Presentation - 2013 Annual Leadership Development Conference

4/9/2013
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Women’s Foodservice Forum
Executive Leadership Program April 2013
Intellectual Capital Management
James G. Conley
Clinical Professor
Kellogg Center for Research in Technology & Innovation
Kellogg School MEDS, McCormick ME, Northwestern University
Visiting Professor
Otto Beisheim School of Management, WHU, Vallendar, GERMANY
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• Team
• Mission
• Scholarship
• Leadership
• Partnership
• Organization
• KIN, Networks
• Students, Postdocs,
Fellows, Alums
• Partners
• Work Product
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WFF Executive track Afternoon Agenda (4/15/13 2:00-5:30 p.m.)
“a centimeter deep and a kilometer wide”
• Growing significance of intangibles
• Innovation as a source of Intangibles
• Innovation Strategy and Intellectual Property
• Value Transference and Value Articulation frameworks
• Case examples from recent research and practice.
•
•
•
•
•
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Dolby
Eagle Boys Pizza
Monsanto
Disney
AstraZeneca
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A Changing World…
Intangible and or intellectual
assets (IA) dominate portion of
overall market valuation.
Balance sheet silent about
native IA. Accounting
standards inadequately handle
IA valuation. Current reporting
practices do not support
transparency of resource
allocation…..
IA serve as aggregators of
value from investments in
innovation and knowledge.
Competitive advantage, growth
and wealth creation accrues to
those firms who proactively
manage these assets.
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TECH Market valuations shift to intangibles
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Who owns the intangibles?
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Escalating significance of intangibles….
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Leveraging the IP portion of Intangibles….
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July 1st, 2011
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July 29th, 2011
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Acquisition price a 63%
premium to market value…
“Although at first glance this
purchase seems very
expensive and so a negative
to Google, we believe
Motorola’s rich patent
portfolio of over 17,000
granted patents and
approximately 7,500 pending
patent applications makes it a
good strategic acquisition. [1]”
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February 1, 2012
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March 12th 2012
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March 22nd, 2012
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March 24th 2012
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April 9th, 2012
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April 23rd, 2012
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December 26th, 2012
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Slide 19
A rhetorical question…
what is innovation?
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Adopted from Sawhney et al Sloan Mgmt Review Spring 2006
Slide 21
Another classic question…
what is strategy?
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From Michael Porter’s
What is Strategy?
Harvard Business Review, 12/1996
“the essence of strategy is
choosing to perform activities
differently than rivals do…..a
company can out perform rivals
only if it can establish a difference
that it can preserve”
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How do firms preserve differentiation and
or sustain competitive advantage?
Defendable property rights in ideas, inventions and knowledge!!!
 The Intellectual Properties
 Functional ideas/Inventions
Patents
 Expression of ideas/Innovations
Copyrights
 Brand/Source of ideas/Innovations
Marks/Dress
 Confidential Information
Trade Secrets
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Multiple regimes of intellectual property protection … a portfolio
of intangible assets, rights and management options
RELATIONSHIPS AMONG TRADE SECRETS,
PATENTS, TRADENAMES, TRADEMARKS, AND COPYRIGHTS
Origin of Rights
Prerequisites to
Protection
Scope of
Protection
Life
Test for
Infringement
Trade Secret
Investment of
time and money
Recognition of
value and utility
Confidential
subject matter
Life of
confidentiality
Derivation
Utility Patent
Grant by Federal
Gov’t. on
application by
inventor
New, useful, and
non-obvious
subject matter
Manufacture, use
17 years from
or sale in U.S. of
date of grant or
claimed invention
20 years from
date of application
Design Patent
Grant by Federal
Gov’t. on
application by
inventor
New, original and
ornamental
subject matter
Useful process,
machine, article of
manufacture, or
composition of
matter
Ornamental
design for article
of manufacture
Copyright
Works of
Creation of “works Originalityauthorship
of authorship”
Registration and
Copyright Notice
required if publicly
distributed
Tradename
Trademark
Service Mark
Adoption & Use
Use to identify
and distinguish
business, goods
or services
Words, names,
symbols, or other
devices
14 years from
date of grant
Designs look alike
to eye of ordinary
observer
Copying
Variable-on the
order of 100 years
or longer; life of
author plus 70
years
As long as
property used
Likelihood of
confusion,
mistake or
deception
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Multiple regimes of intellectual property protection … a portfolio
of intangible assets, rights and management options
RELATIONSHIPS AMONG TRADE SECRETS,
PATENTS, TRADENAMES, TRADEMARKS, AND COPYRIGHTS
Trade Secret
Utility Patent
FUNCTION
FUNCTION
Design Patent
FORM
Copyright
EXPRESSION
Tradename
Trademark
Service Mark
SOURCE IDENTITY/BRAND
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Intellectual Property (IP)
Continuum of Protection
(maps to product life cycle)
Patents
17-20 years
Trade
Marks
Copyrights
Trade
Names
Indefinite
70-100 years
Life of Property Protection
High Functionality
No Functionality
Functionality
….a Framework for Innovation Life Cycle Management
See Conley & Szoboscan, Snow White Shows the Way in Managing Intellectual Property, June 2001
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Value Transference: The premeditated use of multiple
IP regimes across the product life cycle to achieve
sustainable differentiation !!!
See Conley & Szoboscan, Snow White Shows the Way in Managing Intellectual Property, June 2001
Dynamics of Value Transference
Time
!!The dreaded “Shark Fin” Curve!!
Value
Adopted from Keith Bockus, 2000
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Patent Value
Trademark Value
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IP Regimes Reconciled:
Mark, Dress
Brand
Copyright
Expression
Function
Patent, TS
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IP Atomic Model and the Unique Selling Proposition
Source of
Benefit
Brand
(Trademark)
Story about
Benefit
Expression
(Copyright)
Function
(Patent/Secret)
Technical
Benefit
Unique Selling Proposition
Rosser Reeves circa 1960
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A hypnotic sign
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Value Articulation:
A framework for leveraging Intellectual Property
Transference
IP Portfolio
Backbone
Brand
Expression
Function
Modify
Contract
Cooperate
Integrate
Extend
New/Emergent Markets
BLUE Oceans
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Upgrade
Expand
Advance
Existing Markets
RED oceans
W. C Kim and R. Mauborgne, Blue Ocean Strategy, HBR October 2004,
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The Value Articulation Framework
Expand in Existing Markets
Value Translation
Options to leverage IPRs to expand current market share and/or facilitate entry to new markets
Initial limited life patent or copyright
Value Transportation
Extend to New / Emergent Markets
time
Cases to validate insight…:
1. Small Entrepreneur w/ novel innovation in analogues sound recording,
no brand or marketing budget…
2. Tom Potter and Eagle Boys Pizza
3.
Ninety year old chemical company w/ strong brand position for
incumbent herbicide but cost based competition coming … need to
find higher margin market complements….
4.
Disney and Snow White
5.
AstraZeneca, Prilosec and Nexium (Time Permitting)
QUESTION: How do these innovators plan for sustaining
the differences and market advantages of their original
innovations?
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Slide 35
Empirical Case Studies: Dolby Laboratories
The Ray Story:
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Slide 38
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Empirical Case Studies: Dolby Laboratories
From:
Dolby Laboratories
400
Global
Patent
Appl. as to
Priority
Date
300
1968: Dolby
B Type for
Consumer
Market:
exclusive
License to
KLH
Patent
Appl.
Value
Transportation
1966: Dolby AType Noise
Reduction for
Professional
Studio
Recording
1977: Star Wars
breakthrough:
Dolby Stereo for
Prof. Film
Sound Market
1970 Dolby
move into
Film Sound
Market
1970:
&
DOLBY:
016 Paper goods
and printed matter
200
1966:
&&
DOLBY System:
009 Electrical +
scient. apparatus
100
1968: 1st B-Type
Patent US3631365
1965: A-Type Patent
1973: 2nd B-Type
Patent US3846719
1980: 1st C-Type Patent US4490691
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
20
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Slide 41
Dolby in Home Theater/DVD
Leveraged presence in cinema
Video/DVD
Products
– Dolby Surround ®
– Dolby Pro Logic ®
– Dolby Pro Logic II ®
DVD US standard
DVD world standard
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The Framework
Transference
Value Articulation:
Brand
Expression
Function
u
Contract
Cooperate
Integrate
Extend
Modify
Upgrade
Expand
Advance
Digital Theatre, DVD
broadcast HDTV,
Surround sound
A,B,C-type
Analogue sound
processing
Dolby’s business model shines..
Proprietor controls 94% of voting stock after the IPO!
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Dolby Laboratories
400
Global
Patent
Appl. as to
Priority
Date
300
1968: Dolby
B Type for
Consumer
Market:
exclusive
License to
KLH
Value
Translation
1966: Dolby AType Noise
Reduction for
Professional
Studio
Recording
Value
Transportation
Patent
Appl.
1992: Move
to Digital:
Batman
Returns: 1st
movie with
Dolby SR-D
(now: Dolby
Digital)
Prof. Film
Sound
1977: Star Wars
breakthrough:
Dolby Stereo for
Prof. Film
Sound Market
1970 Dolby
move into
Film Sound
Market
1999:
009
Electrical&
scient.
apparatus
1985: DOLBY SURROUND:
009 Electrical + scient. apparatus
922,713
719,503
1992:
009 Electrical +
scient. apparatus
1978:
009 Electrical + scient.
apparatus
482,028
1965: A-Type Patent
391,542
1995:
009 Electrical +
scient. apparatus
1973: 2nd B-Type
Patent US3846719
1970
1975
1980
1985
289,041
161,868
1980: 1st C-Type Patent US4490691
Nr. of Patents
120,000
featuring
40,000100,000
“Digital”
0
1965
2007:
Dolby
3D
Digital
Cinem
a
Prof.
Film
Soun
d
1997: Dolby
Digital
mandatory for
DVD
Prof.
Recording
Total Revenue in ‘000
USD
955,505
1966:
&&
DOLBY System:
009 Electrical +
scient. apparatus
1968: 1st B-Type
Patent US3631365
Total Revenue
in ‘000 USD
2000: Dolby
Headphones for
Consumer Market
D D
V V
D D
1970:
&
DOLBY:
016 Paper goods
and printed matter
200
100
1995: Dolby Digital: Move to Consumer “Home” Market
1982: Dolby
SurroundStereo for
Consumer
Market
1990
1995
2000
2005
Explicit
Licensing
Revenue:
2002 till 2011
2010
Proxies for success of Dolby’s IP Management
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The Value Articulation Framework and Dolby
Expand in Analogue NR Markets
Value Translation
1965: A‐Type Patent
Initial limited life patent on A‐type NR
1969
1999
1978
1995
Options to license IPRs to expand NR market share and/or facilitate Digital sound market entry
Value Transportation
Extend to Emergent Digital Markets
time
For more information on Dolby:
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Dolby case insights:

If initial innovation is “better” and priced in a compelling
manner, downstream customer can be used to build
upstream innovator’s brand ala ingredient branding.
Dolby’s marketing budget is minimal.

Pricing for innovative technology (A,B type NR) must be
balanced against long term gains realized from brand
building.

Technology behind ingredient brands like Dolby can evolve
with time because, in most cases, they do not conflict with
content providers or device manufacturers (customers).
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Eagle Boys Pizza, Australia
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Eagle Boys Pizza VT
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Eagle Boys Pizza VT
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Insight on the
Monsanto biotech
agribusiness story…
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Monsanto context 1995:
•
Ninety year old chemical company with historic experience in
herbicides, food ingredients and agricultural markets.
•
Herbicides important but only way to meet anticipated demand
from population growth is through improved crop yield.
•
Monsanto leadership senses opportunity in recombinant DNA
technology as applied to improved yield (performance) of
major crops…
•
They are not a crop seed company but rather a herbicide
company. Seed is an adjacent market……
•
They do have the technology to participate in the agribiotechnology revolution… combine ideas w/ Mary Chilton
Smith and other leading plant geneticists from academia.
 How does Monsanto transform itself to become the leader in
an adjacent seed market and benefit from the inevitable
demand growth in emerging economies?
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Slide 55
From 09/15/10 investor presentation
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Slide 56
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Simple VT: Searle and NutraSweet
The Genesis of Food additive ingredient packaging
From: U.S. Patent #3,475,403
To: U.S. TM Registration Number 1353525
TM Registration Date August 13, 1985
Robert Shapiro CEO of NutraSweet Company
Slide 57
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Agribusiness VT at Monsanto:
Robert Shapiro CEO and Chair
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Many Monsanto Patents, US and other jurisdictions
Glyphosate US Patent 4,405,356, Sept. ‘83
Genetically Engineered Crops
Roundup herbicide and Roundup Ready Seed
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From 9/05 investor presentation
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From 2/13 investor presentation
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From 9/05 investor presentation
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From 2/13 investor presentation
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From 2/13 investor presentation
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Slide 63
From 11/08/10 investor presentation
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From 2/09 investor presentation
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Slide 65
From 2/09 investor presentation
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Transference
Value Articulation at Monsanto
1995-2012
Brand
Expression
Function glyphosate patent 1980’s
Modify
Contract
Cooperate
Integrate
Extend
New/Emergent Markets
Seeds
Upgrade
Expand
Advance
Existing Markets
Herbicde
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Slide 67
Monsanto Stock price since 2001…
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Slide 68
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Monsanto case IP insights:
•
Branding an ingredient (NutraSweet) or economic
complement (Roundup) during the early stages of
market development builds unique brand equity that
sustains market advantages of innovation beyond
patent expiry.
•
Advertising patent protected functional uniqueness
through market messages transfers the value of patent
to the Brand and Marks.
•
Properly positioning the legacy brand in markets for
economic complements (seeds) extends the
advantages and goodwill of legacy brand to new
markets.
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Slide 69
Monsanto case observations:
•
Monsanto has transformed itself from the ninety year
old chemicals firm to the modern day innovator at the
heart of agribusiness. They are now a yield firm!
•
Original opportunity sensed and initially seized by
Shapiro was more or less on point.
•
Executing transformation took much more time than
expected due to both market and non-market factors..
•
While Shapiro sensed and initially seized, it took
others to execute the transformation.
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Today’s Agenda
“a centimeter deep and a kilometer wide”
• Growing significance of intangibles
• Innovation as a source of Intangibles
• Innovation Strategy and Intellectual Property
• Value Transference and Value Articulation
frameworks
• Case examples from recent research and practice.
• Global Taxation and IP (time permitting)
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Value Articulation at
An ongoing research activity of the
Kellogg Center for Research in Technology & Innovation
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Northwestern University
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Disney situation context 1990’s:
Entertainment company with multiple lines of business
including Creative animations, Theme Parks, Merchandising
Historic lines threatened by advances in technology and
competition.
Core corporate assets in animations approaching end of
copyright protection life terms…. These important sources
of Disney uniqueness must be leveraged… to sustain the
differentiation !!!
Merchandising business and associated licensing growing
segment with healthy profit margins… Disney Stores…
How to avoid the economic downside associated with
gradual release into public domain of core animation assets
????
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Trademarks & Coverage
IC003: Cosmetics & toiletries
IC009: Software, videos, CDs, films
IC014: Jewelry, clocks, watches
IC016: Party supplies, paper goods
IC018: Luggage, wallets, bags.
IC020: Picture frame
IC 021: House wares, utensils.
IC024: Bedding
IC025: Clothing.
IC028: Toys
IC029: Food, snacks
IC030: Food, candy, staples
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Not just Snow
White but All
the Disney
Princesses,
Characters
etc.
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Historic USPTO trademark activities with
Disney listed as owner (data from 2004)
Number of Disney Trademarks Filed per Decade, Through 7/04
(Last bar is estimate of entire filings for 2000-2009 decade)
2500
# of T rad em a rks File d
2,225
2000
1500
1020
1000
560
500
2
5
0
5
1920s
1930s
1940s
1950s
6
41
74
1960s
1970s
1980s
0
1990s
2000s
Decade
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Data calculated from www.uspto.gov TESS Server
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From Disney Presentation 3/2006 in Canada
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From Disney Presentation 3/2006 in Canada
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From Cakes.com April 2013:
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Beiersdorf using Disney
• Disney-Cartoons used on plasters
• Costs are in % of retail price
• Regional contracts defining
• which cartoon in which country
• at which cost
• Beiersdorf target is to develop
Global contracts
In some countries it is impossible for
Beiersdorf to work with Disney due to
exclusivity rights of other companies.
There it is necessary to create a
partnership with other companies
(see below).
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Northwestern University
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From Disney Presentation 3/2006 in Canada
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From Disney Presentation 3/2006 in Canada
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Disney Consumer Products 2009 sales of US$27B!!!
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From: www.disneyconsumerproducts.com/
Value Articulation at Disney
Transference
IP Portfolio
Backbone
Brand
Expression
Function
Contract
Cooperate
Integrate
Extend
New/Emergent Markets
BLUE OCEANS
Modify
Upgrade
Expand
Existing Markets
RED OCEANS
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The Value Articulation Framework and Disney (Winnie the Pooh)
Expand in Media/Entertainment Markets
Value Translation
Licensed in 1961 by Disney
Copyright on Milne’s Winnie the Pooh licensed in
Trademark, USPTO:
77983244, Reg. 2010
1926
Options to license character based IPRs to multiple Consumer Packaged Goods markets
Value Transportation
Extend to CPG/FMCG Markets
time
Disney Case insights, thoughts..
• Shift to Trademarks is deliberate and pre-meditated..
Copyrights are limited life rights and will expire…
• Breadth of product classes covered by trademarks exhaustive
• Use of Disney moniker and Disney characters for
merchandising or other purposes protected by extensive
Trademark portfolio sustaining the uniqueness and market
advantages of old characters… indefinitely!
• Disney’s Mickey, Cinderella, Snow White, Princesses et al will
NEVER BE FREE…
• To the benefit of Disney shareholders… a best practice in
media innovation asset security through Value Articulation
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Prilosec: The Purple Pill
A US$ 6 billion/year global blockbuster drug……
with patent expiration on the original compound set
for CY 2001
87
Prilosec… a blockbuster
• Inhibits Proton Pumps in the Stomach, treats
GERD, Ulcers, etc.
• First Drug in its Class
• 2000 global sales $6.2 billion, U.S. sales $4.62
billion (Oh joy!)
 >1/3 of AstraZeneca’s revenues
• Patent Expires in August 2001…….
• When generics are introduced sales plummet… the
dreaded shark fin curve….
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They call it the “Shark fin curve”….
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Prilosec, the Purple Pill!
and Nexium, Today’s Purple Pill !
90
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A differenct
segment…
CoBranding
with Nascar
and Jeff
Burton
91
Another
segmentation
opportunity…
Joanne & the
Bunco crowd
From WSJ page 1
January 30, 2007
92
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Targeting the busy woman who loves to socialize
93
Co-branding w/ Larry the Cable guy….
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Empirical Case Studies: AstraZeneca and “The Purple Pill“
2001: Design TM – 3 stripes
2001: Design
TM – 2 stripes
1990: TM “Prilosec”
1983: TM “Losec” filed
2000: TM “Nexium”
7
Average Sales
Top Decile
Blockbuster Drugs
6
2003: TM
“Prilosec OTC”
300
2000: TM
“purplepill.com”
Marketing Spending Media in USD Million
1989: Design TM (reg. 2004)
Global Sales in $US Billion
FDA Approval
4
3
2

Patent Expiry / Generic Entry
250
AZ PPI Category
Sales
5
200
150
FDA Approval of
generic OTC

100
FDA DTC Changes

1
0
FDA Approval
50

‐
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Year
Omeprazole: molecule patented in 1981
(USPTO: US4255431), FDA approval 1989-9-14
Esomeprazole: molecule patented in 1998
(USPTO US5714504), FDA approval 2001-2-20
FIGURE 3: The Value Articulation Framework and AZ
Expand in Prescription Drugs Rx Market
Value Translation
Esomeprazole:
molecule patented in
1998, FDA 2001
Initial limited life patent on omeprazole
Omeprazole: molecule
patented in 198, FDA 1989
1990: TM Prilosec®
1989: Design TM (reg. 2004)
2001: Design TM – 3 stripes
Options to license IPRs to expand Rx market share and/or facilitate OTC market entry
Value Transportation
Extend to Over-The-Counter Market
time
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WFF Executive track Afternoon Agenda (4/15/13 2:00-5:30 p.m.)
“a centimeter deep and a kilometer wide”
• Growing significance of intangibles
• Innovation as a source of Intangibles
• Innovation Strategy and Intellectual Property
• Value Transference and Value Articulation frameworks
• Case examples from recent research and practice.
•
•
•
•
•
Dolby
Eagle Boys Pizza
Monsanto
Disney
AstraZeneca
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Questions?
j-conleya@kellogg.northwestern.edu
www.jamesconley.org
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