Chapter 10: Patent “Brands” Positioning IP for Shareholder Value Summary by Jonas Heller

Contents Overview Firm Value Depends on IP Value Firm Value Also Depends on Brand Management Why Establish an IP Brand? Ways of Branding IP Obstacles to Branding IP Conclusion

OVERVIEW While a few firms have worked to establish and maintain IP brand-awareness, most still do not believe that it is necessary to do so. Conveying the results of IP management to key audiences in a meaningful way is as important as successfully identifying and classifying IP o The failure to convey IP strengths can lead to firms running the risk of being misunderstood in the product market- place and on Wall Street, or, even worse, understood too late.

OVERVIEW IP branding is increasingly important

OVERVIEW Especially affected by a lack of communication concerning the value of IP are patentintensive companies that are overlooked because of their business-to-business focus The other group of companies whose market value may be negatively affected is, ironically, consumer brand companies. o Their strong focus on inexpensive consumer products tends to lead investors to believe that all of their innovation is in marketing. o Organizations like Philip Morris, General Foods, McDonald’s (which relies significantly on trade secrets), and Black & Decker are more IP-rich than their public image conveys..

OVERVIEW A systematic approach to conveying information about a firm’s patent strengths can itself be a source of value in the same way other firm intangibles create value. o If the firm does not include information about IP in its communications, it is leaving out an important aspect of the investment public’s information set o Example: Automakers displaying technology that is not yet available for mass production to offer a glimpse of the proprietary technology that each has to secure its future market position..

FIRM VALUE DEPENDS ON IP VALUE Procter & Gamble, Caterpillar, and L’Oreal SA—which are not normally thought of as technology leaders—spent significant R&D dollars in 2000 and were awarded more patents than 3M, Compaq, and Merck. o Misvaluation may occur because investors lack awareness of the importance of patents’ roles in establishing and protecting a brand and making it profitable. Successful consumer products are rarely the product of aggressive advertising alone.

FIRM VALUE DEPENDS ON IP VALUE The traditional role of brand in patent strategy is essentially separate and linear. Brand activity occurs near but apart from the deployment of IP rights, resulting in separate revenue-generating civilities.

FIRM VALUE DEPENDS ON IP VALUE Under a more enlightened or integrated view brand and IP rights are brought together for common activities, potentially yielding greater shareholder value.

FIRM VALUE DEPENDS ON IP VALUE Many firms that are not traditionally thought of as technology firms develop significant IP without reporting large R&D expenditures. These firms innovate through less formal means than traditional technology firms, but have recognized the importance of protecting their innovations. o Firms, including Coca-Cola, McDonald’s, and KFC frequently do not seek patent protection for many inventions, choosing to avoid the disclosure requirements of patent filing, maintaining their key processes as trade secrets.

FIRM VALUE ALSO DEPENDS ON BRAND MANAGEMENT – EXAMPLE Intel provides a convenient case study of how non- consumer product firms can develop a brand identity that increases patent asset value and shareholder value. In 1991, Intel planned to launch its brand image to the consumer market. Intel developed a logo and a slogan, “Intel Inside®,” and encouraged computer manufacturers to place small decals on their computer cases. The purpose was to let computer users know that the computer had an Intel microprocessor. Some industry observers thought Intel’s campaign was inappropriate because traditionally consumers were not major purchasers of microprocessors However, this is precisely the reason the Intel Inside campaign was successful: It reinforced the qualitative difference between their microprocessor and others for an audience which heretofore did not care. The brand awareness developed by the campaign helped discourage computer manufacturers from adopting competing microprocessors as the market for personal computers matured.

WHY ESTABLISH AN IP BRAND? In the best case, failure to communicate IP strengths and strategies results in an unnecessary delay between value generation and stock price appreciation. In the worst case, failure results in permanent stock market undervaluation.

WAYS OF BRANDING IP To access the concept of branding IP, firm managers must answer four deceptively simple questions: 1.Who are the members of the target audience and what do they want to know about the firm’s IP? 2.How should audiences quantify measures of the firm’s IP? 3.Which methods best communicate the brand message? 4.Which IP information can and cannot be disclosed? How this is solved is up to each firm to determine

OBSTACLES TO BRANDING IP The lack of IP branding potentially results from several obstacles: o The nature of IP itself o Internal issues to the firms that own IP o The environment outside these firms One of the biggest obstacles is that since IP is abstract and difficult to define, developing a brand image requires the right language and tools. Another potential obstacle to IP branding is the differing role IP plays in various industries

OBSTACLES TO BRANDING IP The most valuable result of owning a patent is the clear market space that it may create for the patentee. o Protection provides superior profits and the opportunity to provide technology leadership to an industry segment. If the current emphasis on developing and valuing IP is to continue, the non-litigated group of patents must be taken as seriously as the litigated group. o Narrow focus on the litigated value of IP discourages the sharing of IP through license agreements and stands as an obstacle to branding IP to increase the value of the firm.

CONCLUSION Given the success of branding consumer and industrial goods, branding key intangibles, such as patents, proprietary lists, content, names, and even trade secrets, is a logical next step. Firms that fail to identify and manage information associated with innovation and proprietary knowledge can expect to see a material decrease in their valuation and performance