Feature Philips IP&S

The Philips formula

Intellectual property has always been important to Philips, the Dutch electronics multinational. But under the inspirational leadership of Ruud Peters, the company’s IP & Standards business group has scaled new heights

adapt it as necessary, have been vital By Joff Wild attributes throughout his career and perhaps explain why he has been so successful. It Ruud Peters always wanted to work for was Peters who conceived of Philips IP & Philips. But it was never his intention to get Standards; Peters who persuaded the involved in intellectual property. As a student company’s board to set it up; and Peters he attended university in the Dutch town of who has galvanised his team to deliver ever Delft, where he majored in physics. His plan since. In so doing, Peters has established was to get a job in the Philips labs and make his business as a global IP leader. Not every a career in research and development. company will choose to follow the path The second oil crisis of the 1970s put chosen by Philips IP & Standards in seeking an end to all that, however. Cutbacks at the to maximise IP value, but none should ignore company meant there were no research jobs its story. It is one that involves taking a cost available. Still determined to make his centre at the periphery of corporate thinking career in science, however, Peters decided and turning it into a profit-generating to take the one post at Philips that was on powerhouse at the centre of the action. offer. This was working in the company’s IP department. Safely ensconced, he figured, Welcome to Philips town he could bide his time and put in for a European corporations do not get much bigger transfer to the labs when the economic than Koninklijke Philips Electronics NV. conditions were right. Founded in 1891, by Gerard Philips (a All that was back in 1977. Twenty-two maternal cousin of Karl Marx, no less), the years later, Peters had long since forgotten company now employs over 128,000 people his R&D dreams. Instead, he had been worldwide and in 2006 generated revenues promoted through the IP department all the well in excess of Euros 25 billion (US$37 way to the top, becoming the head of what billion). The business is centred on electronics was then called Corporate Patents and and is divided into three main sectors: Trademarks in 1999. Nine years down the Healthcare, Consumer Lifestyle and Lighting. line, he is still there. The title he now holds The company was founded in Eindhoven, is CEO of Philips IP & Standards. It is one of a city with a population of some 200,000 the world’s biggest and most successful about an hour and a half to the south of company IP management and exploitation Amsterdam by train. Aside from Philips, the organisations: an independent business unit city is probably best known for its football inside Philips which is central to shaping team, PSV Eindhoven, a frequent winner of R&D strategy, negotiating M&A deals and the Dutch league championship and also developing the Dutch multinational’s European champion in 1988. PSV began its business vision as it seeks to meet the life as a sports club for Philips employees challenges of the 21st century. (PSV standing for Philips Sport Vereniging, or The patience and determination that Philips Sports Union in English). PSV play in Peters displayed 30 years ago, not to the Philips Stadium, which is located in the mention his ability to devise a plan and Philipsdorp – or Philips Village –

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neighbourhood of town. All of which probably for companies and it was something that we tells you what you need to know about the had to prepare for. The way we had been central role Philips plays in the city where it operating was not going to work in this new was born. environment. We had to completely change Although a 2001 relocation means that the organisation.” the main company board may now be located Although his department was a large one 65 miles to the north in Amsterdam, the in 1999, with offices in six countries, Peters financial centre of the Netherlands, the Philips believed that the limited responsibilities it heartbeat – its R&D function – remains had meant that the potential value IP could centred on its home town. And it is here, too, bring to Philips was not being realised. The that you will find Philips IP & Standards: in its problem, as Peters saw it, was that while his own newly constructed building in the middle group was responsible for the creation and of what is termed the High Tech Campus. management of IP rights, it had very little While the group’s new name is just six years input into the business decisions being old, the IP function at Philips is long- made around these rights. On top of this, established. The company obtained its first both domain name management and anti- patent in 1906 and a specific IP department counterfeiting strategy were being dealt with was established in 1924. By 1999, when outside the group, as were formal standards- Peters took the helm, Corporate Patents and setting issues; while the financial aspects of Trademarks had 250 employees. licensing agreements were the responsibility of the corporate accounting department. “To New era, new strategy create real value it was clear to me that we Peters is the first to admit that Philips has had to bring everything to do with IP at never been ignorant of the importance of IP Philips together under one roof. It was to its business plans – not just as a important that we stopped being reactive defensive tool, but also as a means of and started being proactive,” Peters says. generating cash. He points out that the Having convinced himself of all of this, company has been involved in lucrative Peters’ next job was to convince the licensing deals since the mid-1970s at least. company’s board of directors. He says that However, that does not mean that it was this was not too hard a task. “It was a making the most of what it owned. “The relatively simple job – it was a case of being world was changing and it was important for transparent and not promising too much. We us to look at developments and work out were not starting from scratch as Philips had Gerard Philips which ones were going to have a long-term a long history in both IP and licensing. The Founded the company that bears his name impact,” Peters explains. “What was clear board was familiar with that,” Peters says. in the Dutch town of Eindhoven in the late was that IP was going to have a growing role So, in 2000, Philips IP & Standards – or 19th century

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IP&S, as it is known inside the company - then, when it is completed, the group will was born and established as an independent break up.” But even in the quiet times, business unit within the Philips organisation. people do not return to a specific department within the group; everyone works Putting the vision into practice together. “They’re all in the same business, Since then, Peters’ task has been to make after all,” says Peters. IP&S as close as possible to what he And it’s that idea of IP as a business describes as “the IP trading house of that Peters returns to time and again. “IP Philips”. This means, he says, “generating IP knowledge is important, but it is not the be and packaging it for potential customers, so all and end all,” Peters explains. “We need helping our business units”. In order to do people here who have broad horizons and a this as effectively as possible, Peters large number of capabilities. In addition to explains, it is vital that members of the IP&S IP, they have to understand finance, team do not work in silos. “We look at IP business and business development.” IP&S rights in combinations, not in isolation. We exists, he continues, to provide IP solutions ensure that people with different to Philips’ business units and to support backgrounds work together on projects as their growth and competitiveness. “You this helps us find the best ways both of cannot see IP as a goal in itself. It is an protecting products and also of ensuring they intermediate step in creating value for the provide solutions for their markets.” company; it is something that creates a It’s an approach that makes sense, business opportunity.” given that the value underpinning all Philips To get the staff members that it needs, offerings will include a combination of IP&S has to do a lot of training because, as patents, trademarks, domain names, yet, Peters has not found a programme or copyrights and know-how. That same university course externally that provides intermingling of rights will be a feature of what he needs. “Yes, we put a lot of effort most M&As the company gets involved in, as into training. Our people need to be skilled in well as licensing deals, collaborations and IP, finance and business, and we find that joint ventures. “During a transaction, we can we have to broaden skill-sets when people have patent people working alongside join us,” Peters says. If IP&S staff members trademark and design people, as well as merely stick to what they already know, he transaction specialists, for weeks on end. explains, they are not going to be able to We do not have fixed groups: we allocate play much of a role. Take M&A deals, for Ruud Peters people according to need,” Peters explains. example. “It is not enough to know what CEO, Philips IP & Standards “If it is an M&A we could put different IP patents are involved,” Peters says. “You At the helm since 1999 counsel together with business people and have to know their value, whether they fit

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Working in partnership

with Philips’ business plans and the financial In recent years collaborative ventures machine serves up one or two fresh cups impact if they do not.” As a result, all senior based around developing specific products of coffee, using Sara Lee coffee pads that staff in the IP&S team have received with other leading brand owners have come in a number of flavours. The Senseo extensive training in areas such as become something of a Philips speciality. has proved hugely popular in the markets communication and accounting skills, and For instance, the company has worked where it has so far gone on sale: millions have attended courses run by members of with Nivea to develop the Cool Skin shaver, have been sold in the Benelux countries, the Philips finance group. a modified Philishave shaver designed to France and Germany. One action that Peters has taken which use replaceable Nivea For Men cartridges Each one of the deals involves Philips IP emphasises his vision of IP as a business that contain either shaving lotion or fresh & Standards from the very start, as a range asset, rather than just a straight legal issue, gel. The Philips and Swarovski “Active of crucial IP issues are discussed. “If we has been his decision to outsource much of Crystals” Alliance, meanwhile, involves work with another company, then IP is the filing that Philips does. While Corporate Philips working with the fashion and always going to be a major issue,” says Patents and Trademarks did most jewellery company to produce a range of Peters. “We have to ensure that we do not prosecution in-house, IP&S gives 70% to 80% luxury electronics products, including jewel- lose any valuable rights and that the of its work to private practice firms. “We have encrusted USB drives. products we create together are protected strict quality controls at our end, and still do But probably the most successful as fully as possible. Everybody in the some specialist drafting,” Peters explains. venture of this kind so far has been Philips’ company knows that every contact with “But if you look at our unique knowledge it is alliance with Sara Lee on the Senseo someone else and every potential deal that not really in drafting – most of this can be project. Here, a Philips-manufactured coffee affects IP has to come through us.” done just as well outside the company with firms we have strong relationships with and who understand our technology.” Where IP&S provides real value-added, Peters states, is in its knowledge of Philips’ various businesses. “We know the internal environment; we know the kind of support units need. This kind of work can only be done in-house,” he says. This does not mean, however, that the legal side is not important. “We need this expertise internally to help us in transactions, understanding the implications of judgments, dealing with antitrust issues and so on. But everything starts with working out how to use IP for the benefit of the company.”

Delivering results Of course, it is one thing to talk the talk; quite another to walk the walk. What makes the Philips IP operation stand out is not that its CEO has an exciting vision for the way IP should be used, but the fact that the vision is being delivered. “We are a business group and like any other business group we have our own profit and loss account, which we have to look after with the income we generate,” Peters explains, before adding that the one difference between IP&S and other units inside Philips is that it does not get to keep the profits it makes. Instead, these are redistributed among the business groups with which IP&S works on the money- generating projects. Strategy at IP&S is based around reviews – these involve looking at financial targets, cost expectations and people requirements for the following three years. The reviews take place in the late spring (May/June); then in early autumn (September/October) the annual operating plan is put together. This is based

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The Philips IP & Standards on discussions IP&S has with the three does not always mean money. There are management team principal Philips units and the R&D functions other ways that the strategic application of Left to right: Jan Bouten (Chief Financial within the company, and looks in greater IP rights can bring benefits. “If you use IP to Officer); Richard Buttrick (Senior Vice detail at year one of the strategic review. It is get access to a joint venture or license rights President IP Licensing); Matthieu van Kaam here that specific targets are established. to a spin-out in return for shares, then that (Chief Country Officer); Ruud Peters (CEO); “This is when we make our commitments,” is very favourable for the company.” Frans Vreeswijk (Vice President Peters says. Throughout the year there is Standardisation); Arian Duijvestijn (Senior Vice monthly reporting, quarterly forecasting and Vital roles in R&D and deal making President IP Counselling & Acquisition); Rene meetings to review the operating plan and Value can also be created by helping to make Klep (Senior Director Human Resources); and issues that may have arisen. the R&D process as efficient as possible. In Ingrid Baele (Director, CEO Office) In terms of his relationships outside a company such as Philips R&D is always IP&S and his reporting lines, Peters explains going to be a vital part of driving business that his formal contact point is the Philips forward and the figures bear this out. In CTO. However, he has functional reporting 2006, Philips’ R&D effort saw an investment lines with a number of people, including the of Euros 1.67 billion, which was spent in 80 CEO of each of the market sectors and the labs worldwide, employing 13,000 people. CFO and CEO of the main board. IP&S is in the front line of making sure that Peters is coy about giving precise target such sums do not go to waste. figures, saying it is not policy to do that, but “We meet and then deploy plans with all he confirms that the targets which are set the company’s labs,” Peters explains. “We for IP&S are met. “If they were not, I would look at what they should focus on and what not be sitting here,” he says. “If you agree they should be delivering.” This involves plans, then you have to accomplish what working with lab managers to use IP to they set out.” identify areas in which research efforts are Delivery is something on which Peters is best directed. “We look at how we want the absolutely clear. “If you say you are going to relevant portfolio to grow, develop the R&D do something, you have to do it,” he says. strategy that will enable us to build key So he ensures that there is a solid positions and then set targets,” Peters says. underpinning to what IP&S promises and Progress is monitored throughout the year. that any risks involved are well managed. “IP Traditionally the IP function at Philips had is a long-term strategic business, but if you merely reacted to what the labs came up talk to people in the company’s different with. However, the resulting portfolios of sectors, they mainly have a shorter-term rights did not always fit in with the focus,” he explains. “If you start with company’s strategic plans. It became exploiting IP and say: I will bring you XX apparent that a far more effective way of millions in the next two years; then you are operating was to define what was needed over-promising. It is much better to make and then work towards producing that. clear that it takes time to build a sustainable “If you want to achieve something with a IP strategy.” In any case, he continues, value portfolio, you have to know how to build it in

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the first place,” Peters says. “If we But it’s not just those deals where IP is determine what we want, we don’t end up the driver that sees IP&S involved from the with things that make it hard to generate start. “We do a lot of acquisitions and our value. This makes R&D much more job is to look at the company being targeted efficient.” As a result, IP&S produces highly to see how well its products are protected, detailed annual plans for each lab which set whether its IP position is secure in the out exactly what is expected. Managers are marketplace and whether we will benefit then assessed on their delivery. “If you from what it owns,” says Peters. To do this make reaching these targets part of the effectively, he explains, it is vital to know the requirement for the job, you drive the technology landscape, the threats that could system,” Peters says. create blockages in the future or would And the focus is not only on creating entail licences having to be taken – patents. With an eye to potential licensing something that could destroy profit margins. deals further down the line, it is also “It is important for us to be in there right essential to capture the know-how necessary from the start as this means we can avoid to work any new invention. “When you create taking corrective actions once a deal has technology, you create know-how. When we essentially been done,” Peters says. have created products in the past it was In the old days, Peters continues, the IP done thinking that they would only be used team would come in much later and would by Philips. Now that is no longer the case,” have to get involved in internal and external Peters says. negotiations to sort problems out as IP&S has a similarly central role in M&A everyone involved in the transaction had negotiations. While many company IP effectively signed off on it. “We need to departments continue to lobby to be in on avoid those kinds of situation and instead deal discussions in their earliest days, at seek to steer the deal making in line with Philips this is already a reality. Indeed, the IP policies that we have,” he says. several recent acquisitions have been driven by the IP owned by the target company. For example, in June 2007, Philips bought Color Kinetics, a leading supplier of solid state lighting and products for high-quality white light. As a result, says Peters, the company now has the strongest patent portfolio in the world in this area.

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Another benefit of having IP&S involved early, establishing options. Philips currently does Peters adds, is that it may see ways to get a between 20 and 30 in-licensing deals a year, better deal for Philips. “On some up from five to 10 a decade ago. However, transactions we have been able to use IP there are no specific targets. issues to extract a better price; while on other deals we have advised that they An embedded role should not go ahead and they have been And IP&S’s remit goes way beyond R&D and abandoned.” M&A. Instead, says Peters, “IP is embedded Related to acquisition is in-licensing, throughout the organisation”. Nothing which something that has become increasingly may have an impact on the portfolios Philips important over recent years. “There is so owns can happen without IP&S having a say. much creativity out there for us to make use One area where the company is of to improve our position and we are becoming much more active is in actively looking for IP that will help us do collaborations. It is something that has that,” Peters says. A unit inside IP&S is required IP&S to develop new ways of exclusively dedicated to landscaping with the dealing with IP rights. “In the old era we aim of identifying potential opportunities. would create all IP ourselves and use it to “Once we have identified the IP, we have to protect our businesses, but that model is develop a business case and work out the now changing. Instead, we are having to value proposition to pay for it based on what think a lot more about sharing,” Peters says. it will bring to the company,” Peters explains. If you look at the details surrounding most Although acquisition is always a possibility, collaborations, he continues, it turns out that sometimes a licence may be more about 80% to 90% of what is discussed favourable as it is cheaper and brings the revolves around IP. That’s why IP&S has to same freedom to operate or market- be there from the start. Gratifyingly, it is a

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Recent IP-related deals at Philips (selected)

message that Philips staff seem to Philips does in proving it. Of course, the 2006 understand. “Everyone is pretty well aware board would not sanction such investment if • Full acquisition of Lumileds. Its that if you work with someone outside the Peters and his team were not delivering. But semicon technology will be combined company it is an issue and you have to clear quite clearly, they are. The task now is to with Philips’ phosphor technology. it with us first. People appreciate we do not continue providing the same level of value, • Collaboration with Cozart to develop want to lose valuable IP rights,” Peters says. or even more. Peters believes that the next the next generation of saliva drug- In practical terms, this means working big challenge is to move beyond straight IP testing technology. with partners to establish who owns what in and embrace the potential that resides in • Establishment of Philips Life Science any joint project and how the IP that is intellectual asset management – capturing Facilities, a multi-disciplinary research created can be used. “There is no fixed way the value to be found in areas such as facility focused on molecular medicine; of doing these kinds of deal; instead you customer lists and supplier contracts. “I pre-clinical research to be undertaken have to work out what best fits the individual would like to integrate this much more into with partners from academia and circumstances of a collaboration and come what we are already doing and I want us to industry. up with something new,” Peters explains. For get much better at doing it,” he says. • Acquisition of personal emergency example, whether or not the company you As for himself, Peters says that even response services company Lifeline are working with is in the same sector will after 30 years at Philips he is still very System Inc. have a big bearing on what is decided; if it happy in his work. “I have a job I love,” he • Acquisition of U-L-M Photonics in the is, it will be more likely to understand your says. He also counts himself very lucky to field of lasers. business needs. On the other hand, deal be working in IP at a time when there is so • Acquisition of lighting company making with a company in, say, the much change. “It is challenging and exciting. Massive. pharmaceutical industry will involve a This job could not have existed 30 years different approach. “Then we are talking ago, so I have been very fortunate that my 2007 about two different ways of seeing IP rights,” career has coincided with this dynamic • Acquisition of TIR – a leading supplier Peters says. “They are very focused on environment.” of solid state lighting and products for exclusivity, whereas we are much more used And fortunate, too, that all those years high-quality white light. to an open approach. In such situations, it is ago the price of oil meant that his dream of a • Acquisition of Color Kinetics, a leading always a matter of finding the balance.” job in the Philips labs was over before it SSL luminaire player. Another growing challenge for IP&S is could begin to be realised. Given what Ruud • Silicon Hive spun-out from Philips as that presented by open source. Although Peters has achieved since he joined the an independent company. Philips a Philips uses both this and proprietary company in 1977, that decision to cut back joint investor along with New Venture software, Peters is worried about the hard on R&D jobs way back when turns out to Partners and TVM Capital. Silicon Hive line pursued by some open source have been one of the best that the Philips produces highly innovative organisations. “It is a pity and it may hamper board had ever made. Without it, it is unlikely programmable processor IP cores for open source’s growth,” he says. “If we are that its groundbreaking IP & Standards semiconductors and the consumer being told it is open source or nothing, then operation would be around today. electronics industry. that is an anti-IP message and we will not • Collaboration with the Chinese buy into it. I am sure a number of other Institute of Health Sciences in the field companies will feel the same. We want to of molecular medicine. maintain our strengths and we do not want • The High Risk Plaque initiative sees to be told what to do.” For the day-to-day Philips join forces with AstraZeneca business of ensuring open source software Merck & Co, BG Medicine and Humana does not cause Philips any problems, it is a to understand recognise and manage company rule that anyone wishing to use an high-risk plaque, a primary underlying open source product or agree a contract go cause of heart attacks. to IP&S before they start. “We screen everything,” Peters says emphatically.

Lucky breaks There are now 500 employees working in Philips IP Standards, based in 23 offices in 16 countries. This is despite Peters’ decision to outsource the vast majority of prosecution work. What gratifies him is that once people join IP&S they rarely seem to leave. “They are in high demand but they value the job they have with us,” he says. “They know it is an interesting one.” And so it is. Many companies talk about the importance of IP to their strategy, but few are willing to invest the resources that

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