7700++ DDVVDD’’ss FFOORR SSAALLEE && EEXXCCHHAANNGGEE www.traders-software.com www.forex-warez.com www.trading-software-collection.com www.tradestation-download-free.com Contacts [email protected] [email protected] Skype: andreybbrv Making Innovation Pay People Who Turn IP into Shareholder Value Edited by Bruce Berman John Wiley & Sons, Inc. Making Innovation Pay People Who Turn IP into Shareholder Value Making Innovation Pay People Who Turn IP into Shareholder Value Edited by Bruce Berman John Wiley & Sons, Inc. This book is printed on acid-free paper. ⅜ϱ Copyright © 2006 by Bruce Berman. All rights reserved. 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For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, from outside the United States at 317-572-3993, or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at http://www.wiley.com. Library of Congress Cataloging-in-Publication Data Making innovation pay : people who turn IP into shareholder value / edited by Bruce Berman. p. cm. Includes index. ISBN-13: 978-0-471-73337-9 (cloth : alk. paper) ISBN-10: 0-471-73337-7 (cloth : alk. paper) 1. Technological innovations —Economic aspects. 2. Patent licenses. I. Berman, Bruce M. HC79.T4M32 2006 658.4'063— dc22 2005031934 Printed in the United States of America 10987654321 For spirited inventors, investors, and strategists whose imagination and perseverance expand the horizon. About the Author Bruce Berman is president of Brody Berman Associates, Inc. in New York,a management consulting and communications firm that works closely with innovation-based businesses, investors, and assets.The firm’s areas of industry focus include information technology,science, law, and finance. Bruce conceived and edited From Ideas to Assets: Investing Wisely in Intellectual Property (John Wiley & Sons, 2002), a widely acclaimed exploration of the business of IP that has been translated into Japanese. He has implemented public relations, investor relations, marketing, and business development programs on behalf of more than 200 businesses, and has counseled many executives, investors, and attorneys. Bruce is a member of the editorial advisory boards of Intellectual Asset Management and Patent Strategy & Management. His column, IP Investor, appears regularly in London-based IAM. Articles, chapters, and reviews written by him have appeared in many periodicals and books, including The Book of Investing Rules (Financial Times, Prentice-Hall, 2003), which The Motley Fool called one of the ten most useful invest- ment books. He has been cited as a resource in many business, tech- nology,and IP publications. A previous book which he also edited and contributed to, Hidden Value:Profiting from the Intellectual Property Economy (Euromoney Institutional Investor), was published in London in 1999. vii viii about the author A frequent speaker, Bruce has guest lectured at Columbia University School of Business and either chaired conferences or moderated panels for The Wall Street Transcript IP conference on ROI, the Intellectual Property Owners’Association “patent trolls” conference in Washington, D.C., and the 2005 Center for Intellectual Property Studies conference in Gothenberg, Sweden. Bruce received his Master’s degree in film scholarship from Colum- bia University,where he taught for three years and also completed course and comprehensive requirements for his Ph.D. He received his Bach- elor of Arts degree with honors in English literature and journalism from The City College of New York. Bruce lives with his wife and daughter in Westchester County, NY. Contents Acknowledgments xiii Fore word by Kevin Rivette, author of Rembrandts in the Attic xv Introduction xix Chapter 1 Roadblocks or Building Blocks? 3 by Bruce Berman Worthy Opponents 5 Distinguishing Patent Trolls from Independent Asserters 7 High-Stakes Poker 9 A Double Standard for IP Assets 11 Tolls,Trolls, and U-Turns 14 Chapter 2 Turning a Patent Portfolio into a Profit Center 19 by Marshall Phelps Profile: Hail to the Chief IP Officer 19 ThinkPad®: The Licensing Story 23 A Virtuous Circle 26 Four Keys to an Effective Licensing Program 29 Innovative Uses for Innovation Rights 30 Chapter 3 Seeing through the Illusion of Exclusion 35 by Daniel P. McCurdy Profile: Purveyor of Quality 35 IP on the Radar Screen 39 Gaining Competitive Advantage 40 ix x contents IBM Leads the Way 41 Timing the License 43 Knowing What You Have 46 Masterpieces Hang in Museums, Not in Attics 48 Emerging Models 49 Chapter 4 On Patent Trolls and Other Myths 53 by Alexander Poltorak Profile: Knight in Shining Armor 53 A Patent Is a Negative Right 57 Myth #1: “A patent is needed to practice the invention.” 58 Myth #2: “It is not ‘nice’ to sue for patent infringement.” 59 Myth #3: “The value of a patent is the same as the value of the patented technology.” 60 Myth #4: “The patent system is fair.” 61 Do Patent Trolls Really Exist? 62 Myth #5: “A patent is a tax on innovation.” 64 Chapter 5 Roadblocks, Toll Roads, and Bridges: Using a Patent Portfolio Wisely 67 by Peter Detkin Profile: From Trolls to Tolls 67 Shareholders Expect a Return on IP 69 Not All Patents Are Created Equal 72 Deploying Unrelated or Orphan Patents 77 Who Are the Buyers? 79 A Seller’s Paradox 81 Chapter 6 Risky Business: Overlooking Patents as Financial Assets 85 by James E. Malackowski Profile:Wunderkind 85 contents xi Director and Officer Accountability 89 Patent Enforcement Litigation 89 Sarbanes-Oxley–Related Compliance 91 Shareholder Litigation 93 IP-Driven Shareholder Value 95 Performance Measurement 98 Director and Officer Responsibility 100 Looking Ahead 101 Chapter 7 Who Benefits from Patent Enforcement? 105 by Raymond P. Niro Profile: Little Guys Like Him 105 A Patent Is Worthless Without a Remedy 109 When Inventors Fail, Innovation Suffers 110 Inventors Must Consider Patent Enforcement 112 Patent Trolls and Harassment 114 The Role of Contingent-Fee Representation 115 Large Patentees Are Fighting Back 118 Breaking from the Pack 119 Dispelling the Troll Myth 119 The Danger of Not Enforcing 120 Leveling the Field 121 Chapter 8 Global IP in Crisis: The Threat to Shareholder Value 125 by Bruce A. Lehman Profile:All Along the Watchtower 125 The Leadership Vacuum 129 The Top U.S. Patentees Are Not U.S. Companies 130 The Dangers of Uncertainty 132 Viagra® in China 133 An Action Plan 135 Managements Need to Step Up 139 xii contents Chapter 9 It Takes More Than Being Right to Win a Patent Dispute 143 by Ronald J. Schutz Profile: Serious Competitor 143 Know Everything That Can Be Known 146 Juries Love a Good Story 147 Identifying Strong Patents 149 Good Guys and Bad Guys 150 Patent Disputes: Measuring Risk and Reward 152 Hedging the Risk 154 Chapter 10 Managing Innovation Assets as Business Assets 159 by Joe Beyers Profile: Master Scout 159 Legal vs. Business-Led IP Perspectives 163 Elements of a Business-Led IP Model 165 How Patent Trolls Affect Profits 169 The Nature of the Unfair Value That Patent Trolls Can Realize 170 What Operating Companies Can Do to Protect Themselves 173 Chapter 11 Secrets of the Trade: An Inventor Shares His Licensing Know-How 177 by Ronald A. Katz Profile:An American Original 177 The Business Model 182 Agreements and Fee Schedules 186 Ongoing Research and Notification Program 187 Litigation:Always a Last Resort 189 Defining Success 190 Index 191 Acknowledgments Incorporating the ideas of leading innovators into a single book is more difficult than it may appear. I am indebted to all those, named and not, who played a part in the preparation of Making Innovation Pay. Some were vital to the research, others with securing contributors and fleshing out my thinking, and still others with organization, con- tent, and design. Among those whose ideas and feedback helped pave the way for this book were Keith Bergelt,Wendy Chou,Mike Dunn, Harry Gwinnell, Bo Heiden,Tomas Kellner, Ron Laurie, Sam Mamudi, Marius Meland, Ulf Petrusson,Andrew Riddles, Robert Shepard, Herb Wamsley,David Wanetick, Joff Wild, and Jim Woods.