing of this blog post and I encourage readers to read their respective papers.)

Research Liasion: Corporate – University Research Alliances

December 13th, 2011. Published under CFO's, Corporate - University Research, IP strategy.. 1 Comment.

Michael D. Moberly     December 13, 2011

 A ‘research liaison’ should contribute to corporate – university (sponsored) research projects by: sustaining (protecting and preserving) unencumbered control, use, ownership and monitoring the value of both parties’ investments, i.e., the projected stream of intangible assets, IP, competitive advantages, and (proprietary) know how evolving from the research.

Unfortunately, there’s a fairly long trail of melodramatic intrusions in academic research - scientific processes with an equally long trail of scientists and universities interpreting those initiatives as unwarranted and disrespectful attempts at oversight and management of university-based research.  When handled poorly or heavy-handedly such initiatives:

• routinely collide with the time honored principles of open scientific communication and academic freedom, and
• are quick to spark emotional, polarizing, and project stifling debates in academic units and research labs, especially those unaccustomed to the necessity and realities of properly safeguarding information (research work products).

 An unfortunate, but very true reality is however those principles (academic freedom, open scientific communication) are routinely being exploited, outpaced, circumvented, and undermined today by:

• very determined and extraordinarily sophisticated and predatorial data mining and global business-competitor intelligence operations, and
• the inevitable challenges posed by ’trusted insiders’. 

 When either taint a research process, an unwelcomed outcome for both the university and corporate sponsor is that time, resources, and investment in research and its valuable products’, in the form of intangible assets, knowhow and competitive advantages, are compromised, relinquished, or lost.  These, in turn, will usually prompt an array of costly, time consuming, and embarrassing challenges and disputes, any one of which can adversely affect:

• the corporate sponsor in terms of not receiving the projected benefits and competitive advantages initially conceived when the research partnership was formed, and certainly
• the universities’ image, reputation, and goodwill as a prospective ’research partner’.

Necessarily then, the role-responsibility for a ‘research liaison’ (among other things) is to:

• serve as an enabler and facilitator to research collaborations, partnerships, and processes
• provide momentum to the administrative processes associated with executing university-corporate research partnerships, and
• build and strengthen bridges between researchers, scientists and corporate research sponsors through respectful and knowledgeable dialogue to elevate receptivity of research units’ culture to safeguarding and preserving the value of intangible-information based assets and intellectual capital in ways that simultaneously respect academic research traditions and the principles of the Bayh-Dole Act.

 Today, in the nanosecond world of at will global communication and collaboration, decisions about when, where, and the circumstances in which research work products are disseminated have become more blurred and certainly, more risky!

While visiting  my blog, you are encouraged to browse other topics/subjects (left column, below photograph) .  Should you find particular topics of interest or relevant to your circumstance,  I would welcome your inquiry at  314-440-3593 or m.moberly@kpstrat.com

Do Accounting Systems and Language Hamper Creative Business Strategies Involving Intangible Assets and IP?

August 23rd, 2010. Published under Intangible asset strategy, IP strategy.. 1 Comment.

Michael D. Moberly   August 23, 2010

For management teams, boards, entreprenuers, and others operating in knowledge intensive (IP, intangible asset, intellectual capital) sectors, it’s not particularly noteworthy to point out there are significant differences between the accounting and intellectual property – intangible asset communities. 

Those differences are largely conceptual.  They evolve around accounting language and systems that tend to focus on production factors and very tangible assets.  The rigidity of accounting systems and language, and the growing universality of accounting standards does not allow – leave much room for reflection on (creative, alternative) business strategies that are lead – influenced by intangible assets and/or intellectual property.

Accounting is largely a mathematical language that allows companies to communicate about their respective business performance in a manner that is essentially free from cultural connotations, i.e., global universality of accounting standards.  Accounting language follows a code of officially sanctioned standards that are recognized by both the state as well as the international (accounting) community.  Without such language, admittedly, business perceptions and understandings could not be maintained.

Accounting language and systems are governed by U.S. (GAAP) and international (IFRS) standards wherein factors of production and performance are dominant and subsequently under-play, if not utterly ignore, the construction (evolution) and value of internally developed proprietary knowledge, i.e., IP and other intangibles that routinely contribute to the formulation and execution of business strategies.

Respectfully, today’s accounting language and systems do not do much either for communicating-advancing the economic fact that we’re literally in the midst of a knowledge, some say, intangible asset- based economy in which increasing percentages of company value, sources of revenue, sustainability, and foundations for future wealth creation lie in – directly evolve from intangible assets and IP. 

Rather, current accounting language and systems, quite literally, frame the context in which most  businesses function and also set the parameters for how and under what circumstances IP and intangibles can actually be applied.

How IP and intangibles are treated (by accountants) depends primarily on whether the assets were developed internally or acquired externally.  For example, internally generated/developed IP is immediately expensed and appears as a loss, rather than as revenue.  Thus internal R&D initiatives and investments in intellectual property-intangible assets constitute (are characterized as) costs to a company rather than drivers of value, revenue, and future wealth creation, etc.  This practice (accounting standard) makes it all-the-more challenging to trace (unravel) how such assets as IP-based R&D, design, and brand innovation, etc., are generated.

Thus, current accounting language and systems, essentially force businesses to speak about (address their) business performance in a standardized and ritualized manner with virtually no opportunity for inserting creative (alternative) language or expressions.

And, therein lies the basis for many of the current challenges between accountants and advocates of full and creative utilization of intangibles and IP; the inability to respectfully find common ground to converge both language and systems to improve opportunities for consistently putting those assets in play, along with monetization and commercialization.

(This post was adapted by Mr. Moberly from the work of Professor Roya Ghafele and her article titled ‘Accounting for IP?’ recently published in the Journal of Intellectual Property Law and Practice.)

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

The 2008 Berkeley Patent Survey…It’s An Absolutely Must Read!

August 19th, 2010. Published under IP strategy.. No Comments.

Michael D. Moberly   August 19, 2010   (Part II)

This is the second of a two-part post to provide readers with insights into ’the 2008 Berkeley Patent Survey’ with respect to how software start-up firms (a.) perceive, (b.) use and (c.) are affected by patents. 

And, again, please trust me on this, if you are an entrepreneur, part of a tech company management team, board member, or part of the technology investment community, this post should be on your ’must read’ list.

The surveys principle investigators obviously wanted to know more about why some tech entrepreneurs choose to forgo patenting?  To obtain the necessary insight, they posed two sets of questions framed as follows; (1.) for the last innovation for which the (your) firm chose not to seek a patent, what factors influenced this decision?, and (2.) what was the most important factor in that decision?

The costs (expense) associated with actually obtaining and enforcing patents (their intellectual property rights) were cited as being both the first and second most frequent explanation (response).  While the ease of inventing around the innovation and satisfaction with trade secrecy were also cited as influencing factors for software start-up firms not to seek patents, seldom were they considered the most important factor.

Interestingly, 40+% of the software executive respondents cited the unpatentability of the invention as a factor in their decision to forgo patenting, with 25% (+/-) rating unpatentability as being the most important factor. 

However, the investigator’s remarked that it is difficult to know precisely how to interpret the ‘unpatentability finding’.  One possible explanation they said, may be that the software entrepreneur respondents believed that patent standards of novelty and non-obviousness, etc., are so rigorous which lead them to feel their innovation would not likely satisfy patent requirements.  Another possible, perhaps more esoteric, explanation offered by the investigators to this question is that a significant number of the entrepreneurs hold philosophical and/or practical objections to patents in their field, i.e., software.

Another important and very relevant question presented in the survey was how important are patents to achieving competitive advantages.  Interestingly, respondents ranked patents (literally) dead last among seven strategies for achieving competitive advantage.

It’s important for readers to recognize that the relative unimportance of patents for competitive advantage given by survey respondents in the software field contrasts sharply with the perceived importance of patents in the biotech industry, where patents are ranked as the most important means of achieving competitive advantage.

Instead, software start-ups regard ‘first-mover’ advantage as the single most important strategy for achieving competitive advantage, followed by ’complementary assets’ , e.g., providing services for licensed software or offering a proprietary complement to an open source program, etc, in other words, intangible assets.  Interestingly, these two strategies for achieving competitive advantage (i.e., first mover and complimentary assets) outweigh actual intellectual property rights. 

Among intellectual property rights though, the survey findings revealed copyrights and trademarks, followed closely by (trade) secrecy and difficulty in reverse engineering as outranking patents as an important strategy for achieving competitive advantage.

So, what incentive effects do patents have for tech entrepreneurs?  With respect to the four types of innovation, (1.) inventing new products, processes, or services, (2.) conducting initial R&D, (3.) creating internal tools or processes, and (4.) undertaking the risks and costs of commercializing innovation, the survey investigators applied a scale, where 0 = no incentive, 1 = weak incentive, 2 = moderate incentive, and 3 = strong incentive.

Somewhat surprisingly, the respondents reported that patents provide weak incentives for engaging in core activities, such as invention of new products and commercialization.  On the other hand, biotech and medical device firms reported that patents provided moderate incentives.

So, here’s the paradox.  If patents provide only a weak incentive for investing in innovation among software start-ups, why are two-thirds of the VX firms (largely VC-backed) and at least one-quarter of the D&B firms seeking patents?

The answer to this paradox, according to the survey investigator’s, may actually lie in the perception held among software entrepreneurs.  That perception is that patents may be perceived as important to potential – prospective funders, such as venture capitalists, angel investors, commercial banks, and friends and family. 

The investigator’s base this answer on the (survey) finding that sixty percent of software start-up respondents, who had actually negotiated with venture capitalist’s, reported that that they perceived patents to be an important factor in the VC’s invest – don’t invest decision.  Between 40% and 50% of the software respondents also reported that patents were perceived to be important to other types of investors, such as angels, investment banks, and other companies.

So, what’s the larger message from this surveys findings?  In my view, it’s that tech entrepreneurs ought not assume patents are the only, or necessarily the best strategy (option) for achieving success and competitive advantage.  Each form of intellectual property, i.e., patent, trademark, copyright, and trade secrecy carry upsides and downsides.  And, perhaps equally important, tech entrepreneurs ought not overlook or dismiss the complimentary (intangible) assets that routinely accompany and/or evolve from innovation to become valuable and competitive advantage driving assets!

(This post was adapted by Mr. Moberly from the work of Professor Pamela Samuelson’s article in ‘O’Reilly Radar’ and the recently published article, “High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey.” )

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

The 2008 Berkeley Patent Survey: Trust Me, It’s Worth Reviewing!

August 18th, 2010. Published under IP strategy.. No Comments.

Michael D. Moberly   August 18, 2010   (Part I)

This post is about ’the 2008 Berkeley Patent Survey’ and how software start-up firms perceive, use and are affected by patents.  Trust me, if you are an entrepreneur, part of a management team, board member, or investor, this post is worth your time to review and reflect upon.

Respondents to the 2008 Berkeley Patent Survey consisted of 1,300 high technology entrepreneurs in the software, biotechnology, medical devices, and computer hardware fields. Each of the respondent firms had been started prior to 1998 with the respondent sample coming from software firms registered with Dun & Bradstreet (500+) and from the VentureXpert (less than 200).  Eighty percent of the respondents reported their position to be either CEO or CTO of their respective firm with most reporting experience in previous start-ups.

The survey reports that two-thirds of the software entrepreneur respondents have not, nor are they seeking patents for properties embedded in their innovation, i.e., products and/or services.

Interestingly, the respondents collectively rated patents as being the least important mechanism, among seven options, for achieving a competitive advantage in their particular market space.  Even software start-ups that already hold patents, the survey reported, regard them as providing only a slight incentive to prospective investor’s invest – don’t invest decision.

To be sure, there is nothing in the survey findings to suggest ‘a software patent abolitionist’ movement is afoot, e.g., a third of the software entrepreneurs (respondents) reported they already have or are seeking patents and perceive patents to be important to prospective investors, i.e., firms from whom they hope to obtain financing.

So why was this survey conducted?  According to the principal investigators, they were curious to know the extent to which high tech start-ups were utilizing the patent system and to learn their reasons for seeking a patent, or not.

Of course, as the investigators stated, the basic economic principle underlying the patent system is that technology innovations are often expensive, time-consuming, and risky to develop.  But, once developed, the innovations themselves often become relatively inexpensive to produce but easy to copy. 

But, absent intellectual property rights (IPRs), technology firms may have insufficient incentives to invest in innovation relative to recouping their R&D costs that would justify additional investments in innovation due in part to the illegal and inexpensive copies that can be readily produced – available to undermine a company’s investment recoupment strategy and most competitive advantages.

One conjecture of the investigators was that early-stage technology firms may be more sensitive to intellectual property rights than their more mature brethren.  This conjecture was based on the view that early-stage tech firms tend to lack complementary assets, i.e., marketing channels, access to credit, etc., in other words, intangible assets, that mature firms are more likely to have developed and are available to exploit.

With respect to the question ‘why start-ups decide to patent’, the survey respondents revealed the following as being ’moderately important’, i.e., to

1. prevent competitors from copying the innovation
2. enhance the firms’ reputation
3. secure investment and improve the likelihood of an IPO

The survey revealed differenences in the rate of patenting among the VX and the D&B software companies. Three-quarters of the D&B firms had no patents and were not seeking them.  In contrast, over two-thirds of the VX software start-up firm respondents, all of which were venture-backed, had or were seeking patents.  The investigators were not able to assess precisely why VC-backed firms were more likely to seek patents than the D&B firms.  Speculation was that VC’s urge the firms they fund to seek patents; or perhaps VC’s choose to fund the development of software technologies that they believe are more amenable to patenting.

(This post was adapted by Mr. Moberly from the work of Professor Pamela Samuelson’s article in ‘O’Reilly Radar’ and the recently published article, “High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey.” )

The ‘Business IP and Intangible Asset Blog’ is researched and written by Mr. Moberly to provide insights and additional views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Trade Secrets: They’re Often Comprised Of Many ‘Pieces’ Of Intangible Assets

August 9th, 2010. Published under IP strategy., Trade secrecy.. No Comments.

Michael D. Moberly   August 9, 2010

Figuratively speaking, but quite realistically, the ‘birth certificate’ of every patent should state that its origin exist in the form of a (trade) secret.  If that (patent) ‘birth certificate’ does not convey a clear and unequivocal portrait of asset (idea, innovation) secrecy, the inventor and/or entrepreneur can likely anticipate incurring significant, if not irreversible and costly bumps and challenges along the long and tedious road aiming toward the issuance of a patent.

It’s essential then, perhaps more so today that anytime before, that inventors and entrepreneurs fully recognize that the basis/foundation of what they’re seeking to patent, is frequently comprised of numerous ’pieces’ of human, structural, and relationship capital, ala intellectual capital, ala intangible assets! 

Credibility to the above message lies in the increasingly knowledge-based global economies, wherein 65+% of most companies value sources of revenue, and future wealth creation today are directly related to intangible assets, (that percentage is significantly higher for early stage, start-ups, and entreprenerial based companies).  

Thus, the view, which I advocate, is that all patents must literally start life as a (trade) secret and should be taken quite seriously, particularly in today’s increasingly aggressive, globally predatorial, and ‘winner-take-all’ business transaction environments in which the only real way ideas and innovation can be effectively protected, is by keeping the information secret and that secrecy begins at its point of conception. 

Management teams, boards, and certainly inventors and entrepreneurs must recognize that any type – form of disclosure, inadvertent or otherwise, in which key information is treated in other than a secret context, preferably in accordance with the six requisites of trade secrecy, can reduce and/or significantly impair the assets’ projected value, if not negate its trade secret status altogether and possibly adversely affect its patentability. 

Some additional key points to consider relative to trade secrecy are:

1. Trade secret protection extends only to confidential relationships and does not prevent independant development by a competitor, i.e., the ease and/or difficulty a competitor will likely encounter to ’reverse engineer’ (the secret) is a consideration in both achieving and sustaining trade secrecy status.

   a. If the protected information is not readily ascertainable and cannot be easily reverse engineered, then an ‘invention’ can generally be protected by trade secrecy, so long as, again, economic-competitive advantage is derived from (sustaining) the secrecy of the information.

2. Trade secrets, unlike patents, can be licensed forever and the trade secret licensee can be obligated to pay royalties for the (trade secret) license even if the information enters the public domain.

3. There are no subject matter constraints imposed on trade secret protection so long as the information provides an economic - competitive advantage derive (rooted) in its continued secrecy, in other words, both technical and non-technical information can constitute a trade secret.

   a. Trade secret protection in the U.S. can extend to most any information that can be (1.) used in the operation of a business, (2.) has sufficient value, (3.) can afford a company actual or potential economic (competitive) advantage over others, and (4.) providing it remains secret.

   b. Also, (1.) negative know how, i.e., what doesn’t work is protectable as a trade secret, and (2.) novelty, usefulness, and non-obviousness are not applicable to trade secret protection as they are in seeking patent protection.

Lastly, it important for inventors, management teams, and boards to recognize that if patent issuance – protection is uncertain, but a decision is made to pursue it anyway, once a patent application is published, trade secrecy rights (options) are lost. 

(This post was inspired by the work of R. Mark Halligan in an article published in the July/August 2010 issue of ABA’s Landslide, titled ‘Trade Secrets v. Patents: The New Calculus’.)

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

IP Education: A Requisite To Business Management!

July 27th, 2010. Published under Intellectual Property Rights, IP strategy.. No Comments.

Michael D. Moberly   July 27, 2010

Increasingly important questions for entrepreneurs and SME’s is the extent to which their management teams and boards are (a.) familiar with and making effective use of the intellectual property system, and (b.) if not, are there particular barriers that either prevent or inhibit them from doing so?

The larger question perhaps, according to Bill Payne of the Kauffman Foundation, is how many SME’s elect to not pursue conventional intellectual property (IP) protections, i.e., patents particularly, because they recognize, in advance, that they do not have the (internal) resources to rigorously defend their patent position(s) should challenges or disputes arise, or pursue the infringers and/or misappropriators that are all but certain to evolve?

Operational familiarity with IP has become, in my view, an essential business management skill set particularly among SME’s in all industry sectors.  Though, while creating and capitalizing on – exploiting innovation to achieve a business (competitive) advantage can become a key differentiator for a company, it can materialize generally only if a company’s management team and board have the necessary foresight to put in place best practices to ensure control, use, and ownership of the assets can be sustained, but not solely through subjective assumptions about the deterrent affects of conventional IP.

Where does this leave the 20+ million entrepreneurs and SME management teams and boards who are essentially faced with many, if not most, of the same complexities and challenges as their larger Fortune 5000 brethern, in terms of being able to effectively safeguard, utilize, and exploit their IP?  The reality is that SME’s, are often without the resources compared to their larger counterparts and find themselves managerially, administratively, and fiscally stretched insofar as overseeing their IP and the ability to accommdate the complexities and expense associated with IP processes and procedures.

It’s important to recognize also that we’re operating in knowledge-based global economies, in which 65+% of most company’s value, sources of revenue, and future wealth creation lie in – are directly related to intangible assets.  This makes achieving a certain level of familiarity and competency in IP management (oversight and stewardship) matters a necessary underlier to not merely achieving success and profitability, but sustainability!

It’s useful then, for SME management teams and boards to frame their IP (and intangible assets) as strategic business assets, not merely the product of a research activity to remain stagnant or hidden, and otherwise not put to good efficient use.

Unfortunately however, most higher educational (business management) programs and academic units approach intellectual property, patents particularly, as a narrow legal specialization only to be acquired through law school.  I hardly believe that’s how we should proceed to build and sustain a strong and sustainable entrepreneurial and SME pipeline.

(This post was inspired by IBM’s The Inventors Forum, Global Innovation Outlook project.)

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Trade Secrets and Proprietary Information: Laying The Groundwork…

May 3rd, 2010. Published under Fiduciary Responsibility, IP strategy.. No Comments.

Michael D. Moberly   May 3, 2010

When I discuss trade secrets and trade secrecy, I am not necessarily talking about the Coca-Cola’s of the world that have literally built an incalculably valuable and global brand around its trade secret formula for ‘Coke’.

Instead, I focus on the literally millions of small and mid-size companies (SME’s) that have built their brand (reputation, image, and goodwill, etc.) albeit on a smaller scale, by utilizing information they have developed internally.  Often times, that distinctive information provides SME’s with significant competitive and economic advantages that should be, but generally have yet to be formally recognized or treated as being either proprietary or a trade secret.

I am an advocate of openness and transparency under most circumstances.  But, in today’s extraordinarily competitive, predatorial, and winner-take-all global business environment, declaring and treating certain information as proprietary or a trade secret is simply prudent and necessary, particularly when that information serves as an underlier and driver ro elevating a company’s market (brand) value, securing sources of revenue, contributing to its sustainability, and laying foundations for future growth and wealth creation.

Still, there remain misunderstandings among management teams, boards, and employees about trade secrets and trade secrecy which I see being manifested in various ways and on different levels in companies.  For example, (a.) what are the costs of declaring certain information a trade secret, (b.) what are the legal requisites of trade secrecy and what resources must be committed and/or procedural changes executed, etc., to meet those requisites, (c.) how will shareholders and consumers react to having certain information being declared a trade secret, and (d.) are there downsides to declaring certain information a trade secret, etc.

These questions are legitimate and should be thoroughly vetted:

1. By anagement teams, boards, and include the internal contributors and partners that will ultimately have a direct role in execution.

2. In the context of a companies overall operational, brand building, and marketing strategy. 

Make no mistake, there is business prudency, if not fiduciary responsibility, in taking affirmative steps to keep certain information, especially that which delivers economic returns and competitive advantages not merely out of the public domain, but out of the hands of and probable use by competitors and other (economic, competitive advantage seeking) adversaries.

In many instances, the challenge to companies to declare certain information proprietary or a trade secret lies in a commitment to devote the necessary time to quite literally conduct an inventory of their internally developed information-based (intangible) assets.  In many instances, such an inventory reveals that those valuable assets have become embedded in operational processes, procedures, and practices that directly contribute to (underlie) efficiencies, competitive advantages, and customer/client goodwill, reputation, and image, etc., which, in turn, deliver value and revenue.  That information, along with the knowledge how to use that information competitively, should at minimum, be declared and treated as being proprietary!

I look forward to learning your thoughts and perspectives.