Inside the Patent Factory: The Essential Reference for Effective and Efficient Management of Patent Creation

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Introduction

Introduction

If one were challenged to think about a factory, production site or plant, one would typically picture a physical entity with components and raw material being delivered in and finished goods being shipped out.

The concept of a factory may be based on the large cotton mills in England in the 1800s, Henry Ford and his innovation with mass production in the early 20th century or today’s mass customisation factories.

Inside this building, one can imagine production lines full of products, tools and test equipment. The building is busy with various activities taking place such as sorting, assembly, testing and packaging, with some of these activities being handled automatically while others are handled manually.

Now imagine walking into a large modern mass customisation factory where the material coming in one side of the factory consists not of physical components or raw materials but rather ideas, thoughts, inventions and solutions to problems, while patent applications or granted patents flow out the other side of the factory as the finished goods.

Asset value isn’t going to be found in machinery and equipment, warehouses or real estate - it’s going to be found in patent portfolios.

Eric Gillespie, Advancing innovations as assets in the global marketplace. FORTUNE Magazine Innovation Forum, 5 December, 2005

This analogy linking modern factories and patent production is useful for a number of reasons. It is clear that the importance of intangible assets is growing, often equalling or surpassing the value of physical assets for a company. The state of the intellectual property of a company determines its share and corresponding influence on the market. The size and quality of its portfolio has a direct impact on several factors, such as the reputation of the company, the level of returns on investments and the access to the market, amongst others.

The way a company is valued has also changed considerably. In the mid-1970s, approximately 80 % of the value of a company was made up of tangible assets, with the remaining 20 % being made up of intangible assets. Today this percentage is completely reversed, with intangible assets making up 80 % of the value of the company and only 20% being made up of tangible assets.

Intellectual capital is recognised as the most important asset of many of the world’s largest and most powerful companies; it is the foundation of the market dominance and continuing profitability of leading corporations.

Kelvin King, founding partner of Valuation Consulting

The volume of patent applications and granted patents has been increasing in recent years. As companies begin to realise the importance of intellectual property rights (IPR) in the modern business environment, it is unsurprising that this pattern has emerged. Indeed, companies are afraid that failure to evolve in correspondence with today’s business climate will result in their competitors dominating the market in future.

The World Intellectual Property Office (WIPO) Patent Report, 2007 Edition (available at http://www.wipo.int/ipstats/en/statistics/patents/patent_report_2007.html), shows that worldwide filings of patent applications have grown at an average annual rate of 4.7 %, with the highest growth rates experienced in North East Asian countries, particularly Korea and China. The report is based on 2005 figures and shows that patents granted worldwide have increased at an average annual rate of 3.6 % with some 600 000 patents granted in 2005 alone. By the end of 2005, approximately 5.6 million patents were in force worldwide.

The largest recipients of patent filings are the patent offices of Japan, the USA, China, Korea and the European Patent Office (EPO). These five offices account for 77 % of all patents filed in 2005 (a 2% increase over 2004) and represent 74% of all patents granted. With an increase of almost 33 % over 2004, the patent office of China became the third largest recipient of patent filings in 2005.

Use of the international patent system has increased markedly in recent years and although it remains highly concentrated, with 49 % of the estimated 5.6 million patents in force being owned by applicants from Japan and the USA, there is evidence of an increase in the use of the system by newly industrialising nations.

However, the patenting process is by no means simple and there are various steps or stages in the process. The patenting language and terminology is often not easily understood and can also be a relatively expensive exercise. The reason for such complexity, in particular in the application and granting stages, is to ensure that the patents that do get through are of the utmost quality and provide protection only to the extent necessary.

Therefore, in today’s highly competitive environment it is essential that we take a detailed look at how we go about producing these patents.

If one is concerned only with a few patents, one can probably stay with the individual handcrafted approach. However, as volumes increase it is better to compare and contrast how such patent creation activities are organised and structured to today’s mass customisation operations and logistics, in order to then create and manage a patent portfolio.

Leaders must encourage their organisations to dance to forms of music yet to be heard.

Warren G. Bennis

This book is about the successful management and leadership of a patent factory and considers the organisational structure and mode of operation required. This involves providing clear direction and meaningful vision to all parts of an organisation, and deploying and controlling resources, be they people, money, and physical or intangible assets. Drawing from my experience and insights, this book guides readers along the path, providing advice about how best to arrange the human resources available to optimise the effectiveness and efficiency of the organisation. It then looks at which tasks are best conducted internally as opposed to outsourcing and what sort of organisation structures and formats work best. Decisions then need to be made on the key processes and the necessary tools to put in place.

This book highlights the key issues for consideration, the options available, the decision-making process and the opportunities and challenges that exist at each stage of this journey towards setting up a successful patent factory. In order to embark upon this journey you must ensure that you have the passion, determination and persistence in order to create a successful organisation.

Throughout this book, I will refer to this factory as a Patent Creation Factory.

Why ‘Inside the Patent Factory’?

The title of the book ‘Inside the Patent Factory’ obviously comes from the analogy painted above.

The factory analogy stems from the idea that patent creation should not be seen as some simple legal process but rather that it should be seen as a core activity of ‘creating’ patents, just like a factory creating products.

The basic idea is that if you wish to create patents as effectively as possible, you should then see the process like a factory production line, in which the end result is the granted patent. You should treat patent creation in much the same way that you would handle product development and granted patents just as you would handle a finished product.

However, it is important to realise that just as with modern factories, not all the tasks and activities are handled internally by the factory’s own employees or even by the key suppliers and component vendors. Some tasks are outsourced to specialists.

Companies are now treating intellectual property as a business asset not very different from a product on a shelf.

Ken Cukier, The Patent Survey, The Economist, Oct 2005

In this book, I will look at a number of critical success factors for this patent factory, starting with the overall goals and objectives of the factory followed by the organisational structure and mode of operation. Cost and quality management, internal versus outsourced activities and the flow of raw materials into the factory are all vital elements to consider.

What questions does the book intend to answer?

I examine the key issues that any organisation interested in creating patents should consider and what options are available in terms of organisational structure and mode of operation. What are the factors to consider when making fundamental decisions about how to organise, structure and operate an organisation to create patents? I also look at some of the challenges that are likely to be faced along the way, such as deciding upon the correct metrics to use when managing and leading an organisation to create patents.

Who is the target audience for this book?

This book should be of use to anyone interested in IPR, more specifically those interested in how to organise and structure people and processes to ensure that the patent creation part operates effectively and efficiently. As I myself researched and drafted this book, I reached out to many people from different backgrounds and experiences and not just those linked directly to Patent Creation Factory type activities. I found surprisingly strong interest in this subject matter across a quite diverse group of individuals, including the following:

• company managers interested in IPR and patent creation;

• IPR professionals within companies;

• External Patent Agencies filing and prosecuting cases on behalf of a Patent Creation Factory;

• functional managers with links to patent creation such as Human Resources, Finance and Quality;

• those involved in corporate strategy and strategy development;

• research and development managers interested in the subject of IPR and patents;

• investors interested in the intangible assets of companies;

• merger and acquisitions experts interested in the intangible assets of companies;

• the inventor community;

• students of business management;

• students of law and especially of IPR and patents.

Readers will gain a sound and detailed understanding of the workings of a Patent Creation Factory and its immediate environment. I describe everything from the point of view of a layperson so that the often confusing intellectual property concepts begin to appear relatively clear. Quotations from reputable sources are used to emphasise the significance of the text and case studies are provided to highlight specific issues. Moreover, analogies are used where it is felt that readers may struggle on first glance to come to terms with certain aspects. Ultimately, you need look no further to find a clear, yet detailed, account concerning the ‘ins and outs’ of what I term the Patent Creation Factory.

Why have I written this book?

This book is based on my own experiences of managing and leading one such Patent Creation Factory and taking it through some dramatic organisational changes, including the removal of the matrix structure, a shift from site to technology focus, putting External Patent Agency management in place and conducting a major benchmarking exercise.

My primary responsibility has been in the management and leadership of a Patent Creation Factory.

I spent time and energy examining our organisational structure and mode of operation, reviewing various options and benchmarking our organisation against other companies and IPR organisations. I have also examined the interface to other parts of IPR, to the inventor community, to External Patent Agencies and to other parts of the company.

I very much wish to document what I have gained from these experiences and to share my learning and insight with those who may find it beneficial. I have also read many IPR books already published but believe that few, if any, concentrate on the organisational structure and mode of operation of the Patent Creation part of IPR.

Encouragement to write this book came from discussions with many IPR professionals and business and technology managers, because many are thinking about how to restructure or reorganise their IPR departments but do not know how. Therefore, there is a clear need for the book.

IPR is becoming more and more important to a company’s success and it is crucial that the patent creation part of IPR is well organised and has an efficient and effective mode of operation.

There are still some things to learn about how best to manage and lead a Patent Creation Factory and I will continue to learn and develop and no doubt make some mistakes along the way. I hope that the writing of this book marks a key milestone on my learning journey and that this book also helps readers as they progress along their own learning journey.

Patent creation explained

The word ‘creation’ is very meaningful in this context because the basic idea is to really ‘create’ patents, as opposed to just drafting legal documents and filing them to relevant patent offices. Patent creation should not be seen as a bureaucratic activity, concerned only with the formalities of the process, but as much more than this: it should be suitably elevated to the role of a ‘factory’ at the heart of a company’s IPR activities.

Patent creation is the activity within IPR that involves interfacing to the inventor community, gathering inventions, analysing them, making decisions and then filing and prosecuting cases. It can be seen as a virtual factory, producing quality patents at the end of the production line for others in IPR to utilise.

However, it is not an isolated factory disconnected from the rest of IPR and the company or the business environment, it is a factory well connected to those developing strategies. Actively linked to the inventor community, it takes pride in raising awareness of IPR throughout the company and continuously grows and develops its people, processes and tools. Furthermore, it does the basics well, such as harvesting inventions, reviewing those inventions and filing and prosecuting those considered of value, ultimately to obtain good quality granted patents.

The leader and manager of this Patent Creation Factory formulates a long-term strategy for the factory on the basis of the overall IPR strategy and the overall company strategy. This person then identifies competencies needed to achieve the strategic objectives and targets and ensures team and individual targets are in line with the strategic objectives of the factory. He or she actively monitors the source, volume and quality of the raw material (inventions) coming into the factory and participates in factory process and tool development, while managing the budget in a professional business manner. This process will ultimately ensure the quality of the patents produced within the factory.

Patent creation clearly involves an array of activities that you need to be aware of with the overall objective being to create good quality patents, hence the term ‘patent creation’.

Multiple regimes of intellectual property protection

It is most important to realise that multiple regimes of intellectual property protection exist. Although this book concentrates solely on patents and not on other elements of IPR such as trademarks, designs, domain names, copyright, etc., these other rights remain important and warrant some definition (see Table 1.1). It is also important to take a holistic view of IPR, and to realise that the premeditated use of multiple intellectual property regimes can help achieve sustainable differentiation.

These rights differ substantially in many ways, and the rules applicable are different. It is therefore not fitting for them to be discussed here as many other books are available on these other rights. However, what must be kept in mind is that patents are just one of the many rights that exist to protect intangible assets and thus IPR, more than ever before, is essential in today’s market economy.

If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you.

John Stuart, Chairman of Quaker (c. 1900)

Table 1.1 The multiple regimes of intellectual property rights

A somewhat unique factory

This chapter sets the scene of the book. If you wish to have patenting activities, you should consider how to create patents effectively and efficiently by forming a Patent Creation Factory.

However, although the analogy of a factory explains the patent creation process, one must appreciate the unique nature of patents and the inevitable exceptions that come with applying such an analogy. Some aspects of the factory analogy may not be so obvious to some readers, or may indeed even cause confusion, and so I clarify below a few aspects of the analogy.

• Patents can cover a wide range of topics and each patent is different, whereas a factory often produces the same product repeatedly. The goal of most factories is to increase production while lowering costs. However, a patent factory must foster innovation and quality should almost certainly be more important than quantity.

• Factories can be automated (the same inputs at one end produce the same outputs at the other), but with patents, if you take the same set of ideas, expertise and knowledge you do not necessarily get the same patents as output.

• The patent process must also tolerate ‘rejects’. Not every idea will become a valuable patent; some ideas may already have been patented, others may not be sufficiently original, etc. In contrast, factories are measured on their efficiency, with the aim of eliminating all waste (i.e., no faulty products) and by constantly testing and measuring the output from the production line.

Overall, the concept of a patent factory accurately portrays the need for an effective and efficient procedure in order to maximise a company or organisations gain when creating a patent or more importantly building a patent portfolio.

The structure of the book

The book begins by stressing the need for a strategic plan to help direct the long-term operation of the Patent Creation Factory. It then addresses some basic fundamentals that are key to the success of any such factory, namely understanding why patents can be of importance and of value to you, an appreciation of innovation and the need to harvest inventions, and the need to know the ins and outs of the actual patenting process. The book then moves to discussing in depth the key external interfaces such as the inventor community, senior management, the External Patent Agencies and so forth, as no factory can work in isolation. Various organisational models and modes of operation for the Patent Creation Factory are then examined with specific detailed information supplied on the management of the relationship with External Patent Agencies. This is followed by a number of chapters related to metrics, with special emphasis on quality and costs. Factory processes and tools are then discussed, before the book prompts the reader to look outside the factory, using benchmarking against others as well as examining major changes taking place in the patent world.

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Building a strategy

Introduction

This chapter invites you to consider your own patent needs and asks some key questions to prompt you to initiate or further develop your strategy relating to patent creation. I want to force you to think about your own needs, your current situation regarding intellectual property and what you want your patent portfolio to be like in the future. Key questions relating to strategy, objectives and aims are asked in order to help you to create and improve a patent creation strategy. The questions guide you through the subject and provide answers and examples along the way about the theory of strategy and how it is critical to intellectual property, and how to develop a strategy as well the key themes and issues involved. When dealing with intellectual property and patent creation management, it is critical to think strategically about this subject matter.

"2006 marks the