Today, while attending the IP Business Congress in Chicago, I had the pleasure of meeting with Marshall Phelps and David Kline, authors of Burning the Ships. While I don’t read very many books, this one was strongly recommended to me. It is also only 186 pages long, so I figured I might be able to get through it without too much difficulty. I am actually very glad that I read it, and so much so that I made a point of getting it autographed by Phelps and Kline. There is much to be learned from this book, and what follows is my perspective of its more valuable aspects.
When I met Phelps, I asked him to identify for me the one thing that he felt was most important to glean from the book. His answer, echoed in his plenary session presentation today, was that intellectual property strategy should be determined by business strategy, and not the reverse. One size does not fit all. We have heard much about “aligning” IP strategy with business strategy, and his point is that differing business strategies demand differing IP strategies. This message from the book is exemplified by his own contrasting experiences leading the intellectual property efforts of IBM and Microsoft.
In the early 1990’s, IBM was on the verge of bankruptcy and desperately needing cash. Consequently, Phelps’ IP strategy was to generate cash, so he quickly built an organization that in 1993 obtained more U.S. patents than any company in the world (a title that IBM has held every year since then) and eventually generated $1.9 billion in 2000. However, since Microsoft had billions of dollars in the bank when Phelps joined them in 2003, cash was not the strategic need of the company. Instead, Microsoft needed to transform its relations with the rest of the industry, and IP was going to be the legal framework, or scaffolding, for building those relationships.
Phelps realized that Microsoft could not itself invent everything it needed to succeed in the future, despite its massive R&D budget. Technological collaboration with others outside Microsoft was going to be vital. More importantly, rather than viewing intellectual property in its traditional role as a “fence,” Phelps viewed intellectual property as a “bridge” to creating relationships with other companies, both at home and abroad. From my perspective, this was perhaps the most surprising and important message in this book. Viewing intellectual property as a bridge is an important paradigm shift that should not be overlooked.
There are also several sections of the book that are so instructive that they are worth quoting verbatim. For example,
If there are lessons in this book for executives in every industry, we hope the one most taken to heart by readers is the role that intellectual property can play in liberating previously untapped value in a company and opening up powerful new business opportunities. Intellectual property is not just for the technologist or lawyer anymore, nor even simply an asset of high-tech companies alone. Now accounting for up to 80 percent of the market value of all publicly traded companies in the world, IP ought rightfully to command the interest and attention of all serious business leaders today. It is, after all, the single greatest wealth-creating asset of the modern corporation.
In addition, the book reveals that Bill Gates is extremely engaged with the details of Microsoft’s patenting efforts. In his words, the intellectual property leadership at Microsoft really does start at the top,
Indeed, what other chairman or CEO conducts regular patent reviews with senior staff to discuss the firm’s IP assets and patenting efforts – and comes to such meetings armed with a fluent understanding of everything from the competitive landscape of patenting in the industry to key patent numbers and claim language? What other senior corporate leader takes such a hands-on role in the utilization of IP assets in financial and market strategy? And what other top executive meets regularly with a cross-disciplinary team of technologists, IP attorneys and business strategists to conduct “forward invention” sessions that try to anticipate the direction of innovation not just in the current or the next product cycle, but 10 years in the future?
The book challenges other companies by pointing out the “dirty little secret” of corporate governance today that “the overwhelming majority of CEO’s, chairmen, and corporate board members devote literally zero thought and effort to the management of their firm’s intellectual property assets.” He then asks, “Can you imagine the commanding general of an army not knowing how to deploy 80 percent of his military assets to achieve his objectives – not even knowing, in fact, what those assets are – and instead leaving that task solely to a staff officer? I daresay any such general would be relieved of his command.”
How does Microsoft “align” its IP strategy with its business strategy? The book further explains,
In every business unit, whenever there is a discussion of product or market strategy, there is a related IP discussion about what sort of IP is needed to enable that business to compete successfully, about how to allocate the resources to get the IP needed, and about what sort of IP landscape exists in which they will be competing – a map, essentially, of the IP challenges ahead. What patents are lurking out there among competitors that can cause problems? Does it make more sense to try to combine forces with a rival or to compete against it? What sort of licensing agreements, or patent cross-licensing agreements, or patent acquisitions, might be wise for the company to undertake?
The final chapter in the book looks to the future, arguing that while the last 75 years has witnessed marginalization of the iconic independent inventor, we need to remember history and be careful not to destroy innovation,
…what is indisputable is that the world’s first democratized patent system bequeathed to us by our Founders was the crucial engine that powered our industrial growth in the nineteenth century and made us the preeminent economic superpower that we are today. So effective was the U.S. patent system in spurring economic growth, in fact, that Europe and Japan reformed their own IP regimes along similar lines. The result is that today, the global intellectual property system has become the most effective spur to innovation and economic growth ever designed by man…. But let’s make sure we don’t eat our own seed corn in the process. Don’t cut back on innovation spending – the lifeblood of business growth and future national prosperity – and don’t take a hatchet to the intellectual property system when more modest surgical corrections would produce a far better result.
Furthermore, the book makes an important point by referencing to the following quote: “The quality of patents has suffered, many are neither novel nor useful. And the courts are overwhelmed by patent infringement and validity suits,” and then notes that it is not a recent quote, but from 1836. Apparently, according to the book, “whenever the United States has undergone a major industrial renaissance – such as occurred during the nineteenth century when first steam and then later the telegraph, telephone, and electric power industries emerged – the number of new patents have skyrocketed, as have concerns about a resulting decline in patent quality and an increase in patent litigation.”
With regard to other countries, the book notes,
Overall throughout the world, patenting produces an average increase in R&D investment of around 6 percent. And the trade in ideas made possible through international patent licensing is now growing at twice the rate of the trade in goods. Indeed, in every country studied – whether rich or poor – economists have found that it is not capital resources or infrastructure or education, but rather the strength of a country’s intellectual property system, that is the primary spur to technology development and economic growth.
Finally, the book concludes by predicting that as investors increasingly realize the centrality of intellectual property to corporate performance, “companies will inevitably begin to develop some form of IP reporting to accompany their traditional financial disclosures.” In that regard, the book suggested the following:
- A narrative summary that describes the company’s basic business model, plan and strategy, and then shows how IP contributes to the bottom line of the enterprise.
- What were the returns from IP-protected business segments?
- Does your IP portfolio help you secure or bolster your market share and profits, and if so, by how much?
- Does the company have in place a systematic process for managing and exploiting its IP assets?
- Is it leveraging its IP portfolio to develop partnerships and product- or market-development collaborations with other firms, and how are those contributing to overall performance?
- Does the IP of competitors pose a threat to any of the firm’s lines of business?
The phrase “burning the ships” referred originally to Cortez burning his ships at the shores of the New World, and it now signifies a decision that prevents others from turning back. In the book, it referred to the decision made by Microsoft to abandon its non-assertion-of-patents clause in favor of cross-licensing in order to create collaborative relationships. So, where are the ships we can burn to prevent us from turning back and abandoning our appreciation of our collective need for strong intellectual property protection? Please let me know if you find them.
Of course, I heartily recommend this book, and I would love to know your comments regarding the book and/or my thoughts expressed in this review.