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Intellectual Property Management:

Internal Organization and External Exploitation

DISSERTATION

of the University of St. Gallen, School of Management,

Economics, Law, Social Sciences and International Affairs to obtain the title of

Doctor of Philosophy in Management

submitted by

Nicole Ziegler

from

Germany

Approved on the application of

Prof. Dr. Oliver Gassmann

and

Prof. Dr. Thomas Friedli

Dissertation no. 4125

Difo-Druck GmbH, Bamberg, 2013

The University of St. Gallen, School of Management, Economics, Law, Social

Sciences and International Affairs hereby consents to the printing of the present

dissertation, without hereby expressing any opinion on the views herein

expressed.

St. Gallen, October 29, 2012

The President:

Prof. Dr. Thomas Bieger

Acknowledgements

This dissertation is the result of my research at the Institute of Technology

Management at the University of St. Gallen and the Department of Technology

Management and Economics at the Chalmers University of Technology. I take

this opportunity to express my gratitude to all those who have accompanied and

supported me on my way to the completion of the present work.

First of all, I want to thank my supervisor Professor Oliver Gassmann. The

inspiring discussions, encouragements, and the freedom he provided me to

follow my individual research path have been a major pillar for the successful

completion of my dissertation. I am also thankful to Professor Thomas Friedli

for co-supervising my dissertation.

I would not have enjoyed my time at the ITEM-HSG as much as I did without

this great team of colleagues around me. The time we spent together in the

office or outside of it – I will always keep that in good memories. My gratitude

goes to all of you. Particularly, I want to thank Frauke Rüther for sharing

everything with me: office, ideas, critiques, friendship, and even pink

accessories.

I was allowed to conduct parts of my research at the Department of

Technology Management and Economics at the Chalmers University of

Technology, Gothenburg, Sweden. I am indebted to Professor Ove Granstrand

for inviting me and for inspiring discussions and valuable inputs for my

research. I would also like to thank Marcus Holgersson for his support, input,

and friendship. My thanks extend to the Swiss National Science Foundation for

the financial support of this research stay.

Finally, my deepest gratitude goes to my family. I thank my parents Lydia

Scherer-Ziegler and Michael Ziegler, my sister Sonja Rappe, my aunt Elke

Thomé, and my grandmother Helene Ziegler for their unconditional support and

belief in me. Most importantly, I am deeply grateful to my partner Marco

Zeschky for his love and support in every moment during my research and

during all our time together.

Gothenburg and St. Gallen, September 2012 Nicole Ziegler

Contents

Contents .............................................................................................................. V

Figures ........................................................................................................... VIII

Tables ................................................................................................................ IX

Abbreviations ..................................................................................................... X

Abstract ............................................................................................................ XI

Zusammenfassung .......................................................................................... XII

1 Introduction ................................................................................................... 1

1.1 Motivation .............................................................................................. 1

1.2 Managing intellectual property ............................................................... 4

1.3 IP management in the context of open innovation ................................. 8

1.4 External patent exploitation .................................................................. 11

1.5 Research questions and structure of the thesis ...................................... 15

1.5.1 Purpose of the thesis and research questions .................................. 15

1.5.2 Thesis structure ............................................................................... 18

2 Getting the most out of your IP –

patent management along its life cycle ..................................................... 21

2.1 Introduction .......................................................................................... 22

2.2 The patent life cycle management model ............................................. 24

2.2.1 Explore ........................................................................................... 24

2.2.2 Generate .......................................................................................... 25

2.2.3 Protect ............................................................................................. 26

2.2.4 Optimize ......................................................................................... 26

2.2.5 Decline ............................................................................................ 27

2.3 Concluding remarks .............................................................................. 28

3 The role of IT for managing intellectual property–

an empirical analysis .................................................................................. 31

3.1 Introduction .......................................................................................... 32

3.2 IT tools for IP management - State of the art ....................................... 32

3.3 Research methodology .......................................................................... 35

VI

3.3.1 Research framework ....................................................................... 35

3.3.2 Method and data ............................................................................. 37

3.4 Results and case findings ...................................................................... 38

3.4.1 General results ................................................................................ 39

3.4.2 Use of IT tools along the IP value chain ......................................... 40

3.4.3 User friendliness of IT tools for IP management ............................ 44

3.5 Discussion ............................................................................................. 45

3.5.1 IT tool use along the IP value chain adopting an

organizational information processing perspective ........................ 45

3.5.2 Firms’ satisfaction and requirements of IT tools for IP

management .................................................................................... 48

3.6 Conclusion and future research potential .............................................. 49

4 Creating value through external intellectual property

commercialization – a desorptive capacity view ...................................... 53

4.1 Introduction .......................................................................................... 54

4.2 External exploitation of patents and its role in the

pharmaceutical and chemical industry .................................................. 56

4.2.1 External patent exploitation ............................................................ 56

4.2.2 The case of the pharmaceutical and chemical industry .................. 57

4.3 Research framework ............................................................................. 58

4.3.1 Internal variables ............................................................................ 60

4.3.2 External variables ........................................................................... 61

4.4 Research methodology .......................................................................... 63

4.5 Findings and discussion ........................................................................ 66

4.5.1 Internal factors influencing the firms’ external

patent exploitation .......................................................................... 66

4.5.2 External factors influencing the firms’ external

patent exploitation .......................................................................... 70

4.5.3 Internal-external factor: locus of initiative ..................................... 73

4.6 Three archetypes of external patent exploitation .................................. 74

4.6.1 Ad hoc mode ................................................................................... 75

4.6.2 Hybrid mode ................................................................................... 75

4.6.3 Leverage mode ............................................................................... 76

4.7 Conclusion ............................................................................................ 79

VII

5 Open IP strategies: Why do firms give away their patents for free? ..... 81

5.1 IP management in the open innovation paradigm ................................ 82

5.2 Theoretical background ........................................................................ 83

5.2.1 Motives for open IP strategies: evidence from the open

source software phenomenon ......................................................... 83

5.2.2 Patent donation ............................................................................... 86

5.3 Methods ................................................................................................ 87

5.4 Creating value through patent release ................................................... 87

5.4.1 Type 1: Profit maker ....................................................................... 88

5.4.2 Type 2: Cost cutter ......................................................................... 89

5.4.3 Type 3: Innovation catalyst ............................................................ 91

5.4.4 Type 4: Technology provider ......................................................... 92

5.5 Non-commercial patent pools ............................................................... 95

5.5.1 Eco-Patent Commons ..................................................................... 96

5.5.2 Golden Rice project ........................................................................ 96

5.5.3 Medicines Patent Pool .................................................................... 97

5.5.4 WIPO Re:Search initiative ............................................................. 98

5.6 Discussion and conclusion .................................................................... 98

References ........................................................................................................ 101

Curriculum Vitae ............................................................................................ 116

Figures

Figure 1: Development of worldwide patent applications 1985-2010 .................. 3

Figure 2: Overview of the thesis structure .......................................................... 20

Figure 3: The patent life cycle management model ............................................ 28

Figure 4: The use of IT tools along the IP value chain ....................................... 40

Figure 5: IT tools used by the surveyed firms .................................................... 42

Figure 6: The use of IT tools for valuation and evaluation activities ................. 43

Figure 7: Satisfaction of firms with their IT tools for IP management ............... 45

Figure 8: Research framework ............................................................................ 61

Figure 9: A typology of different patent release activities and motives ............. 95

Tables

Table 1: Literature overview on IP strategy and management ............................. 5

Table 2: Literature overview on IP in open innovation ...................................... 10

Table 3: Literature overview on external patent exploitation ............................. 13

Table 4: Overview of the research questions and paper summaries ................... 17

Table 5: Overview of the investigated firms ....................................................... 23

Table 6: Overview of the case study firms ......................................................... 38

Table 7: Overview of the investigated firms ....................................................... 65

Table 8: Three archetypes of external patent exploitation .................................. 77

Table 9: Examples for the type profit maker ...................................................... 89

Table 10: Examples for the type cost cutter ....................................................... 90

Table 11: Examples for the type innovation catalyst .......................................... 92

Table 12: Examples for the type technology provider ........................................ 94

Abbreviations

e.g. exempli gratia, for example

EPO European Patent Office

EU European Union

et al. et alii, and others

etc. et cetera, and so on

i.e. id est, that is

IP Intellectual Property

IPC International Patent Classification

IT Information Technology

M&A Mergers and Acquisitions

n/a not available

PCT Patent Cooperation Treaty

R&D Research and Development

ROI Return on Investment

SME Small and Medium-sized Enterprise

TRIPS Trade-Related Intellectual Property Rights agreement

UK United Kingdom

USA United States of America

USD US Dollar

WHO World Health Organization

WIPO World Intellectual Property Organization

WTO World Trade Organization

Abstract

The increasing predominance of intangible assets such as intellectual property

(IP) has moved the management of IP from a legal matter to a strategic issue.

Today’s global competitive environment requires that firms increasingly create

and capture value from IP. Although these challenges have recently been the

subject of a burgeoning amount of research, there is still a severe scarcity of

practical evidence showing how firms overcome these challenges. Therefore,

this thesis empirically investigates how firms manage and leverage their IP to

improve the effectiveness of their IP management. To this end, this thesis

explores firms’ approaches to internal IP organization as well as external IP

exploitation, i.e., out-licensing and selling of patents.

This thesis is a compilation of an introductory chapter and four individual,

self-standing research articles. While the introductory chapter outlines in detail

the motivation of the thesis and provides an overview of the current state of the

art in literature, the subsequent four articles investigate distinct research

questions pertaining to the management of IP. The first two articles investigate

firms’ internal management of IP. Article one explores how firms manage and

optimize their patent portfolios along the life cycle of a patent. Article two deals

with how firms employ information technology (IT) tools to support and

improve their IP management. Then, articles three and four address the external

exploitation of IP. Article three investigates how firms approach external patent

exploitation and which factors influence the specific approaches. Finally, article

four explores a recent phenomenon where firms give away their patents free of

charge and discusses why and for which benefits they do so.

By investigating the above questions in the respective research articles, this

thesis augments existing research on the management of IP. In particular, the

thesis explores hitherto unanswered questions and contributes with empirical

findings to an otherwise empirically scarce research area. Furthermore, this

thesis contributes to management practice by providing practical

recommendations for how to improve the management and exploitation of

intellectual property.

Zusammenfassung

Die wachsende Dominanz immaterieller Güter wie geistigem Eigentum -

englisch: Intellectual Property (IP) - hat das Management von IP von einer rein

rechtlichen Angelegenheit zu einem Bereich mit hoher strategischer Bedeutung

gemacht. Im heutigen globalen Wettbewerbsumfeld sehen sich Firmen

zunehmend der Herausforderung gegenüber, sowohl IP zu kreieren als auch

Wert daraus zu schöpfen. Obwohl diese Herausforderungen zuletzt Gegenstand

zunehmender Forschung war, fehlt es bislang an empirischen Daten die zeigen,

wie Firmen diese Herausforderungen angehen und bewältigen. Die vorliegende

Dissertation untersucht daher empirisch, wie Firmen ihr IP intern managen

sowie extern nutzen und verwerten, z.B. durch Auslizenzierung und Verkauf,

um die Effektivität ihres IP Managements zu steigern.

Die vorliegende Dissertation besteht aus einem Einleitungskapitel und vier

individuellen Forschungsartikeln. Während das Einleitungskapitel die

Motivation der Arbeit im Detail darlegt sowie einen Überblick über die aktuelle

Literatur gibt, untersuchen die nachfolgenden vier Artikel spezifische

Forschungsfragen zum Thema IP Management. Die ersten beiden Artikel

behandeln das interne IP Management von Firmen. Der erste Artikel untersucht,

wie Firmen ihre Patentportfolien entlang des Patentlebenszyklus managen und

optimieren. Der zweite Artikel betrachtet, wie Firmen Informationstechnologie

(IT) Tools zur Unterstützung ihres IP Managements einsetzen. Anschliessend

adressieren die Artikel drei und vier die externe Verwertung von IP. Der dritte

Artikel untersucht, wie Firmen externe Patentverwertung managen und welche

Faktoren dabei von Einfluss sind. Zuletzt erforscht der vierte Artikel ein neues

Phänomen, bei dem Firmen ihre Patente Dritten frei zur Verfügung stellen und

diskutiert die Gründe und Vorteile dieser Vorgehensweise.

Durch die Untersuchung der obigen Forschungsfragen ergänzt und erweitert

die Dissertation bestehende Literatur zum Thema IP Management. Insbesondere

analysiert die Dissertation bislang unbeantwortete Fragen und trägt mit

empirischen Ergebnissen zum Fortschritt der Forschung über IP Management

bei. Ausserdem liefert die Arbeit einen Beitrag für die Praxis durch

Managementempfehlungen für die Verbesserung des IP Managements und der

IP Verwertung.

1 Introduction

1.1 Motivation

In today’s knowledge society where the dependence on physical assets is

increasingly replaced by intangible assets such as intellectual property (IP)

rights, the management of IP has moved from a mere legal matter to a strategic

agenda (Granstrand, 2000; Smith & Hansen, 2002). As a result, the role of IP

has increasingly been the subject of discussion in research and practice. Creating

knowledge and capturing this knowledge in IP rights such as patents,

trademarks, and industrial designs are key competitive components for firms

(Carlaw et al., 2006; Hall, 1992). In many successful firms, IP and especially

patents serve as powerful instruments of corporate strategy to protect innovation

and to strengthen the firm's technological leadership (Grindley & Teece, 1997;

Sullivan, 2001). The growing number of patent applications over the last

decades, sometimes called the ‘pro patent era’ (Granstrand, 2000), reflect this

development. Since 1985, the worldwide annual patent filings have more than

doubled reaching nearly 2 million in 2010 (see figure 1). A similar trend can be

observed with trademarks and industrial designs (WIPO, 2011a). Countries

leading in terms of patent applications in 2010 are the USA with 490’226 patent

applications, followed by China and Japan with 391’177 and 344’598

respectively. At the European Patent Office, 150’961 patents were filed in 2010.

In addition to the increasing number of IP rights, and apart from their

intellectual value, the financial value of IP has also tremendously increased: in

2006, for example, Research-in-Motion, the developer of the BlackBerry

smartphone, was forced to pay USD 612.5 million to NTP, a firm focusing on

the acquisition and deployment of patent rights, due to technology infringing

NTP’s patent portfolio. More recently in January 2011, in the litigation case

between Intel and Nvidia (a computer graphics specialist), Intel paid the record

sum of USD 1.5 billion to Nvidia for a license of Nvidia’s entire technology

portfolio.

The intention of an IP right system and the patent system more specifically is

to incentivize the generation and diffusion of inventions by enabling inventors to

2 1 Introduction

exclude others from using their invention and thus creating a temporary

monopoly (Holgersson, 2011). This allows inventors to appropriate returns from

their innovation (Levin et al., 1987; Teece, 1986). The way how firms

appropriate these returns depends on how they use their patents. Regarding the

use of patents, scholars differentiate between internal and external exploitation.

Internal exploitation refers to using patents to protect own products and

processes and constitutes the traditional way of using patents. However, due to

increasing cost pressure, significant changes in the competitive environment,

e.g., globalized markets and high dynamics in technology development (Bianchi

et al., 2011a), firms are increasingly challenged to find ways to keep pace with

the environmental changes and increase their overall IP management

effectiveness (Arora et al., 2001; Granstrand, 2004). Within this context, firms

have started to commercialize their patents externally and out-license and sell

patented technologies (Lichtenthaler & Ernst, 2007). Pioneering firms adopting

this approach quite successfully are, for example, IBM and Dow which today

generate large amounts of money through externally exploiting their patents

(Davis, 2004; Rivette & Kline, 2000). This trend is impressively underlined by

the development of revenues from technology licensing over the last decades:

From 1980 to 2003, the technology licensing payments and receipts have

increased on average by 10.7% per year (Granstrand, 2004). Moreover, the

value of technology transactions has grown from about USD 40 billion in the

late 1990s to an estimated USD 100 billion in the early 2000s (Arora &

Gambardella, 2010). While the sole use of patents as protection instruments is

seen as a classical trait of closed innovation systems, the external

commercialization of patents can be regarded as a phenomenon within the trend

towards open innovation (Chesbrough, 2003b). Due to the changing competitive

environment and a growing mobility of highly skilled people (Chesbrough,

2003a), closed innovation approaches become less viable and limit interactions

with the firms’ environment (Teece, 1998). As a consequence, many firms have

recognized the potential of opening up their innovation processes and

increasingly consider their patents as tradable assets to be commercialized

outside of their firm boundaries (Gassmann, 2006; Gassmann et al., 2010).

1 Introduction 3

Overall, the growing focus on IP, its role for a firm’s success, and the need

for a progressively efficient IP management, present an increasing challenge for

firms and currently leaves research with many unanswered questions. The

understanding of the ways how firms tackle the changes of their competitive

environment, adapt to the growing importance of their IP, and manage their IP

successfully represents an important gap in current literature. Hence, the purpose

of this thesis is to contribute to the field of IP management by exploring firms’

approaches towards effectively managing and leveraging their intellectual

property.

This introductory chapter is structured as follows. The subsequent sections

1.2 to 1.4 present an overview of the theoretical background of the thesis by

outlining relevant literature regarding IP management in general, IP

management in the context of open innovation, and external patent exploitation.

Section 1.5 describes the research questions addressed in the individual articles

of this cumulative dissertation thesis and provides an overview of the thesis

structure.

Figure 1: Development of worldwide patent applications 1985-2010 (source: statistics from WIPO1)

1 http://www.wipo.int/ipstats/en/statistics/patents/

0

200'000

400'000

600'000

800'000

1'000'000

1'200'000

1'400'000

1'600'000

1'800'000

2'000'000

1985 1990 1995 2000 2005 2010

Nu

mb

er

of

pa

ten

t a

pp

lica

tio

ns

Year

4 1 Introduction

1.2 Managing intellectual property

The growing importance of intangible assets has made intellectual property

management increasingly important for firms and therefore an important topic

for research. Intellectual property management is commonly understood as the

management of a firm’s IP rights consisting of patents, trademarks, industrial

designs, and copyrights. Among all these IP rights, patents are considered to be

the most tangible form enjoying the strongest legal protection and generating the

most significant effect on a firm’s commercial performance (Lerner, 1994;

Rivette & Kline, 2000). Various studies have analyzed the patent management

and related patenting behavior of firms considering geographical regions (Cohen

et al., 2000; Duguet & Kabla, 1998; Granstrand, 1999; Granstrand &

Holgersson, 2012), firm size (Audretsch, 2002; Blind et al., 2006; Greenhalgh et

al., 2001), industry sectors (Arora, 1997; Cohen et al., 2000; Hall & Ziedonis,

2001; Levin et al., 1987; Thumm, 2001), and the positive impact of patent

strategy on firm performance (Ernst, 1995; Ernst, 2001; Lerner, 1994). Also the

motives for patenting have been comprehensively analyzed. The major motive

for filing a patent is to protect innovation from being imitated (Cohen et al.,

2000; Giuri et al., 2007; Hall & Ziedonis, 2001). Besides this traditional motive,

strategic motives such as blocking competitors, generating freedom to operate,

preventing law suits, and improving negotiation positions by using patents as

bargaining chips are becoming increasingly important (Blind et al., 2006;

Duguet & Kabla, 1998; Thumm, 2001)

To successfully appropriate returns through managing IP, scholars emphasize

the importance of aligning IP strategy to business strategy (Granstrand, 2000;

Reitzig, 2004; Smith & Hansen, 2002). In his recent review of the current state

of the art regarding patent strategy and management, Somaya (2012) categorizes

patent strategies into proprietary (e.g., protection), defensive (e.g., blocking),

and leveraging (e.g., licensing) approaches impacting the firms’ IP management.

Similarly, Davis and Harrison (2001) claim that the firms’ IP management

should be implemented according to the value which is aimed to be generated.

They develop a ‘value hierarchy’ of IP management ranging from a defensive

level, where IP is mainly used to prevent third parties from using own assets, up

1 Introduction 5

Table 1: Literature overview on IP strategy and management

Author(s)

(Year)

Title Methods Key findings

Somaya

(2012)

Patent strategy and management: an integrative review and research agenda

Conceptual paper based on literature review

• Framework of generic patent strategies and strategic patent management • Three generic patent strategies: proprietary, defensive, and leveraging strategy • Patent management is closely linked to a firms’ overall value creation strategy

Lynskey

(2009)

Aligning strategy and intellectual property to maximize business value: a proposal for new technology-based firms

Conceptual paper based on literature

• Framework of an integrated IP value chain • IP strategy should be considered as active part of corporate strategy

Carlsson et

al. (2008)

Intellectual property management: organizational processes and structures, and the role of IP donations

Interviews with 15 technology-based firms in the US Online survey

• Three organizational archetypes of IP management: centralized, decentralized, comprise structure

Daizadeh

(2007) Intellectual property management in R&D intensive firms

Qualitative survey with 58 firms Six interviews

• Managing patent information increases efficiency of converting R&D into commercial technologies • Development of an IP-specialized coordination device to optimize transaction costs

Blind et al.

(2006)

Motives to patent: empirical evidence from Germany

Quantitative survey data from 522 German firms of all sizes

• Large firms have stronger incentives to patent (negotiation position, incentive for R&D personnel, performance indicator) • Patents often have a strategic reason

Reitzig

(2004) Strategic management of intellectual property

Interviews with senior IP representatives Secondary sources: publications, IP databases

• The increasing corporate value of IP requires to take a strategic approach towards IP management • Identification of fundamental strategic aspects of IP management in internal and external firm contexts

6 1 Introduction

Smith,

Hansen

(2002)

Managing intellectual property: a strategic point of view


• Strategic IP management involves managing IP in line with business strategy rather than simply having an IP strategy • IP is strategic if it links to the firms’ core capabilities

Davis,

Harrison

(2001)

Edison in the board-room: how leading companies realize value from their intellectual assets

Best practice case studies

• Comprehensive IP management framework • IP value hierarchy for a diversified IP management

Ernst

(2001) Patent applications and subsequent changes of performance: evidence from time-series cross-section analyses on firm level

Time-series data from 50 German mechanical engineering firms between 1984 and 1992

• National patent applications lead to sales increases with a time lag of 2 to 3 years • European patent applications have an even higher impact on firm performance than national patent applications

Hall,

Ziedonis

(2001)

The patent paradox revisited: an empirical study of patenting in the U.S. semiconductor industry, 1979-1995

Interviews with seven semiconductor firms Econometric data from 95 semiconductor firms

• Patents have an increasing value as bargaining chips • Blocking competitors and preventing suits are the second and third most important motivation to patent after preventing from imitation • Patents are important in attracting venture capital funds

Thumm

(2001)

Management of intellectual property rights in European biotechnology firms

Questionnaire survey with 103 biotech firms 22 interviews

• Patents are an important incentive for R&D investments in biotech firms in Europe • The firms’ use of patents exceeds the original intention of protection, strategic patenting becomes increasingly important

Granstrand

(2000)

The economics and management of intellectual property

Diverse surveys and case studies mainly in Sweden, Japan, and the US

• General and comprehensive framework regarding IP strategy and management • Patenting specifications of Swedish and Japanese firms

Ernst

(1995) Patenting strategies in the German mechanical engineering industry and their relationship to company performance

Quantitative survey from 50 German mechanical engineering firms

• Identification of four types of patenting strategies • Patent active firms reach higher economic performance • The number of international patent applications, the rate of valid and highly cited patents positively impacts firm performance

1 Introduction 7

to a visionary level applying a proactive IP management and anticipating future

trends to which the IP strategy is adopted (Davis & Harrison, 2001).

Furthermore, the organization in terms of IP functions within firms is a

central aspect of IP management. Literature distinguishes between four major

types of IP organizations: a centralized organization with a corporate IP

department; a decentralized organization where IP functions are integrated into

the business units; an organization where the IP function is managed in an

independent business unit such as an IP holding; and an externalized

organization where IP management is basically accomplished through external

services such as patent attorneys and law firms (Carlsson et al., 2008; Gassmann

& Bader, 2011; Granstrand, 2000).

Another major part of IP management is the assessment of IP (Gassmann &

Bader, 2011; Hanel, 2006). This is done for internal purposes, such as

accounting, R&D monitoring, and compensations for employees, as well as

external purposes, such as technology transfer, mergers and acquisitions

(M&A), and patent disputes (Bader & Ruether, 2009). To evaluate the

commercial and competitive value of their intellectual assets, many firms

conduct IP audits which classifies IP in several groups. An often cited example

is the case of Dow which used the classification (1) most valuable patents

related to business, (2) patents without current use but with potential value for

third parties, and (3) patents without current or potential use (Davis & Harrison,

2001). Also valuating, i.e., assigning a quantitative, monetary value to IP rights

is increasingly required for IP included in technology transfer such as selling,

licensing, and M&A activities (Hanel, 2006). Most literature builds its theories

on the assumption that there exist three core valuation approaches, namely the

cost approach, market approach and income approach (Smith & Parr, 2005).

However, it should be noted that due to the high number of variables influencing

the value of an intellectual asset ‘one valuation method does not fit all’, and that

there is an ongoing discussion regarding this topic (Bader & Ruether, 2009).

Lastly, the way how IP is perceived within firms and which IP culture is

adopted impacts IP management. Besides the need to align IP management to

business, the involvement of top management in IP management is crucial and

raises the general awareness for IP (Reitzig, 2004). Furthermore, a culture where

8 1 Introduction

patenting and IP issues in general are a common concern for all engineers rather

than solely for IP specialists makes IP management more efficient (Granstrand,

2000). Incentive systems regarding IP generation and exploitation, for example,

can help to foster an omnipresent IP culture (Granstrand, 2000).

As an overview, table 1 provides selected relevant literature and seminal

works on managing IP.

1.3 IP management in the context of open innovation

The term ‘open innovation’ was coined through the works of Chesbrough and

epitomizes the phenomenon that firms increasingly open up their innovation

processes by both integrating external knowledge and externalizing internal

knowledge (Chesbrough, 2003b; Gassmann et al., 2010). Open innovation is a

paradigm that is diametrically opposite to the old model of closed innovation

where firms adhered to the philosophy “if you want something done right,

you’ve got to do it yourself” (Chesbrough, 2003c, p. 36). Instead, firms

increasingly recognize that they cannot rely anymore solely on their own R&D

to be the best and only source of innovation, but that they also need to leverage

discoveries of others, e.g., through engaging in R&D collaborations (Luoma et

al., 2010). Although firms differ regarding the extent to which they engage in

open innovation (Keupp & Gassmann, 2009; Laursen & Salter, 2006), there is

an overall increasing trend towards open innovation throughout all industries

(OECD, 2008). Also research on the open innovation paradigm and openness of

firms in more general have significantly increased during the last years

(Dahlander & Gann, 2010). Literature basically differentiates between inbound

(outside-in) and outbound (inside-out) open innovation (Dahlander & Gann,

2010; Gassmann et al., 2010; Laursen & Salter, 2006). Inbound open innovation

refers to acquiring external knowledge resources and internalizing them into

own R&D processes. This can be done by e.g., buying and in-licensing

technologies (Bianchi et al., 2011a). Outbound open innovation involves

externalizing own know-how and technologies by making them available to

third parties. Common means for outbound open innovation are out-licensing

1 Introduction 9

and selling (Lichtenthaler, 2009). Often, research collaborations involve both

inbound and outbound activities, e.g., where know-how and IP are mutually

shared (Gassmann & Bader, 2006). Dahlander and Gann (2010) further

categorize inbound and outbound open innovation by using the distinction of

pecuniary and non-pecuniary activities. While the pecuniary activities of

inbound innovation refer to acquiring technologies and expertise from the

outside, the non-pecuniary activity involves the sourcing of external innovation

by e.g., scanning the technological environment. For outbound innovation,

pecuniary interactions refer to selling own inventions and technologies in form

of transfer and out-licensing agreements. The non-pecuniary interactions of

outbound innovation refer to revealing internal resources without direct financial

returns, as, for example, applied for open source software development (von

Krogh & von Hippel, 2006).

Open innovation and its mechanisms also entail the consideration of IP rights,

especially patents that have to be managed during these knowledge sharing

processes. Resolving IP protection and IP sharing issues is a basic challenge for

each research collaboration (Hertzfeld et al., 2006). While know-how can be

protected by formal means, such as patents, trademarks, and confidentiality

agreements, as well as by informal means, such as secrecy, especially formal

protection mechanisms play a crucial role in open innovation (Hertzfeld et al.,

2006; Luoma et al., 2010). Gassmann and Bader (2006) emphasize that

considering IP issues already in the very early stage of a research collaboration

is essential for the success of the collaboration. This is especially true for

collaborations with more than two partners, and in fact there is a trend towards

an increasing number of alliance partners within research collaborations

(Bianchi et al., 2011a). Overall and besides all challenges, IP should be seen as

an enabler of open innovation rather than a disabler (Alexy et al., 2009). While

the positive effect of inbound open innovation has been discussed in numerous

studies (Enkel et al., 2005; van de Vrande et al., 2006; West et al., 2006), recent

studies also find a positive relationship between outbound open innovation and

firm performance (Lichtenthaler, 2009). Table 2 summarizes selected works

related to IP management within the context of open innovation.

10 1 Introduction

Table 2: Literature overview on IP in open innovation

Author(s)

(Year)


Bianchi et al.

(2011)

Organizational modes for open innovation in the bio-pharmaceutical industry: an exploratory analysis

Longitudinal study with 20 worldwide bio-pharmaceutical firms

• Framework with organizational modes for in- and out-bound open innovation • Trend towards an increasing number of alliance partners

Kutvonen

(2011)

Strategic application of outbound open innovation

Conceptual paper based on literature review

• Six categories of strategic motives for outbound open innovation: access to knowledge, multiplication of own technologies, learning effects, controlling technological trajectories, core business model, and controlling the market environment

Lichtenthaler

(2010)

Intellectual property and open innovation: an empirical analysis

Quantitative survey data from 154 medium and large firms

• A firm’s IP portfolio is a major determinant for open innovation • While some pioneering firms act very open, many firms still follow rather closed strategies • Firm size positively effects openness

Luoma et al.

(2010)

Intellectual property in inter-organizational relationships: findings from an interview study

Interview study with 40 firms and public organizations in Finland and the Netherlands

• Major challenges of IP in collaborations are unanticipated changes in ownership, strategy and actors, and different levels of openness among partners • Patents, trademarks, confidentiality agreements, secrecy, and publishing are the most important protection mechanisms in collaborations

Alexy et al.

(2009)

Does IP strategy have to cripple open innovation?

More than 100 interviews and workshops with firms adopting open innovation

• Two critical determinants for a firm’s IP and open innovation strategy: technological environment and knowledge distribution • Firms should see IP as an enabler of open innovation and adopt a case-by-case rather than an one-fits-all approach

Keupp,

Gassmann

(2009)

Determinants and archetype users of open innovation

Data from the Swiss Innovation Study since 1996

• Determinants influencing the firms’ extent of open innovation • Four archetypes regarding open innovation activities: isolationists, scouts, explorers, professionals

1 Introduction 11

Lichtenthaler

(2009)

Outbound open innovation and its effects on firm performance: examining environmental influences

Quantitative survey data from 136 large and medium sized firms

• Positive relationship between outbound open innovation and firm performance • The positive effect mainly depends on environmental factors such as competitive intensity and transaction rates

Gassmann,

Bader (2006)

Intellectual property management in inter-firm R&D collaborations

22 case studies with successful practice firms Five in-depth case studies

• Identification of knowledge areas before, during, and after R&D collaborations which have to be considered for managing IP • Managing IP already in the early stage of the R&D collaboration increases the collaboration success

Hertzfeld et

al. (2006)

Intellectual property protection mechanisms in research partnerships

Quantitative survey data from 54 US-based firms 23 interviews

• Resolving IP protection issues is a fundamental consideration in research partnerships • Patents are the most frequently used form to protect knowledge in research partnerships

Chesbrough

(2003)

The logic of open innovation: managing intellectual property

Conceptual paper with four illustrative case studies

• Firms’ IP management depends on whether they practice a closed or open innovation model • In open innovation, firms must create business models to leverage their IP

1.4 External patent exploitation

Exploiting patents internally in the traditional way, i.e., by protecting own

products and processes, has been subject to comprehensive studies in the past

(e.g., Cohen et al., 2000; Ernst, 1995; Harabi, 1995). However, during the last

decades firms have increasingly recognized the potential of externally exploiting

their patents. External patent exploitation refers to the use of patents outside of

the firm boundaries through out-licensing, cross-licensing, selling, financing,

partnerships, spin-offs, or joint ventures (Gassmann & Bader, 2011; Granstrand,

2000; Monk, 2009; Vickery, 1988). The extent to which the technology is

externally exploited varies depending on the firm’s exploitation strategy,

motives, and the characteristic of the patented technology. Research

distinguishes between external patent exploitation with and without the transfer

12 1 Introduction

of know-how (Arora & Gambardella, 2010). External patent exploitation

without know-how transfer represents the mere transfer of the legal right and is

often used to solve freedom to operate issues (Pitkethly, 2001). Externally

exploiting patents with know-how transfer includes the transfer of related

knowledge such as research reports and technological expertise. These

transactions have also been called external technology commercialization (Ford

& Ryan, 1977).

Looking back, research on external exploitation of intellectual property has

started in the late 1970s. Especially the works of Ford, who introduced the term

‘technology marketing’, provided a first holistic approach to the topic (Ford,

1985; Ford & Ryan, 1977; Ford & Ryan, 1981). In the two decades that have

followed, however, only little research has been done on external technology

exploitation (Lichtenthaler, 2005). Research was only reactivated when external

exploitation activities increased significantly and practical challenges became

apparent (Davis & Harrison, 2001; Rivette & Kline, 2000). Several studies exist

on the strategy of external patent exploitation, e.g., revealing that the firm’s

willingness to externally exploit its patents depends on the potential competitive

advantage, the strategic appropriability, and the risk involved (Davis &

Harrison, 2001; Kline, 2003; Pitkethly, 2001). Also the firms’ motivations for

external patent exploitation, including financial and strategic motives such as

entering new markets and setting industry standards have been subject of several

studies (e.g., Arora & Fosfuri, 2003; Ehrhardt, 2004; Kollmer & Dowling, 2004;

Palomeras, 2007; Vickery, 1988). More recently, scholars started to explore the

organizational and managerial perspective of external technology exploitation.

For example, Bianchi et al. (2011b) analyze which organizational structures

firms use to conduct external technology commercialization, and Lichtenthaler

(2007b) elaborates critical steps of external technology commercialization,

resulting in the development of a process model.

From a more macroeconomic perspective, the markets for technology and

patents have been investigated revealing that asymmetric information and high

transaction costs present barriers for patent commercialization (Benassi & Di

Minin, 2009; Gambardella et al., 2007; Teece, 1998). Also, the role of the legal

1 Introduction 13

Table 3: Literature overview on external patent exploitation

Author(s)

(Year)


Bianchi et al.

(2011)

Organizing for external technology commercialization: evidence from a multiple case study in the pharmaceutical industry

Case studies with seven Italian biopharmaceutical firms

• Three archetypal models for organizing external technology commercialization • The organizational structure adapts to the strategic relevance and volume of the commercialization project

Lichtenthaler

(2011)

The evolution of technology licensing management: identifying five strategic approaches

Case studies with 25 firms over five years

• Firms have increased and systemized their licensing management • Five strategic approaches of technology licensing depending on licensing strategy, process, organization, culture, and frequency

Lichtenthaler

(2007)

Managing external technology commercialization: a process perspective


• Systematization of external technology exploitation into a process: planning, intelligence, negotiation, realization, and control • A systemized process helps firms to develop dynamic capabilities for external technology commercialization

Gambardella

et al. (2007)

The market for patents in Europe

7105 firm-patents of the PatVal-EU data set

• Transaction costs in the market for technologies prevent licensing agreements • The most important determinants of licensing are firms size, patent breath, economic value, and strength of patent protection

Lichtenthaler,

Ernst (2007)

External technology commercialization in large firms: results of a quantitative benchmarking study

Quantitative survey data from 154 medium-sized and large European cross-industry firms

• Most firms’ external technology exploitation activities are still limited • Successful external technology commercialization may strongly contribute to firms’ income • External technology commercialization has considerably increased

14 1 Introduction

Granstrand

(2004)

The economics and management of technology trade: towards a pro-licensing era?

Summary of several studies on large firms from Sweden, the US, and Japan during the 1980s and 1990s

• Technology licensing has grown significantly since the 1980s • Firms increasingly switch to proactive licensing including cross-, block-, core and non-core licensing

Arora,

Fosfuri (2003)

Licensing the market for technology


• Licensing is related to firms’ strategic behavior • Competition in the product market creates a strategic incentive to license • Firms lacking adequate downstream commercialization capabilities have a higher propensity to license

Kline (2003) Sharing the corporate crown jewels

Anecdotic firm data

• Strategic licensing can have significant financial and strategic benefits • Strategic licensing is a means to create and sustain competitive advantage

Kollmer,

Dowling

(2004)

Licensing as a commercialization strategy for new technology-based firms

Survey and data base data on 230 (survey 70) new technology-based biopharmaceutical firms

• Licensing strategies differ between fully and not-fully integrated firms • Fully-integrated firms use licensing for strategic reasons • Not-fully integrated firms use licensing as their major commercialization channel

Grindley,

Teece (1997)

Managing intellectual capital: licensing and cross-licensing in semiconductors and electronics

Conceptual paper with four illustrative case studies

• Innovating firms increasingly adopt a proactive IP management and leverage approach • Due to regulatory changes the importance of IP management and licensing has moved from a marginal activity to a major part of business in the investigated industries

Vickery

(1988)

A survey of international technology licensing

Quantitative survey data from 119 firms worldwide

• The extent of out-licensing activities varies strongly among the firms • The importance of out-licensing is increasing • Most technologies that are out-licensed are also used internally

1 Introduction 15

framework has been addressed revealing that the standardization of IP right

systems through international treaties – most importantly the Trade- Related

Intellectual Property Rights agreement (TRIPS) under the WTO in 1995 –

impacts firms’ ways how to manage their external patent exploitation (Davis,

2004; Granstrand, 2000; Teece, 1998).

Table 3 provides an overview of relevant literature regarding external patent

exploitation. While many studies adopt external technology exploitation or

commercialization as their scope of analysis, patents play a major role within the

transfer of technology. Hence, these studies are highly related to the

phenomenon of external patent exploitation.

1.5 Research questions and structure of the thesis

1.5.1 Purpose of the thesis and research questions

The literature review in the previous sections gave an overview of the current

state of the art regarding IP management, IP in the context of open innovation,

and external patent exploitation. While extant studies provide useful insights in

many aspects of these three streams of literature, many other questions related to

the above stated purpose are still open. The objective of this thesis is to

contribute to the topic of IP management and exploitation by exploring and

explaining firms’ approaches towards effectively managing and leveraging their

intellectual property rights. Thus, this research aims at answering four research

questions that are addressed in the Papers I to IV. The Papers I to IV are

presented in the following chapters of this thesis. Next, the four research

questions are briefly introduced and presented.

The first research question faces IP management from a strategic perspective.

Although studies exist on general IP management processes and IP value chain

models, these IP management frameworks mostly end with the application of the

patent right and lack a more comprehensive description of the entire patent life

cycle. To close this gap we address IP management from a holistic perspective

considering the entire life cycle of a patent right and ask the following research

question:

16 1 Introduction

Research question 1: How do firms successfully manage and optimize their

patent portfolios along the patent life cycle?

The second research question addresses the role of IT tools for intellectual

property management. As IP portfolios are growing and the management of IP is

becoming increasingly more complex, firms are challenged to implement

structures and processes to enable an efficient IP management. Although IT

tools are a means to support the firms’ IP management, extant literature shows

little insight in how and to what extent firms make use of IT in this regard. We

address this issue with the following research question:

Research question 2: How and for which processes do firms use IT tools to

support their IP management?

While the first two research questions focus on the firms’ internal

management of their IP by considering the life cycle of patents and IT tools to

support IP management, research questions 3 and 4 address the external

exploitation of IP, hence referring to outbound open innovation. In this context,

and as outlined in section 1.3, research question 3 deals with pecuniary

outbound open innovation, while research question 4 investigates non-pecuniary

outbound open innovation.

Research question 3 refers to the fact that firms increasingly engage in

exploiting their patents externally to generate strategic or financial benefits in

return. Despite the practical importance of the topic and earlier findings that

many firms experience substantial difficulties in creating value through external

patent exploitation, literature lacks insights in how firms organize and

implement their external patent exploitation. This leads to the following research

question:

Research question 3: How do firms manage external patent exploitation and

which factors influence their approach towards it?

1 Introduction 17

Table 4: Overview of the research questions and paper summaries K

ey fin

din

gs

• Patents should be

managed throughout their

entire life cycle

• Patent life cycle

managem

ent model

• Three major supporting

IT tools: search,

administrative, and

evaluation tools

• The use of IT tools for IP

managem

ent decreases

along the IP value chain

• Four factors impacting

firms’ managem

ent of

external patent

exploitation

• Three archetypes: ad hoc,

hybrid, and leverage mode

• Four types of patent release

modes: profit maker, cost

cutter, innovation catalyst,

and technology provider

• Firms release patents to

obtain indirect, long term

benefits

Sam

ple

10 firms from

the

pharmaceutical,

biotech, and

chem

ical industry

106 IP intensive

firms

7 case study firms

14 firms from

the

pharmaceutical and

chem

ical industry

22 firms with 27

patent release cases

4 patent pools

Res

earc

h d

esig

n

Qualitative: case

studies

Quantitative:

questionnaire

survey

Qualitative: case

studies

Qualitative: case

studies

Qualitative:

document analysis,

secondary data,

interviews

Focu

s

Internal

managem

ent

Strategic level

Internal

managem

ent

Tool level

External

exploitation

Pecuniary

outbound open

innovation

External

exploitation

Non-pecuniary

outbound open

innovation

Res

earc

h q

ues

tion

How

do firms

successfully manage

and optimize their

patent portfolios along

the patent life cycle?

How

and for which

processes do firms use

IT tools to support their

IP management?

How

do firms manage

external patent

exploitation and which

factors influence their

approach towards it?

Why do firms make

their patents available

for free and which

benefits do they gain

from

doing so?

Paper

I

Paper

II

Paper

III

Paper

IV

18 1 Introduction

Finally, research question 4 investigates a recent practical phenomenon: firms

providing their patents free of charge to third parties. While such open strategies

are known in the software industry where it is termed open source software, it is

a rather new approach to leverage patents in other industries. Since current

literature lacks explanations regarding this behavior, the following research

question is raised:

Research question 4: Why do firms make their patents available for free and

which benefits do they gain from doing so?

An overview of the papers addressing the research questions is presented in

table 4. The table also outlines the applied methodology, sample, and key

findings of the individual papers.

1.5.2 Thesis structure

The above described research questions are investigated in the self-standing

research articles papers in the subsequent chapters. Hence, this thesis is

structured as follows (see also figure 2).

In chapter 2, Paper I addresses the research question 1 on how firms

successfully manage and optimize their patent portfolios. Effectively managing

and optimizing the value of the patent portfolio is a major challenge for many

firms, especially those in knowledge intensive industries, such as the

pharmaceutical, biotechnological, and chemical industry. However, insights on

effective patent portfolio strategies are rare. We find that successful patent

portfolio management is rooted in managing the patents along their life cycles.

Based on the findings of ten case studies, a holistic patent life cycle management

model is developed reflecting five distinctive phases of patent management:

explore, generate, protect, optimize, and decline. The model helps managers to

adopt a holistic and efficient approach towards managing their patent portfolios.

In chapter 3, Paper II answers research question 2. The effective management

of IP is an increasingly complex challenge in today’s global knowledge

economy, especially for firms with large IP portfolios. Although IT tools are a

1 Introduction 19

means to support the management of these portfolios, there is little insight in

how firms actually make use of IT tools in this regard. Hence, this article

analyzes how and for which processes firms use IT tools to support their IP

management. Based on a data set of 106 IP intensive firms worldwide, we find

that firms use at least one of three major IT tools for IP management: search

tools, administrative tools, and evaluation tools. We also find that the use of IT

for IP processes is decreasing along the IP value chain: firms use IT mainly in

the early IP generation phase, e.g., for absorbing technological developments.

The article concludes by outlining where and how IT tools can improve the

management of IP.

In chapter 4, Paper III investigates research question 3. In open innovation

systems, capturing value through external IP commercialization is an

increasingly important strategy for firms to keep pace with competitive changes.

However, many firms have major difficulties in creating value through external

patent exploitation. To understand these challenges, this paper adopts a multiple

case study research design with fourteen firms from the pharmaceutical and

chemical industry and explores how firms manage their external patent

exploitation. Adopting a desorptive capacity perspective we find four main

factors influencing the firms’ management of external patent exploitation: the

type of value creation, the organizational structure, the locus of initiative, and

the extent of know-how transfer along with the patent. Based on these factors,

three archetype modes of external patent exploitation with different levels of

desorptive capacity are identified: ad hoc mode, hybrid mode, and leverage

mode. The article extends the concept of desorptive capacity and existing

literature on intellectual property management in the context of open innovation.

Managerial implications helping firms to implement external IP

commercialization structures are discussed.

In chapter 5, Paper IV explores research question 4 on why firms make their

patents freely available to third parties and which benefits they gain from this

behavior. Commercializing patents beyond firm boundaries through licensing

and selling is an increasingly discussed topic among scholars and practitioners.

Collecting royalty payments or similarly contractually defined monetary and

strategic returns have become a viable business model for many firms. However,

20 1 Introduction

within this external patent exploitation, a recent phenomenon where firms give

away their patents free of charge can be observed. This seems contradictory to

the original intention of the patent system of enabling firms to create temporary

monopolies to appropriate returns from their R&D investments. Adopting the

open source software phenomenon as a background and using firm data from 27

patent release cases, we develop a typology consisting of four types of free

patent release approaches – namely the profit maker, the cost cutter, the

innovation catalyst, and the technology provider – and discuss the motives of the

firms to offer their patents as ‘open source’. We find that firms may obtain

valuable technological input for subsequent innovations as well as social

benefits in return for their free patent release. The article contributes to the

burgeoning literature on open innovation by highlighting the importance of open

IP strategies.

Figure 2: Overview of the thesis structure

Thesis structure

Chapter 1 Introduction State of the art in IP management and exploitation, thesis framework

Chapter 2 Paper I Getting the most out of your IP - patent management along its life cycle

Chapter 3 Paper II The role of IT for managing intellectual property - an empirical analysis

Creating value through intellectual property commercialization– a desorptive capacity view

Chapter 5 Paper IV Open IP strategies: Why do firms give away their patents for free?

Internal management

Externalexploitation

Chapter 4 Paper III

2 Getting the most out of your IP – patent

management along its life cycle

Co-authored by Martin A. Bader, Oliver Gassmann, and Frauke Ruether

Published in Drug Discovery Today:

Bader, M.A., Gassmann, O., Ziegler, N. and Ruether, F. (2012) Getting the most

out of your IP - patent management along its life cycle, Drug Discovery Today,

17(7-8), 281-284.

Effectively managing and optimizing the value of the patent portfolio is a

major challenge for many firms, especially those in knowledge intensive

industries such as the pharmaceutical, biotechnological, and chemical industry.

However, insights in effective patent portfolio strategies are rare. Therefore,

this article investigates in detail how firms successfully manage and optimize

their patent portfolios to increase their overall competitiveness. We find that

successful patent portfolio management is rooted in managing the patents along

their life cycles. Based on the findings of ten case studies, we develop a holistic

patent life cycle management model reflecting five distinctive phases of patent

management: explore, generate, protect, optimize, and decline. We conclude

with how our findings can be used in practice.

22 2 Getting the most out of your IP – patent management along its life cycle

2.1 Introduction

Intellectual property (IP) has moved moving from a legal matter to a strategic

issue (Smith & Hansen, 2002). Research and practice have recognized IP as a

critical part of corporate strategy (Grindley & Teece, 1997; Sullivan, 2001) and

a main source of competitive advantage (Hall, 1992). This has been underpinned

by the growing number of patent applications over the last century. Since 1985,

the worldwide yearly patent filings have more than doubled and in 2009, 1.85

million patent applications were filed worldwide (WIPO, 2011b). The major

patent application countries are the United States with 456,106 patent

applications, followed by Japan with 348,596 and China with 314,604 patent

applications. At the European Patent Office, 134,580 patents were filed in 2009.

These numbers show that firms have increasingly accumulated patent rights and

therefore are challenged to manage their growing patent portfolios effectively.

Especially in the pharmaceutical, the biotechnological, and the chemical

industry with their long product cycles, patents are an important instrument for

maintaining competitive advantage through temporary monopolies and are a

major means of appropriating increased returns on investment (Levin et al.,

1987; Thumm, 2001). Many successful firms such as Dow Chemical, Roche,

Novartis, and Bayer have established well-structured IP management processes

and organizational structures and consider IP as a major corporate asset. Despite

the increasing importance of IP management in literature and practice, insights

in how firms manage their patents from a holistic, strategic perspective, and how

the portfolio value of patents can be optimized, are scarce.

Smith and Hansen (2002) split the strategic management of IP in the activities

IP generation, protection, and valuation and argue that firms must ensure that

these activities are aligned with business strategy. Carlsson et al. (2008)

conducted a case study research with 15 technology-based firms from the U.S.

and developed a general IP management process consisting of the phases

pushing for strategic IP, inventors’ activities, screening techniques and

checklists, and, finally, patent prosecution. In a study on new technology-based

firms Lynskey (2009) based his research on a classic value chain model and

applied this to the IP generation process. The developed IP value chain model

comprises the steps conception, primary document, review, formal document,

2 Getting the most out of your IP – patent management along its life cycle 23

legal document, patent prosecution, and IP portfolio (Lynskey, 2009). However,

all these IP management frameworks finish with the application of the patent

rights, and a description of a more comprehensive patent management model is

missing. To find out how a more holistic model could look like, we conducted

36 semi-structured interviews with ten firms from the pharmaceutical,

biotechnological, and chemical industry (table 5). The firms were chosen

because they are all characterized by well-structured IP management processes

and organizational structures and thus provided the most detailed and insightful

information.

The persons interviewed were upper managers responsible for the firm's IP

and R&D management. Based on the findings of our interviews we argue that

the management of patents should not stop with the filing of the patents but that

it should be better linked to the innovation process of a technology.

Table 5: Overview of the investigated firms

Firm Industry Turnover Patents

Roche Pharma >35 billion EUR 53,000

Novartis Pharma >30 billion EUR 25,000

Bayer Pharma >30 billion EUR 78,000

Beiersdorf Pharma >8 billion EUR 2,580

Henkel Chemicals >13 billion EUR 8,000

Kodak Chemicals >5 billion EUR >20,000

Sika Chemicals >3 billion EUR 1,600

Prionics Biotechnology >25 million EUR n/a

Cytos Biotechnology >5 million EUR 450

Biotronik Biotechnology/

Medical Devices

n/a n/a


2.2 The patent life cycle management model

The analysis of the case studies revealed two major findings. First, we find

that successful patent management follows technology management, i.e., that

the firms’ patent management is strongly oriented to the life cycle of

technologies starting with the discovery of ideas until a product is discarded

from the firm's portfolio. Based on this, we identified five distinctive phases

which reflect the patent life cycle management of the firms following the

technology life cycle: explore, generate, protect, optimize, and decline. Second,

the findings suggest that the way how patents are managed largely depends on

the patent's strategic value and the firm’s internal resources. The patent’s

strategic value refers to the strategic value of the technology or patent relative to

existing markets, competitors, and substitution technologies. The strength of

internal resources refers to the firm’s assets such as employees, know-how, and

experience regarding a certain technology. While in the first two phases, i.e.,

explore and generate, the firm accumulates new competencies about a new

technology, these competencies remain at a high level in the phases protect and,

optimize. This is true even for the decline phase, although here, the firm may

decide to discard the patent. Thus, our framework displays patent life cycle

management as a function of strategic impact and internal resources available in

which each phase addresses three core dimensions of patenting: freedom to

operate, differentiation from competitors, and external patent exploitation

(figure 3).

In the following sections, the phases of the patent life cycle management

model are described and exemplified by the findings of the case studies.

2.2.1 Explore

In the first phase explore, the firms collect ideas for new inventions. The

strategic impact is still low or unpredictable and technological trends are

explored through broad cross industry patent searches such as, for example,

patent scanning. Also the patentability of existing technologies and the freedom

to operate is simultaneously checked during these patent scanning activities. In

addition, the strategic positioning of the firm with regards to potential future


cross-licensing opportunities to enhance the access to external knowledge is

considered. For example, Prionics follows the strategy that a new project always

starts with a comprehensive patent search. For each new project Prionics

compiles an individual search profile – often with the help of external experts

like the national patent and trademark office. The patent monitoring is

conducted on a monthly basis with the data bases of Medline and Derwent.

During this search, 400 to 500 potentially relevant literature citations and 75 to

120 potentially relevant patent citations are identified. In a second screening, an

internal group of experts, consisting of R&D project leaders and product

managers, evaluates the search results and filters 30 to 50 relevant literature

citations and 10 to 25 relevant patent citations. This kind of search process is

very successful at Prionics and has been established as an integral part of new

product development.

2.2.2 Generate

The exploration activities are succeeded by the phase generate where ideas

are realized through the development of new products. At Henkel, for example,

the strategy for its core competence areas is to strive for an exclusive protection

of its products, technologies, packaging, and substances. Inventions in non-core

competence areas often are not protected through patents but are published, e.g.,

in professional journals to prevent potential patenting of competitors. Cytos’

strategy is to identify and patent new specific substances as early as possible and

to partner with large pharmaceutical companies for further clinical development.

Key aspects for Cytos are the maximization of the cost-benefit ratio and

ensuring an appealing patent portfolio for partnering with large pharmaceutical

companies.

Also, firms increasingly open up their research processes and acquire external

technologies to complement their own technology portfolios (Chesbrough,

2003c; Gassmann & Bader, 2006). In our cases, Roche’s research and

development network, Bayer’s engagement in cross-licensing, and Biotronik’s

strategy to in-license technology are ways to complement internal know-how.

Also Henkel – although the company is rather reluctant to open its innovation


process – uses cross-licensing agreements with cooperation partners for specific

parts of the portfolio. In these cooperations, Henkel aims to avoid financial

compensations but tries to agree on a patent exchange based on the quality of the

patents.

2.2.3 Protect

The protection phase is characterized by high strategic impact and strength of

resources. The firms have accumulated comprehensive know-how in a field of

competence with a high level of strategic importance. The potential for filing

broad basic patents is declining since public knowledge in these fields has

already greatly increased. The patent applications now focus increasingly on

more detailed, very specific embodiments, often with the motivation to build

patent fences around a core invention to foreclose patenting of substitutes by

rivals (Cohen et al., 2000). Therefore, the firms increasingly seek to create

patent clusters in strategically important fields of technology. This involves

generating patent portfolios which have a broad sweep but which later , when it

is easier to estimate which ideas are technically and commercially viable, are

thinned out again. Roche for example continuously builds up patent clusters by

filing patents for back-up compounds and follow-on patents to enhance the

protection of their products. About 1 to 10 basic patent applications and patents

for back-up compounds are filed per project. During the clinical development

and early commercialization phases, about 3 to 30 follow-on patents are filed.

Follow-on patent applications include for example patents for polymorphs, salts,

or alternative formulations.

2.2.4 Optimize

In the optimization phase, the firm has a high level of competence in the

respective technological field but the strategic importance with regards to

customers, markets, competition, or technology is declining. The firms monitor

competitors’ patenting activities and review their own patent clusters thoroughly

in respect to cost-benefit considerations. For example, a potential reduction of


the territorial coverage of the patents is checked regularly. Also the risk of

substitute technologies analyzed. If there is a risk of competencies being

replaced by substitute technologies, the firms’ own patents in these fields can be

used as blocking property rights to prevent a decline in value of the existing core

technologies.

For research-based pharma firms, the risk of infringement especially emanates

from generic drug companies. Generic drug companies are becoming

competitors when the relevant patent’s expiry day approaches. About five years

before the generic companies are able to legally enter the market and use the

specific agent, Novartis, for example, performs active competitive intelligence

to identify potential infringement. As generic companies can start regulatory

readiness before the innovator exclusivity period has expired, Novartis keeps an

active eye on all developments of ‘their’ products. The first assessment is

undertaken in the preclinical phase, further assessments take place at the entry of

each development phase.

2.2.5 Decline

When the strategic importance of a technology or competence has greatly

declined, the corresponding patents are reviewed to determine whether they still

add value to the firm and to define the divestment strategy. Before the patents

are abandoned, the firms check the patents for out-licensing, selling, or donation

opportunities. Biotronik evaluates in a yearly review its patent portfolio and

decides on how to proceed with obsolete patents. The IP review board,

supported by R&D and management, is responsible to assess obsolete patents

with regards to an external exploitation through out-licensing. They check if the

patent protects one of Biotronik’s products or if its internal exploitation is

planned in the future. Furthermore, they analyze whether competitors could

potentially use Biotronik’s patents for their technologies and also whether the

patents could be enforced in case of an infringement. Finally, the overall costs

and efforts are estimated before Biotronik decides on licensing or abandoning

the patents.


Figure 3: The patent life cycle management model

2.3 Concluding remarks

This paper explored how firms from the pharma, biotech, and chemical

industry manage their patents from a strategic perspective and suggests a holistic

patent life cycle management model for an efficient management of IP. The key

massage is that patent management should not be regarded as an isolated

function but as an integrated activity that considerably contributes to firm

success because intellectual assets have become critical firm resources. Firms

Strength of Internal Resources

Strategic Impact

Low

Low High

Generate

• Focused patent searches

(patent monitoring)

• Analysis of

competitor activities

• File strategic patents

- with respect to competitors

- with respect to alternative

areas

• Check and realize potential for

patent cross-license

agreements

Explore

• Evaluation of potentials

by cross industry sector

patent searches

(patent scanning)

• Identif ication of potentials,

application of broad and

conceptual patents

Decline

• Check potential for exclusive

out-licensing

• Abandon, sell, donate patents

Protect

• Consideration of in-licensing and

circumvention

• Creation of patent clusters for a

systematic protection of competitive

advantages: broad basic patents and

patents for specif ic variations

• Check potential for out-licensing into

other market or technology areas

(long-term ROI)

Optimize

• Monitor subsequent patent applications

of competitors (improvements, variations)

• Check patent clusters with respect to

cost-benef it ratios

• Protection f rom substitute technologies

by f iling deterrent patents

• Check potential for out-licensing within

own market or technology areas

(short-term ROI)

High

Legend:

I. Freedom to operate

II. Differentiation

III. External exploitation

I.

II.

I. I.

I.

II.

II.

II.

III.

III.

III.

III.


should therefore take a holistic view on their patent management, considering

the following:

Identifying new technological challenges is an important factor to create

innovation. Thus, firms should establish active technology scouting and patent

scanning processes. The earlier technological trends are found the better the firm

can react and reach a first-mover advantage. Especially important is that these

technology scouting and patent scanning activities are conducted and updated on

a regular basis. Also, firms should ensure that the respective employees, e.g.,

R&D employees, patent managers, and business developers, are given access to

the results.

During the development of new technologies and products, it is important to

keep an eye on competitor and market activities. Firms should therefore

establish a patent monitoring system which regularly observes the firms’

environment. Special attention should be paid to identifying substitute

technologies because they might weaken the firm's temporary monopoly gained

through the patent protection.

External leveraging of patents through, e.g., out-licensing, cross-licensing,

sale, strategic alliances, and joint ventures may enable firms to generate

additional returns on investment and to induce strategic benefits. Therefore,

considering external exploitation opportunities at all stages of the patent life

cycle should be a standard activity of patent management at the firms.

Firms are advised to conduct regular (e.g., yearly) patent audits where the

value of the patent portfolio is assessed. These audits should also be used to

keep an overview on how each patent is exploited, i.e., which patents protect

which products or technologies, which patents have a blocking function, which

patents are out-licensed and to whom, and also which patents are currently not

used for any competitive advantage or financial benefit. Based on the audit,

decisions on when and where new patents should be filed and which patents

could be out-licensed to generate additional income can be made and further

steps for implementing these activities can be defined.

Issued but unused patents cause unnecessary maintenance fees. Hence, firms

should make proactive patent divestment decisions to avoid the accumulation of

unused patents. First, potentially obsolete patents should be evaluated and


balanced with regards to the benefits and costs for the firm. If the patent reveals

potential attractiveness for other firms, out-licensing, sale, or donation should be

considered.

Finally, patent life cycle management should be considered as a holistic and

interdisciplinary task. Thus, the above mentioned recommendations should be

implemented by a small group of senior executives, consisting of heads of IP,

R&D, business development, product development, and marketing.

3 The role of IT for managing intellectual property

– an empirical analysis

Co-authored by Oliver Gassmann, Frauke Ruether, and Martin A. Bader,

Published in World Patent Information:

Gassmann, O., Ziegler, N., Ruether, F. and Bader, M.A. (2012) The role of IT

for managing intellectual property: An empirical analysis, World Patent

Information, In Press, doi:10.1016/j.wpi.2012.03.005.

The effective management of intellectual property (IP) is an increasingly

complex challenge in today’s global knowledge economy, especially for firms

with large IP portfolios. Although information technology (IT) tools are a means

to support the management of these portfolios, there is little insight in how firms

actually make use of IT tools in this regard. Hence, this article analyzes how

and for which processes firms use IT tools to support their IP management.

Based on a data set of 106 IP intensive firms worldwide, we find that firms use

at least one of three major IT tools for IP management: search tools,

administrative tools, and evaluation tools. We also find that the use of IT for IP

processes is decreasing along the IP value chain: firms use IT mainly in the

early IP generation phase, e.g., for absorbing technological developments. The

article concludes by outlining where and how IT tools can improve the

management of IP.

32 3 The role of IT for managing intellectual property – an empirical analysis

3.1 Introduction

The number of intellectual property (IP) right applications has been

constantly growing over the last century. Since 1985, the annual patent filings

worldwide have more than doubled; a similar trend can also be observed with

trademarks and industrial designs (WIPO, 2010). This accumulation of

intellectual property – and thus the growth of the firm's overall IP portfolio –

poses several challenges on the effective management of IP. Firms with large IP

portfolios are more than ever challenged to design strategies and to implement

structures and processes to enable an efficient IP management. Towards this

backdrop, dedicated IT tools which are capable of storing, structuring, and

making IP information accessible may represent an important efficiency gain for

the firm's IP management. Many firms with large IP portfolios such as IBM or

Infineon have already established IT systems for managing their IP. However,

there is a lack of insights with respect to where exactly IT tools are used in the

management of IP, and how firms can use these tools to increase their IP

management effectiveness. This article aims to provide answers to this question

by presenting the results of a worldwide survey on IP management and IT

support at the firm level. Towards the backdrop of managing IP, we define IT

tools to span everything from specific IP based applications to general IP data

bases.

The paper is structured as follows. The next section gives an overview of

literature on IP tools for IP management. Section 3.3 describes the research

framework and the methods applied for the investigation and provides

information on the analyzed sample. Section 3.4 depicts the findings on the use

of IP software which are analyzed in section 3.5. Finally, section 3.6

summarizes the paper, presents some recommendations on how firms may boost

their IP management, and gives a brief outlook for future research.

3.2 IT tools for IP management - State of the art

Extant literature on IT solutions for IP management can be divided into three

major strands, one which focuses on the technical functionality of IT tools in IP

3 The role of IT for managing intellectual property – an empirical analysis 33

management, one which adopts the user perspective of such tools, and one

representing the patent offices’ activities. In the functional strand, Fabry et al.

(2006), for example, present a method of using IT tools to evaluate patent

portfolios in order to use this information to identify new business opportunities.

Bergmann et al. (2008) present an IT tool based on semantic analysis to detect

risks of patent infringements through patent information. Moehrle et al. (2010)

analyze major tasks of patent search and indentify IT tools that can be deployed

to accomplish these tasks. Focusing on the challenge of retrieving relevant

information from data bases, Dou (2004) presents a possibility to link patent

data base search with a dedicated software to filter search results according to

specific needs (the author presents the case of esp@cenet® and Matheo-Patent).

This kind of software facilitates search activities and fosters the use of patent

information for all user types (Dou, 2004). Spangler et al. (2011) have

developed a holistic web-based IP mining tool called SIMPLE that facilitates

patent data processing, warehousing, and analysis. Others have investigated data

visualization tools which enhance the interpretation and analysis of collected

patent information (Yang et al., 2008). Based on the experience of a

pharmaceutical company, Eldridge (2006) gives an overview of selected data

visualization tools and their applicability from a practitioner point of view.

Moreover, Lupu et al. (2011) describe a tool that evaluates the results of

different patent information search technologies. They present the TREC

Chemical IR (Information Retrieval) Track tool that focuses on evaluating

search results of chemical patent information.

In the literature strand adopting a user perspective, Bonino et al. (2010)

analyze the functionality and user needs of current patent information tools

including data bases, search tools, benchmark tools, and semantics-based tools.

They find that the requirements on these tools depend firstly on the user type,

e.g., patent specialists or managers, and secondly the objective of the patent

information activity, e.g., technology scouting or patent monitoring. Radauer

and Walter (2010) adopt an SME (small and medium-sized enterprises) focus

and discuss, based on a benchmarking study of 72 IP services in the EU-27

countries, the gap between the need of SMEs for patent information and the

existing patent information services in the European Union. They find that


SMEs need more than mere technical patent information and especially require

support in the interpretation of the search results. In the light of data base search,

Emmerich (2009) investigates the level of information of different patent data

bases and analyzes in a case study of the pharmaceutical industry how firms can

generate high quality search results of a patent search. The results emphasize the

necessity to search all high information level patent data bases in order to

provide high quality results.

Finally, also patent offices increasingly integrate IT solutions into their

service systems. For example, the World Intellectual Property Office (WIPO)

developed the online filing system PCT-SAFE (Patent Cooperation Treaty –

Secure Applications Filed Electronically). The software was launched in 2004

and enables inventors and firms from all PCT member countries to file their

PCT patent applications electronically (Metcalfe, 2004). More recently, the

WIPO also launched an online tool for filing trademark applications and

searching internationally registered trademarks via the Global Brand Database

(Blackman, 2011b). The European Patent Office (EPO) offers with EPO Online

Services a comprehensive online service portal including the PatXML software

for online patent filings, and Register Plus and WebRegMT (for details see

Rogier (2005)) for IP monitoring and search activities. Furthermore, EPO

provides patent organizing systems and an online fee payment tool2. The

Swedish and the Australian Patent Office have gradually improved their online

services over the last years and recently replaced their old patent data base

systems by new online and freely available systems (Blackman, 2011a; Eagle,

2011). Furthermore, with the Centralized Access to Search and Examination

system (CASE), the IP offices of Australia, Canada and the United Kingdom as

well as the WIPO have started a pilot system that facilitates the online search of

the participating IP offices (UK-IPO, 2011).

However, while extant literature has mainly focused on the technical

functionality of e.g., searching for IP and extracting valuable information from

patent information, the investigation of the user perspective, i.e., how and to

what extent the users deploy IT for all IP management activities, starting with

technology scouting and ending with divestment decisions, is under-researched.

2 Information under www.epoline.org


Firms’ IP management focus increasingly shifts from the traditional defensive

approach to a more proactive approach of exploiting the IP portfolio (Bianchi et

al., 2009; Giuri et al., 2007; Lichtenthaler, 2005). Thus, effectively leveraging IP

information in order to identify new technology areas, new business

opportunities, or to assess the value of the portfolio is an important part of

modern IP management (Bonino et al., 2010). The field of application of IP

software extends from mere search activities to the evaluation and external

exploitation (i.e., out-licensing and sale etc.) of IP. Therefore, this paper adopts

a user perspective and investigates how and for which processes firms use IT

tools to support their entire IP management.

3.3 Research methodology

3.3.1 Research framework

Intellectual property rights are the most visible form of intangible assets and

are therefore defined as explicit knowledge assets (Nonaka et al., 2000). Hence,

managing intellectual property constitutes a specific form of knowledge

management. Knowledge management literature distinguishes between creating

knowledge and appropriating returns based on this knowledge as major steps

for firms to gain competitive advantage (Bogner & Bansal, 2007; Nonaka et al.,

2000). From an IP management perspective, these activities can be reflected in

the generation of IP, i.e., creating ideas and protecting them through IP rights,

and the subsequent exploitation thereof to appropriate returns, either internally

through securing own products, or externally through, for example, licensing.

(Teece, 1986). Furthermore, IP management literature emphasizes the

importance of valuating IP within the IP management process (Smith & Hansen,

2002). Due to its impact on the firms’ decision making, IP valuation is seen as a

central activity of IP management, especially in preparation of the

commercialization of the IP (Kutvonen et al., 2010; Lichtenthaler, 2007b).

Thus, drawing on the contributions from knowledge management and IP

management literatures, we identify three core phases for managing intellectual


property: Generate, assess, and exploit IP. We will call this the IP value chain

model.

The first phase, IP generation, includes the idea finding and realization

process as well as the IP registration. This phase is characterized by a strong

technology focus mainly resulting from R&D outcomes and is driven by

technology search activities. In a first step, potentially relevant technological

fields are scanned broadly via, e.g., patent data bases, including also cross-

industry searches. In a second step, the IP search is narrowed focusing on the

identified relevant areas (Gassmann & Bader, 2011). Also the patentability of

new technologies and the freedom to operate is checked in this phase. Ensuring

freedom to operate, i.e., creating and maintaining a position through IP rights

where the firm can continue its research and development in the specific

technological field free from third party IP rights is a crucial aspect of

generating new IP (Davis, 2004). Based on the search and idea generation, IP

right applications are filed with respect to the firm’s IP strategy. Blind et al.

(2006) state that besides the traditional and still major reason for patenting

protection from imitation, strategic motives such as blocking competitors,

enhancing firm reputation, and improving the firm’s negotiation position are

becoming increasingly important and thus are increasingly taken into account by

firms when defining their IP strategy.

In the second phase assessing IP, the IP portfolio or single IP rights are

assessed to obtain a qualitative or quantitative value, mostly applied for patents.

While the quantitative valuation approach aims to give the patent an absolute

value in terms of money, e.g., for balancing, tax, enforcement, or

commercialization reasons (Bader & Ruether, 2009), the qualitative evaluation

of IP stresses the strategic value of a patent such as its legal strength or relative

importance in its technological area (Chen & Chang, 2010; Pitkethly, 2001). The

evaluation of IP also includes IP portfolio analyses classifying the patents

according to the products or processes they protect and analyzing the patent

portfolio pertaining to which strategic value the patent creates for the firm, e.g.,

protecting own technologies, blocking competitors, licensing and alliance

options, and future potential.


The third phase exploitation of IP entails internal and external exploitation

activities of the firm as well as enforcing IP rights. Traditional internal patent

exploitation in own products and processes ensures freedom to operate and

generates a temporary monopoly for the patent owner (Blind et al., 2006;

Gassmann & Bader, 2006). External IP exploitation through e.g., licensing

permits generating additional revenues or strategic benefits like setting standards

or accessing third party IP (Granstrand, 2004; Lichtenthaler, 2005). Finally, IP

rights only create value if they are defended, i.e., enforced in case of

infringement by third parties (Lanjouw et al., 1998). Thus, detecting the

infringement, defining the enforcement strategy and managing the enforcement

process forms also part of the IP exploitation phase. IP infringement cases are

either decided in court or by a direct settlement between the concerned parties

out of court. In a settlement out of court the IP owner and the infringing party

usually agree on a defined compensation payment or a cross-licensing

agreement, allowing the infringing party the continued use of the IP of question

by giving licenses of their IP portfolio to the infringed party (Shapiro, 2001).

3.3.2 Method and data

Our research approach consisted of two phases. In the first phase, we

conducted a worldwide online questionnaire survey to obtain a broad picture of

how firms use IT tools within their IP management. In this survey, we focused

on IP intensive firms, i.e., firms where intellectual property is of strategic

importance and which actively manage an IP portfolio. 1210 IP intensive firms

in cross-industry sectors were contacted and investigated regarding their IP

management including patents, trademarks, industrial designs, and, for some

specific questions, domain names. In total, we received 106 usable

questionnaires which corresponds to a response rate of 8.8%.

In the second phase, case studies were conducted to deepen the insights

obtained from the questionnaire survey. We applied purposeful sampling and

chose those firms which provided the most detailed and insightful information

(Eisenhardt, 1989). Table 6 provides a brief overview of these firms. They are

characterized by well-structured IP management and the deployment of IT tools


Table 6: Overview of the case study firms

Firm Industry Turnover Employees IP portfolio

Alcatel-

Lucent

Telecommunication 16 billion EUR 78,000 27,600 patents

Henkel Consumer goods 15.1 billion EUR 48,141 8,000 patents

IBM Information

technology

75.4 billion EUR 426,751 40,000 patents

Infineon Semiconductors 3.3 billion EUR 25,216 17,700 patents

Kodak Chemicals, Imaging 5.4 billion EUR 18,800 12,100 patents

OC

Oerlikon

Mechanical

engineering


Schindler Mechanical

engineering


for specific IP processes, either self-developed tools or commercial tools. The

case studies allowed to gain in-depth information on how firms use IT tools

within their IP management. The data were primarily collected through semi-

structured face-to-face interviews with IP and R&D managers (Yin, 2009). In

addition, desk research of firm reports and public announcements was conducted

for data triangulation and to increase the robustness of the results (Jick, 1979).

In the subsequent sections, the results of the survey and the case studies are

presented and discussed using the IP value chain model as a guideline.

3.4 Results and case findings

This section presents the findings of our analysis on how firms’ manage their

IP using IT tools. Descriptive statistics resulting from the questionnaire survey

are depicted and the insights are deepened by the findings from the case studies.

First, the results on the firms’ use of IT tools regarding the entire IP value chain


are presented. Second, the IP management and IT use of each phase of the IP

value chain, i.e., generate, assess, and exploit IP, is analyzed in detail. Third, the

satisfaction of the firms with the usability and utility of these tools for IP

management is examined.

3.4.1 General results

Analyzing the firms’ deployment of IT along the IP value chain, three major

categories of IT tools for IP management can be identified. The first category

search tools includes all tools helping to gain information on existing IP rights,

technological state of the art, technological trends, and competitive environment

activities. Next, administrative tools are tools supporting the firms’ internal IP

management with regards to annual IP rights renewal payments, storing

information of the firms’ IP portfolio such as the current use of the IP rights in

products, services, or other forms, patent specifications, pending IP right

applications, lifetime of IP rights, etc. Finally, the category evaluation tools

comprises tools supporting to give a qualitative and quantitative value to the IP

portfolio or single IP rights. The results also show that firms use both

commercial IT tools as well as internally developed tools.

The results of the use of IT tools for IP management reveal two major

findings. Firstly, the firms’ use of IT decreases along the IP value chain (figure

4). This behavior is similar for all forms of IP rights, i.e., for patents,

trademarks, industrial designs, and domain names. While firms mostly use IT

tools in the IP generation phase, they are rarely used in the IP exploitation phase.

The second major finding is that patents are the form of IP rights supported most

by IT tools followed by trademarks and industrial designs. Almost no IT support

is provided for domain name management.

Overall, 98% of the investigated firms use IT tools to support their IP

management. 74% use IT tools for patent management, 60% for trademark

management, 53% for industrial design management, and 45% for domain name

management. Only 2% do not use any supporting IT tools for their IP

management at all.

In the following section each phase of the IP value chain is depicted in detail.


Figure 4: The use of IT tools along the IP value chain

3.4.2 Use of IT tools along the IP value chain

In the IP generation phase, 72% of the firms use IT applications for patents,

49% for trademarks, and 26% for designs. The IP generation phase is

characterized by a broad range of activities including technology scouting, IP

monitoring, idea management, and IP registration (patent filing, trademark

registration, etc.). In order to get a more detailed picture of the firms’

management of IP generation, we also analyzed for which activities the tools are

used. Search tools include technology and IP search and monitoring tools, idea

management tools are tools supporting the creativity process at the firm, the

inventor’s bonus tool supports the remuneration of important inventions. Despite

the latter two may not specifically be IP tools, these activities are crucial for

generating IP at all and are therefore included in our analysis. Docketing and

term management, document management systems, and electronic files are tools

supporting IP administration, such as the punctual payment of renewal fees,

controlling the filing process, and the legal status of the IP right The investigated

firms used, for example, software tools provided by Dennemeyer (DIAMS),

CPA (Memotech, Inprotech, FoundationIP), Thomson Reuters (Thomson IP

Manager), GSI (WINPAT), Unycom (IPAS), Eidologic (EIDOpat), and

Brügmann (PatOrg).The findings reveal that the firms mainly use IT tools for

0%10%20%30%40%50%60%70%80%

Generation of IP

(E)valuation of IP

Exploitation of IP

% of firm

s

Phases of IP value generation

Patents

Trademarks

Designs

Domain names


search activities, followed by administrative tools. 88% of the firms use search

tools to optimize their IP search processes (figure 5). For example, Henkel uses

the services of Derwent and MicroPatent to monitor markets and competitors.

About 5,000 patents are analyzed per year focusing on the activities of

competitors. Additionally, Henkel monitors specific technology areas through

keyword searches. Technology experts, typically leaders of an R&D group, are

responsible for controlling and evaluating the patent data. For example the group

leader of dishwasher and laundry tabs is responsible for the search field “tabs”.

The R&D group leader regularly informs the head of R&D about the patent

situation.

Kodak has developed a specific IT tool to support its IP generation process,

the so called Invention Tracker. The Invention Tracker manages the information

processing between different departments and involved employees from idea

finding and evaluation to patenting decisions and patent filings. Furthermore,

Kodak uses the commercial data base MicroPatent which enables R&D

employees to gather IP information, e.g. about external patents and state of the

art technology.

Alcatel-Lucent conducts comprehensive patent searches using data profiles

and statistical evaluation methods. Typically, Alcatel searches in the public data

bases Derwent WPIDS, Inpadoc of the European Patent Office, EUROPatfull

and USPatfull. The further data processing including statistical analyses is

accomplished in Excel and is structured according to business areas and specific

keywords. The results are reviewed by the senior IP counsel and published on

Alcatel’s internal intranet side. As data base Alcatel uses a self-configured Lotus

Notes data base. Alcatel made the point that in their experience treating and

evaluating the data on their own is cheaper than outsourcing these process steps

to an external service provider. Moreover, all researchers and developers have

the possibility to conduct own patent searches within the intranet data base.


Figure 5: IT tools used by the surveyed firms

In the second place after search tools are docketing and term management

tools followed by electronic file, document management systems, inventor’s

bonus tools, idea management tools, and others like e.g., budget forecasting

tools. Alcatel uses the patent management software Memotech from CPA to

support its IP administration. Kodak uses the software IP Master, a commercial

patent workflow management tool which was designed especially for patent

attorneys, to administrate its more than 12’000 patents large portfolio. It helps

Kodak to control the patent filing process and to coordinate the patent fees. Also

OC Oerlikon has established a commercial IT tool which supports the IP

management for docketing and term and portfolio management.

Examining the IP assessment phase, the results show that valuation and

evaluation activities are rarely supported by software. In total, only one third of

the firms uses IT tools to support the assessment of their IP rights. Figure 6

illustrates the results of the analysis distinguishing between valuation and

evaluation activities. The results reveal that firms behave similarly regarding the

use of IT tools for each of the method: 16% respectively 15% of the firms make

use of IT tools for IP valuation or evaluation. The investigated firms use either

commercial tools offered by IP offices and service providers, e.g., IPscore®, or

self-developed systems, e.g., based on Microsoft Excel.

6%

2%

27%

33%

41%

59%

65%

88%

0% 20% 40% 60% 80% 100%

Others

None

Idea management tools

Inventor's bonus tool

Document management system

Electronic file

Docketing and term management tools

Search tools


Schindler, for example, has developed an internal IP data base storing ideas,

invention disclosures, and patent data. In the data base patents are classified

according to defined criteria. The keywords of the classifications are renewed

every two years. The patents are evaluated with a standard evaluation form

including a point system. The evaluation form considers both the economic

perspective, i.e. market success, as well as the legal perspective, i.e. patent

sustainability. In addition, technical aspects are assessed, too. The challenge for

Schindler regarding the data base is on the one side to provide firm-wide

communication and, on the other side, to ensure confidentiality of the

information. Data communication and communication between the data base

users is therefore implemented via a secured intranet. Additionally, Schindler

has established different levels of access authorization. Moreover, especially for

the requirements of the U.S. law of inventions (currently “first-to-invent”, soon

to become “first-to-file” under the America Invents Act (USPTO, 2012)), all

documents are marked with a time stamp that “freezes” the new document and

makes it unchangeable. In this way, Schindler is able to exactly track the date of

the inventions.

Kodak uses the internally developed software system MP-Tools consisting of

patent analysis tools to support acquisition and evaluation decisions. This

process is a standardized tool for qualitative patent evaluation which is

implemented throughout the firm.

The last phase of the IP value chain, IP exploitation, is least supported by IP

applications. Even for patents, only 13% of the investigated firms use IT tools

for exploitation, 83% of the firms do not use IT support in this phase at all.

Figure 6: The use of IT tools for valuation and evaluation activities

16%

15%

84%

85%

0% 20% 40% 60% 80% 100%

Valuation

Evaluationyes

no


3.4.3 User friendliness of IT tools for IP management

At the investigated firms, an IT tool for IP management is used on average by

10 employees. About nine employees are involved in patent management tools.

For trademark, design, domain, and contract management, the average number

lies between two and five employees. To get a picture of the users’ mindset

regarding the usability and utility of their IT tools an analysis of the degree of

satisfaction was conducted. The results reveal that on a five point Likert scale

from 1 = very unsatisfied to 5 = very satisfied, the average degree of satisfaction

is 3.21, i.e., neither totally satisfied nor unsatisfied. Also, there is no remarkable

difference between the single IP rights. In percentage, 49% of the firms are very

satisfied or satisfied with their IT tools for managing IP. 36% are neutral, 15%

are unsatisfied or very unsatisfied (figure 7). Reasons for the users’

dissatisfaction are that the tools demand too much working hours, that they lack

adequate functionality, cause redundant work, and lack the integration of several

functionalities like document management, literature management, and search

processes.

Another perspective on the satisfaction level of firms with their IT tools reveals

that the degree of satisfaction of firms using an integrative IT tool system, i.e., a

system including all necessary processes for all IP rights, is higher than those

firms working with different single IT tools. About two-thirds of the firms

currently work with several IT tools, only one third has an integrative system.

But the findings reveal that the users of the integrative systems are more

satisfied than those using many different tools. 64% of the integrative tool users

are at least satisfied with their system, while not even half of users in the firms

using different tools are satisfied with their system.

IBM is an example for the use of an integrative IT tool system helping to

generate, assess, and exploit the IP portfolio. IBM uses a know-how and

management software which helps to align business and IP strategy, identify

new patent opportunities, evaluate and leverage patent portfolios. The patent

management software has been developed internally by IBM’s patent and IP

experts for over a decade with the aim to support analysis, assessment and

administration of IBM’s patent portfolio with more than 40,000 patents. The


Figure 7: Satisfaction of firms with their IT tools for IP management

integrative IP management tool has enabled IBM to balance its IP strategy with

business needs and find new ways to derive value from its IP portfolio.

Also Infineon’s IP software system has been developed towards an integrative

system. Infineon has established three IT tools: an internally developed patent

administration tool, an IP search tool, and an IP portfolio management tool. The

three tools are linked and complement each other. The stored data is available

for people involved in R&D management, IP management, and the IP decision

process.

3.5 Discussion

3.5.1 IT tool use along the IP value chain adopting an organizational

information processing perspective

The results reveal that the use of IT tools decreases along the IP value chain

from IP generation over assessment to exploitation. This can be discussed

adopting an organizational information processing theory perspective. The

organizational information processing theory assumes that acquiring data,

transforming data into information, communicating, and storing data are major

challenges of complex organizations (Galbraith, 1974). Accordingly,

organizations obtain higher performance when they reach a fit between

16%

33%36%

10%

5%Very satisfied

Satisfied

Neutral

Unsatisfied

Very unsatisfied

64%

43%

0%

20%

40%

60%

80%

% of m

entions

Integrative IT tool system and (very) satisfied

Different IT tools and (very) satisfied


information process requirements and information process capabilities

(Egelhoff, 1991). In this vein, our data supports the theory as most IT support is

realized during the IP generation phase where high requirements for

information, e.g., patent information, technical state of the art, and market

information, matches the search capacities of the firms. The IP generation phase

is traditionally the phase where firms have established well structured IP

management processes. Searching new technologies and monitoring the IP

landscape is a core R&D activity and important for sustained competitiveness of

the firm (Boutellier et al., 1998; Reger, 2001). Consequently, firms proactively

attempt to optimize these processes. Today, these attempts are facilitated as

search and information processing software has progressed significantly in

recent years (Bonino et al., 2010). Hence, the generation phase offers optimal

conditions for integrating software solutions because firms can use their existing

structures and processes and complement them by IT tools to increase overall

efficiency. In contrast, in the phases IP assessment and IP exploitation many

firms do not meet the above described fit of requirements and capabilities, i.e.,

they do not have defined processes for their evaluation and exploitation

activities, resulting in a difficult integration of IT tools. At Henkel, for example,

the effort for IP evaluation currently does not require automated processes.

Instead, Henkel’s IT tools offer requested support for reliable information for

monitoring the competitive environment and detecting new technological and

marketing trends. In contrast, Kodak has established IT tool support for the

evaluation of parts of its portfolio for acquisition, maintenance, or out-licensing

reasons, activities representing a crucial part within their IP management.

Although there is a persistent demand for the firms' assessment of IP

(especially patents) (Wanner et al., 2008), the firms' valuation and evaluation

processes are rather underdeveloped and lack respective IT support. This

situation is exacerbated as firm strategies increasingly consider IP as a valuable

asset which contributes to sustainable firm success. In particular, firms

increasingly require IT tools as they try to value their IP portfolio to optimize

tax and balancing matters. IPscore® is an example of a successful patent

evaluation software tool which was originally developed by the Danish Patent

and Trademark Office and which was later acquired by the European Patent


Office3. The tool offers both a qualitative and quantitative assessment of patent

portfolios and technology development processes (Nielsen, 2004). But also IP

service providers increasingly offer IT tools for IP valuation, such as

PatentRatings® by Ocean Tomo4, the Patent Value Predictor by Pantros IP5, and

the Global IP Estimator® by Global IP Net6, of which the latter besides patents

also valuates trademarks and designs. Furthermore, in a recent research project

of the European Commission an IP valuation tool specifically for SMEs has

been developed: The AIDA IP diagnosis tool helps SMEs to analyze their IP

portfolio by applying an three-step IP auditing approach with a visual

representation of the results at the end (Petit et al., 2011). Through the

organizational information processing lens, these tools can support the firms by

supplementing their capabilities and thus helping reaching the fir between

requirements and capabilities.

Despite the potential that IT solutions offers for the external exploitation of IP

(Bergmann et al., 2008), the results show that only a few firms use IT tools for

licensing, IP transactions, or financing. A reason for this could be that external

IP exploitation is still not a standard activity at most firms. Apart from

pioneering firms such as IBM or Philips, where external IP exploitation is

implemented in business strategy, the majority of the firms engage in external IP

exploitation on a – if at all – ad hoc basis (Lichtenthaler & Ernst, 2009). As a

consequence of the low frequency of external exploitation, the development of

respective IT tools and support is difficult or may not yet be required. This again

points to the need of an increased match between requirements and capabilities

of the organizational information processing theory. Considering current

developments, the increasing proactive IP management approach of firms

including burgeoning out-licensing and sale strategies will enhance the need for

IT support tools in the future (Rivette & Kline, 2000).

Moreover, the findings show that patents are the type of IP rights which is

supported most by IT tools. Due to the large amount of technical data included

in one patent application, public and firms’ internal patent data bases entail an

enormous amount of data. As a consequence, it is difficult for the firms to search

3 http://www.epo.org/patents/patent-information/business/valuation/ipscore.html 4 http://www.oceantomo.com/ratings/system 5 http://www.patentvaluepredictor.com/ 6 http://www.globalip.com/


the patent data base in the absence of efficient IT support. Also, as the

characteristics of patent specification and patent data can be easily classified, a

target-oriented search is enabled. In their conceptual work, Moehrle et al. (2010)

have developed a patent information process model structuring the variety tasks

related to patent information management and highlighting for which patent

management tasks IT tools could possibly be used. Our empirical investigation

supports their model by finding that especially the authors’ defined tasks related

to searching and analyzing the search results (document query, content analysis,

and visualization) are frequently supported by IT within our investigated firms.

Moehrle et al. also propose the task “evaluation” for being supported by IT

tools, which is in line with the above discussion on the increasing demand of IT

tools for IP assessment.

Finally, organizational information requirements increase with complex

environments, uncertainty, and interdependence of work processes (Bader &

Ruether, 2009; Pitkethly, 2001). Our data supports earlier findings that these

characteristics can be found at intellectual property management processes

(Chesbrough, 2003a; Pisano, 2006; Rivette & Kline, 2000). Growing IP

portfolios, increasing emphasis on intellectual assets, and a high

multidisciplinarity have made IP management increasingly complex and the

availability of technical and managerial information a major success factor. This

trend is also supported by the findings from the case studies. For example, OC

Oerlikon, which has the smallest portfolio of the sample firms with about 1’600

patents, uses IT support less than the other firms. For OC Oerlikon, the most

important aspect for automation are administrative processes, while other firms

with larger IP portfolios have extended the IT support for IP search, evaluation,

and exploitation activities. In summary, these findings suggest a positive relation

between firm size, IP portfolio size and the use of IT tools for IP management.

3.5.2 Firms’ satisfaction and requirements of IT tools for IP management

The results on the user satisfaction of IT tools for IP management show that

firms tend to prefer integrative IT tool systems instead of using many different

tools. An integrative tool system offers the user several functionalities combined


in one tool instead of working with different tools. Working with a range of

different tools entails the risk of redundancies, i.e., that identical information

must be entered separately in several tools or basic information analyses have to

be conducted several times. Integrative IT tool systems potentially avoid such

redundancies because all functionalities and analyses can be based on a central

data base containing all relevant information. In summary, the findings show

that integrative IT tool systems provide more efficient support to firms’ IP

management than many single tools.

Different types of users and a broad spectrum of tasks inherent in IP

management present important challenges for the development of IT tools for IP

management (Bonino et al., 2010). Our findings reveal that customization to

individual processes and firm characteristics is the most important requirement

of an IT tool. Firms profit best from IT solutions for their IP management when

they have the possibility to complement the basic standard functionalities

according to their individual needs. This is also confirmed by the findings of the

case studies which provide insights in how firms with large IP portfolios and

established IP management structures integrate IT tools. In line with Daizadeh

(2007), the cases show that many firms have developed own IT solutions for

their IP management instead of using commercial tools. Thus, because specific

needs of the firms are often not met by commercial products, firms are willing to

invest in own software development programs because they consider IT tools to

improve their IP management processes.

3.6 Conclusion and future research potential

Firms are increasingly challenged by growing IP portfolios and have to adapt

structures and processes to ensure efficient IP management. Towards this

backdrop, IT may be a powerful tool to improve the effective management of IP.

As the current user behavior shows, IT tools can significantly improve how IP

data is managed and how information can be efficiently processed. The present

paper provided insights into the use of IT tools in the entire IP management of


firms by presenting the results of a worldwide survey. Three key findings can be

derived from the results:

• Three major categories of IT tools for IP management were identified:

search tools, administrative tools, and evaluation tools.

• The firms’ use of IT tools decreases along the IP value chain: Firms

most frequently use IT tools in the IP generation phase for searching

activities. The IP evaluation and IP exploitation phases are less

frequently supported through IT.

• Patents are the form of IP rights which are supported most by IT tools.

Based on the findings of this paper, several recommendation emerge. Besides

patents, firms should also consider IT support for trademark and design

management, e.g., by integrating trademark and industrial design data in the data

base and search systems. This allows the firm to maintain a reliable overview of

their entire IP portfolio and increases the efficiency of the overall IP

management.

Furthermore, evaluation and valuation activities have gained increasing

importance for firms in recent years. By supporting these activities through IT

tools, firms can improve the reliability of their evaluation results. Using an IT

tool for the assessment of the IP portfolio or for single IP rights implies that the

data used for the evaluation and the proceeding of the evaluation is documented

within the system. Hence, the tool ensures to trace back the evaluation activity

and increases the validity of the results.

Also, with respect to the ongoing trend towards a more proactive IP

management, firms should consider using IT tools to efficiently leverage their IP

portfolios. A data base system, for example, can be used to structure the IP

rights according to their current use and thus helps to identify patents for

external commercialization.

Moreover, from our analysis of the various activities along the IP value chain,

it seems that IP information is not only important for the firm's patent

department but also for R&D (e.g., new technology and state of the art searches)

and marketing or business development functions (e.g., pricing considering the

patent value, entering new markets through licensing). Hence, firms should


consider that IT tools may facilitate the access to IP information which can then

be used for improved strategy making.

Finally, it is worth noting that we addressed IP intensive firms worldwide

regardless of industry sector or firm size. Thus, the investigation of the impact

of industry, firm size, and geographical effects would enhance our

understanding of contingency factors important for IP management.

Furthermore, in the case studies we focused on those firms that already have

implemented well-structured IP management processes. To extend and

complement our findings, longitudinal studies on how firms starting to establish

IP processes use IT solutions for their IP management would provide important

insights in the success factors of IT tool support. Lastly, due to the fact that

much less attention has been paid to phases two (assess) and three (exploit) of

the IP value chain, a promising further research avenue would be to investigate

the impact of using IT tools in these phases on the overall effectiveness of the

firms’ IP management as well as to analyze the role of different user types of

these IT tools.

4 Creating value through external intellectual

property commercialization – a desorptive

capacity view

Co-authored by Oliver Gassmann, Frauke Ruether, and Martin A. Bader

In open innovation systems, capturing value through external intellectual

property (IP) commercialization is an increasingly important strategy for firms

to keep pace with competitive changes. However, many firms have major

difficulties in creating value through external patent exploitation. To understand

these challenges, this paper explores how firms manage their external patent

exploitation based on a multiple case study research design with fourteen firms

from the pharmaceutical and chemical industry. Adopting a desorptive capacity

perspective we find four main factors influencing the firms’ management of

external patent exploitation: the type of value creation, the organizational

structure, the locus of initiative, and the extent of know-how transfer along with

the patent. Based on these factors, three archetypes of external patent

exploitation with different levels of desorptive capacity are identified. The

article extends the concept of desorptive capacity and existing literature on

intellectual property management in the context of open innovation. Managerial

implications helping firms to implement external IP commercialization

structures are discussed.

54 4 Creating value through external IP commercialization – a desorptive capacity view

4.1 Introduction

In the traditional closed innovation system, intellectual property rights such as

patents were seen as a means to protect own technologies from being imitated

(Chesbrough, 2003a). However, due to significant changes in the competitive

environment, e.g., globalized markets, high dynamics in technology

development (Bianchi et al., 2011a) and a growing mobility of highly skilled

people (Florida, 2002), closed innovation approaches become less viable and

limit interactions with the firms’ environment (Teece, 1998). Many firms have

recognized the potential of opening up their innovation processes and

increasingly look for and share ideas with organizations outside of their firm

boundaries (Gassmann, 2006). From a patent management perspective, opening

up the innovation process requires a shift from the traditional patent protection

approach towards a wider approach that considers patents also as tradable assets.

Within this context, firms have started to commercialize their patents externally

and out-license and sell patented technologies (Davis, 2004; Rivette & Kline,

2000). This trend is underlined by the development of revenues from technology

licensing over the last decades: From 1980 to 2003, the technology licensing

payments and receipts have increased on average by 10.7% per year

(Granstrand, 2004). Moreover, the value of technology transactions has grown

from about $40 billion in the late 1990s to an estimated $100 billion in the early

2000s (Arora & Gambardella, 2010). This development is argued to be due to

the increasing competitive pressure through the globalization of markets,

customers, and competitors which force firms to find ways to keep pace with the

environmental changes and to increase their overall IP management

effectiveness (Arora et al., 2001; Granstrand, 2004). At the same time, recent

studies claim a high level of unused patents within the firms. In a large scale

study with European firms, Guiri et al. (2007) find that nearly 18% of the

patents are unused, in the pharmaceutical and chemical industry even 22%. A

US based survey revealed that more than 35% of patented technologies are not

used by the firms (Rivette & Kline, 2000). A closer look at this licensing

paradox of increasing technology licensing revenues on the one hand, and a

large rate of underexploited patents on the other hand, implies that relatively few

firms account for the majority of the increase in licensing, while many firms still

4 Creating value through external IP commercialization – a desorptive capacity view 55

engage little in out-licensing (Lichtenthaler & Lichtenthaler, 2010). A recent

study revealed that 40% of the patent holders of all US patents account for 99%

of the US licensing revenues, while 60% of the patent holder only generate 1%

of the licensing revenues (Alexy et al., 2009). In contrast to often cited examples

such as IBM and Dow which have established comprehensive licensing

programs and generate large amounts of money through externally

commercializing their patents (Davis & Harrison, 2001), many firms fail to

exploit the full potential of their intellectual assets (Elton et al., 2002).This

discrepancy points to a large heterogeneity between the firms and literature

increasingly refers to managerial difficulties to implement external patent

exploitation (Elton et al., 2002; Lichtenthaler, 2011; Rivette & Kline, 2000).

Several studies exist on the strategy of external patent exploitation, e.g.,

revealing that the firm’s willingness to externally exploit its patents depends on

the potential competitive advantage, the strategic appropriability, and the risk

involved (Davis & Harrison, 2001; Kline, 2003; Pitkethly, 2001). Studies also

exist on the firms' motivation for external patent exploitation, including financial

and strategic motives such as entering new markets and setting industry

standards (Ehrhardt, 2004; Grindley & Teece, 1997; Palomeras, 2007), and

firms’ organizational structures for technology trade (Bianchi et al., 2011b;

Granstrand, 2004; Lichtenthaler, 2011). Also, the markets for patents have been

investigated, e.g., revealing that asymmetric information and high transaction

costs present barriers for patent commercialization (Benassi & Di Minin, 2009;

Gambardella et al., 2007; Teece, 1998).

However, despite the practical importance of external patent exploitation and

the fact that many firms experience substantial difficulties in managing it

(Rivette & Kline, 2000), literature lacks empirical insights in how firms

organize and implement their external patent exploitation. Extant literature is

mostly limited to conceptual approaches (Grindley & Teece, 1997) and

anecdotal evidence (Kline, 2003; Rivette & Kline, 2000). Moreover, most

studies adopt knowledge or technology as the unit of analysis within

exploitation activities, including the exploitation of unpatented technology.

Based on the findings of several studies claiming that the firms’ patent portfolios

are often underexploited and hold significant unused commercial potential


(Elton et al., 2002; Giuri et al., 2007; Rivette & Kline, 2000), understanding

external technology exploitation from a patent management perspective is an

important gap in research. In particular, there is a lack of in-depth empirical

insights into how firms actually manage their external patent exploitation.

Consequently, this article aims to fill this gap by empirically investigating how

firms manage external patent exploitation. Applying the concept of desorptive

capacity as theoretical research setting (Lichtenthaler & Lichtenthaler, 2009),

we explore which factors influence the firms’ approach towards managing

external patent exploitation. To this aim, the empirical analysis of the paper is

based on data from fourteen firms of the pharmaceutical and chemical industry.

The remainder of this paper is structured as follows. In section 4.2, a brief

overview of relevant literature on external patent exploitation and its role in the

pharmaceutical and chemical industry is given. In section 4.3 and 4.4, the

research framework is developed and the research methodology is described.

Sections 4.5 and 4.6 present and discuss the empirical findings and the

developed archetype model. Lastly, section 4.7 concludes the paper and outlines

future research avenues.

4.2 External exploitation of patents and its role in the

pharmaceutical and chemical industry

4.2.1 External patent exploitation

Intellectual property management is commonly understood as the

management of a firm’s IP rights consisting of patents, trademarks, industrial

designs, and copyrights. In this study we focus exclusively on patents for two

reasons: first, patents are the most tangible form of IP rights and enjoy the

strongest legal protection compared to other types of IP. Second, patents mostly

have, compared to the other IP rights, the greatest effect on a firm’s commercial

performance (Ernst, 2001; Lerner, 1994; Rivette & Kline, 2000).

The intention of the patent system is to create incentives for investments in

R&D and the diffusion of R&D results by enabling firms to appropriate returns


from innovation (Levin et al., 1987; Teece, 1986). To do this, literature

distinguishes between internal and external exploitation of patents. Internal

patent exploitation involves protecting own products and processes from

imitation, creating entry barriers for competitors into a technological field, and

ensuring freedom to operate, i.e., creating and maintaining a position where the

firm can continue its research and development (R&D) activities free from third

party IP rights (Blind et al., 2009; Cohen et al., 2000; Harabi, 1995; Levin et al.,

1987). External patent exploitation refers to the exploitation of patents outside

the firm boundaries through out-licensing, cross-licensing, or selling of patents

(Granstrand, 2000; Monk, 2009). To clarify the meaning of the term ‘external

patent exploitation’, we define it, based on the definition of external knowledge

exploitation of Lichtenthaler (2005), as follows: External patent exploitation

describes an organization’s deliberate exploitation of patents to another

independent organization with or without know-how transfer involving a

contractual obligation for monetary or non-monetary compensation.

4.2.2 The case of the pharmaceutical and chemical industry

The important role of patents in the chemical and pharmaceutical industry has

been subject of various studies (e.g. Arora et al., 2001; Gambardella, 1995;

Teece, 1998). The character of pharmaceutical and chemical inventions enables

firms to effectively define patent rights over a specific chemical composition

and to create temporary monopolies (Levin et al., 1987). Cohen et al. (2000)

have termed this characteristic as ‘discrete technologies’, i.e., technologies

where one patented substance often protects one product. This is in contrast to,

for example, the electronic industry where final products are protected by entire

patent clusters. As a result, research and development of pharmaceutical and

chemical firms is more dependent on patents than most other industries

(Granstrand, 2000; Thumm, 2001).

Furthermore, pharmaceutical and chemical firms are under increasing

regulatory and commercial pressure due to exceptionally high initial R&D costs

(Arora & Fosfuri, 2000; Whitehead et al., 2008) and long product development

life cycles (Teece, 1998). In the pharmaceutical and chemical industry, the


average time until a new product is launched is between 7 to 15 years (Fine,

1996). Considering the maximum patent life time of 20 years, with some

exceptions in the pharmaceutical industry with 25 years, firms often have only a

short time to realize earnings from their products. Moreover, the fact that only

about one out of 10’000 substances discovered in the R&D phase in the

pharmaceutical industry becomes a marketable product (Gassmann &

Reepmeyer, 2005) shows the tremendous risk that these firms face regarding the

outcome of their innovation efforts. Towards this backdrop, pharmaceutical and

chemical firms need to look for improved commercialization opportunities and

increasingly adopt a more proactive patent management approach by capturing

additional value through externally exploiting their patents (Arora & Fosfuri,

2000).

Despite the increasing importance of external patent exploitation especially

for the pharmaceutical and chemical firms, literature lacks empirical insights

into how the firms actually manage external patent exploitation. This article

aims to fill this gap by empirically investigating which factors influence the

firms’ management of their external patent exploitation and how this impacts the

success thereof. In order to analyze the data, a research framework adopting the

concept of desorptive capacity is developed in the subsequent section.

4.3 Research framework

Open innovation literature distinguishes between outside-in and inside-out

flows of knowledge at firms (Gassmann et al., 2010). The outside-in process

entails acquiring and integrating external knowledge into the firm. The inside-

out process implies the transfer of own knowledge assets outside to third parties,

e.g., through licensing or selling of technologies. The dynamic capability theory

assumes that organizations need to adopt to changing business environments and

renew their competences in order to stay competitive (Teece et al., 1997). Thus,

firms in open innovation systems need to develop capabilities to internalize and

externalize knowledge to gain competitive advantage. Regarding the outside-in

process, the widely known concept of absorptive capacity has been successfully


applied in numerous studies. The theory of absorptive capacity was originally

introduced by Cohen and Levinthal (1990) and refers to a firm’s ability to

recognize, evaluate, assimilate, and apply external knowledge. While the

outside-in process and the firm’s absorptive capacity have been

comprehensively studied in previous research, its counterpart, the inside-out

process, is still under-researched. Towards this backdrop, Lichtenthaler and

Lichtenthaler (2009) recently introduced the concept of desorptive capacity. As

opposed to absorbing external knowledge, desorptive capacity refers to a firm’s

ability to externalize internal knowledge assets in order to appropriate returns

from innovation. Accordingly, Lichtenthaler and Lichtenthaler (2009, p. 1321)

define desorptive capacity as “a firm’s ability to externally exploit knowledge”.

The authors propose two main stages of desorptive capacity within the

external technology exploitation process: the identification of technology

transfer opportunities and the transfer of the technological knowledge.

According to the authors, identifying potential technological assets for being

externally exploited is an often underestimated but crucial managerial challenge

for the firms. Many firms face difficulties in recognizing external exploitation

options due to the lack of transparency of technology markets (Lichtenthaler &

Lichtenthaler, 2009). At the same time, a study shows that a proficiently

managed process to identify new external exploitation options positively

impacts a firm’s external technology commercialization performance

(Lichtenthaler et al., 2009). Therefore, developing capacities to initiate an

external exploitation project is a key aspect of developing desorptive capacity.

In the second stage, the transfer stage, the firms have to assign a value to the

patents and to develop a pricing strategy considering the cost benefit ratio. Also,

the contractual agreement with the partner firm is negotiated. Besides the

financial compensation this can also include the agreement on additional know-

how to be transferred to facilitate the application of the technology at the partner

firm.

Furthermore, dynamic capability theory suggests that the transfer of

knowledge is affected by internal and external variables (Lichtenthaler et al.,

2010), which we, based on prior research on knowledge and technology transfer,

consider for our research framework.


4.3.1 Internal variables

Motives

Studies on the firms’ rationales to externally exploit their IP suggest two

major types of motives: monetary and strategic motives. Monetary motives have

the objective to enable direct revenues and include generating new income,

maximizing the return of investment, and reducing maintenance costs

(Palomeras, 2007). Strategic reasons entail entering new markets, maintain

freedom to operate, setting industry standards, create a complementary

relationship with partners, gain access to third party IP, reducing risks, and

achieve learning effects (Koruna, 2004; Kutvonen, 2011; Lichtenthaler, 2005)

and allow the firms to generate long-term indirect revenues. Previous findings in

literature suggest that the motive of external technology exploitation has an

influence on how firms manage the exploitation process. For example,

Lichtenthaler (2007a) states that strategic driven technology licensing is much

more complex than purely monetary driven licensing and hence requires a

different managerial approach.

Organization

A firm’s organizational structure also impacts its management of external

technology exploitation. In a study with 152 firms, Lichtenthaler et al. (2009)

highlight the role of organizational structures in the early technology

exploitation phase, i.e., for identifying new external exploitation opportunities.

Also, in a multiple case study analysis with firms from the pharmaceutical

industry, Bianchi et al. (2011b) find that the firms’ organization of external

technology commercialization is linked to distinct characteristics of the

exploitation project. They find that adapting the organizational structures

according to the strategic relevance of the project, the volume of the transaction,

and the maturity of the technology can be an important success factor of external

technology commercialization.


Figure 8: Research framework

4.3.2 External variables

Technology Market

Towards the backdrop of the open innovation era, the role of patents has

shifted from solely protecting a product or a process from imitation towards

being a tradable good itself. In this vein, markets for patents and technologies

have emerged (Arora et al., 2001; Guilhon, 2001; Teece, 1981). However,

markets for intangible goods such as patents differ significantly from product

markets. Although studies have observed a growth of technology markets and

licensing revenues over the last decades, they also point to a major aspect that

limits the growth of these markets: high transaction costs caused by asymmetric

information between the two involved parties and uncertainty, e.g., regarding the

extent and legal status as well as the economic value of the patent (Arora &

Gambardella, 2010). Many firms do not finish or enter a licensing deal at all

because of high transaction costs such as costs for finding a partner, negotiation

effort, or a weak legal strength of the patents (Arora & Gambardella, 2010;

Gambardella et al., 2007). In a survey with US and Canadian firms Razgaitis

Desorptivecapacityfor external IP exploitation

Identify Transfer

Internal factorsMotivesOrganization

External factorsTechnology marketPartners

Value Creation


(2004) found that only for 25% of licensable technologies a partner firm could

be found, and that again out of these, only 25% entered into negotiations of

which then about half of the deals were closed. Along with the rise of the market

for patents and technology and the firms’ difficulties to act on these markets,

intermediary services have emerged (Ewing & Feldman, 2012; Ruether, 2012).

IP intermediaries can be described as “organizations whose business is to match

supply and demand of technology to facilitate IP-based transaction” (Benassi &

Di Minin, 2009, p. 69). Their activities entail for example advising the firms in

evaluating their patents, finding new business options, developing business

models, and identifying potential partner firms.

Partners

Besides the patent owning firm’s exploitation strategy and motives, the extent

of the patent and technology transfer also depends on the partner firm’s previous

know-how and competencies of the technology, or, in other words, on the

partner firm’s need for additional know-how to apply the technology. In this

regard, literature distinguishes between external patent exploitation with and

without the transfer of know-how (Arora & Gambardella, 2010). External patent

exploitation without know-how transfer stands for the transfer of the bare legal

right and is often used to solve the freedom to operate issues (Pitkethly, 2001).

External patent exploitation with know-how transfer includes the transfer of

related explicit and implicit knowledge such as research reports and

technological expertise. These transactions require an active participation of the

patent owner to facilitate the successful application of the technology at the

partner firm (Lichtenthaler & Lichtenthaler, 2010).

In figure 8, the above presented aspects are synthesized in a research

framework on which the subsequent data analysis will be based. Building on the

concept of desorptive capacity (Lichtenthaler & Lichtenthaler, 2009;

Lichtenthaler & Lichtenthaler, 2010), we consider both internal and external

factors impacting the firms’ management of external patent exploitation, which,

in turn, is assumed to impact leveraging and capturing value of the firms’ patent

portfolios.


4.4 Research methodology

Due to the scarce empirical insights pertaining to how firms manage their

external patent exploitation, the research is based on a qualitative, exploratory

research design. A multiple case study research with the firm’s external patent

exploitation activities as the unit of analysis is employed. This research design

allows addressing detailed questions to gain deeper insights in the firms’ patent

management approach and to understand the context and motivation of

behavioral patterns (Eisenhardt, 1989; Gibbert et al., 2008; Yin, 2009). The

cases were selected in a two-step selection process following theoretical

sampling (Eisenhardt, 1989). In a first step, initial interviews with 50 firms

following Yin’s replication logic (Yin, 2009) were carried out in order to gain

general insights into the firm’s external patent exploitation activities. In a second

step, fourteen firms were chosen which provide the most detailed and insightful

information and have the highest learning potential with respect to their external

patent exploitation approach (Eisenhardt, 1989). First, we followed the

contingency approach which suggests that an organization’s ability to achieve its

goals depends on the organizational situation and context (Fiedler, 1964). In the

context of external patent exploitation, we focus on the industry as a

contingency factor (Chenhall, 2003; Mansfield, 1986) and exclusively

investigate firms from the pharmaceutical and chemical industry. With regards

to patent management, these industry sectors are highly comparable because

they deal with discrete technologies (Cohen et al., 2000). Second, we included

firms representing ‘polar types’, i.e., illustrating extreme sides of the

investigated phenomenon (Yin, 2009). To do this, we chose firms with both high

and low activities of external patent exploitation. Third, we considered the

firms’ accessibility and chose those firms which allowed for a personal face-to-

face contact. Also, due to the sensitive data on the firms’ intellectual property

strategies, building up a trust relationship through personal contact is a crucial

aspect for the quality of the data. As a result, seven firms headquartered in

Germany, six in Switzerland, and one in the United States of America were

chosen.

The data collection was conducted through personal face-to-face and

telephone interviews using a semi-structured interview guideline. For the initial


interviews, the heads of the firms’ IP departments were contacted. For the

interviews with the fourteen selected firms, at least one more detailed follow-up

interview was conducted with the same persons contacted for the initial

interviews. Whenever possible, one or two other employees of the firms were

interviewed. This was the case for nine of the fourteen firms: With seven firms,

a second person could be interviewed, with two firms two other persons. While

the first interview partner at all firms was the head of IP, the other interviewed

employees where IP and licensing managers involved in external patent

exploitation projects (see table 7). In addition to the interviews, data was

collected through desk research analyzing the firm’s internal and external

documents and press releases. This multiple source approach allows to

triangulate the data which increases the validity and reliability of the results

(Jick, 1979).

The fourteen sample firms are all research-intensive pharmaceutical and

chemical firms. The size of the investigated firms ranges from 20 to more than

100’000 employees, and their patent portfolios contain between 450 and

140’000 patents. To start the data analysis, we synthesized all data into

individual case histories. Each case history includes narratives, selected quotes

from the interviewees, and tables summarizing the key facts. Then, within-case

analysis was used to identify the specific way how each firm manages their

external patent exploitation (Eisenhardt, 1989). When all individual case

histories were completed, the cross-case analysis was conducted to identify

general patterns across the cases. To do this, the data was tabulated and cross-

case pair wise comparisons were conducted (Miles & Hubermann, 1994). This

allowed us to see similar themes across the cases and to deduce factors that

impact the firms’ management and approach towards external patent

exploitation.


Table 7: Overview of the investigated firms

Firm Headquarters Employees Interviewee(s) Interviews

Firm1 Germany >100,000 Head of IP (regional),

IP Manager 2

Firm2 Germany <500 Head of IP,

Portfolio Manager 2

Firm3 Germany >1000 Head of IP 2

Firm4 Switzerland <500 Head of IP,

Licensing Manager 4

Firm5 Germany >30,000 Head of IP, IP and

Licensing Manager 2

Firm6 Germany >40,000 Head of IP,

IP Manager 2

Firm7 USA >10,000 Head of IP (regional) 2

Firm8 Switzerland >10,000 Head of IP,

Patent Manager 2

Firm9 Germany <500 Head of IP 2

Firm10 Switzerland >100,000 Head of IP (pharma),

IP Manager (corporate),

IP and Licensing Manager

(pharma)

5

Firm11 Switzerland >80,000 Head of IP (corporate),

Head of IP (regional),

Licensing Manager

5

Firm12 Switzerland >10,000 Head of IP,

IP Manager 4

Firm13 Germany >5000 Head of IP 2

Firm14 Switzerland >20,000 Head of IP 2


4.5 Findings and discussion

4.5.1 Internal factors influencing the firms’ external patent exploitation

Motives of external patent exploitation

The motive why firms exploit their patents externally often determines the

form of external exploitation, i.e., out-licensing, cross-licensing, and the sale of

patents. The firms in our study use all of these forms and follow both financial

and strategic motives to commercialize their patents outside of the firm

boundaries. Generating revenues and cutting costs are the most important

financial motives at the investigated firms. Firm1, for example, sells patents of

terminated research projects to reduce the maintenance costs of its patent

portfolio and to receive additional revenues. Selling a patent leads to a one-time

revenue and shifts the patent ownership to the partner firms. In contrast, an out-

licensing agreement usually consists of an initial up-front payment and

subsequent regular royalty payments. Firm11, for example, has out-licensed a

terminated research project to a spin-off company and has gained constant

revenue streams through the royalty payments of 10% of sales for more than a

decade.

Strategic motives to externally exploit patents are more diversified than

financial motives. One of the most important strategic motives is the transfer of

technologies for further development and product commercialization. Firm3, for

example, out-licenses or sells patents of secondary technologies which need

further development to finalize a product that exceeds Firm3’s own resources.

Another important strategic motive is to gain access to third party patents. Firm6

uses cross-licensing agreements to access patents of other firms or institutions

which are important for their own already realized products or for potential

future products. Moreover, for certain technologies, standardization can be a

reason for external patent exploitation. Firm12, for example, considers to

broadly out-license a sub patent portfolio containing approximately 40 patent

families covering a specific technology in order to set an industry standard. The

technology has the potential to being widely used within the own industry as

well as in applications in other industries. Moreover, through out-licensing

either in broad licensing programs or exclusively to selected partner firms, the


firms also intend to enhance the firm’s reputation. Their objective is to be

perceived as an innovative and technology creating firm. Finally, out-licensing

for legal reasons is a motive at the analyzed firms. While none of the firms

follows an aggressive approach regarding patent enforcement, they are willing

to defend their patents in case of infringement. Firm7, for example, uses out-

licensing and cross-licensing agreements to solve infringement cases. The

additional revenue is used to further innovate and develop new products.

From a desorptive capacity perspective, the motive for external patent

exploitation refers to the type of value the firm wants to create. The firms

approach towards external patent exploitation is closely related to their business

strategies and commercialization capabilities (Teece, 1986). While some of the

sample firms treat out-licensing as a distinct opportunity to gain additional

revenues and follow a rather short-term perspective, others intend to engage in

long-term alliances with its partners and build up a network for future out-

licensing opportunities. Respectively and in line with Chesbrough’s

argumentation on creating value through managing IP, the firms follow different

business models and have defined different strategies to appropriate returns

through their patents portfolio (Chesbrough, 2003a). The role of the firms’

business model can be demonstrated with the example of Firm2 which changed

its business strategy over the last years including an active shift of its approach

towards patent exploitation. In the past, Firm2 regarded its patents as a ‘safety

fence’ to protect products and block competitors. Only the internally used

patents were considered as valuable patents and there was not any willingness to

share patents with third parties. Today, Firm2 treats its patents as tradable assets

with the objective to gain access to new technologies, create partnerships and

joint ventures, and gain revenues. Accordingly, Firm2 restructured its patent

management to better handle the external patent exploitation. Hence, firms are

advised to establish desorptive capacities according to their IP

commercialization strategy that defines if the firm aims to exploit its patents

internally through protecting own products, externally through e.g., out-

licensing, or a combination of both. Firms should define which type of value

they wish to create through the external exploitation of the patent and adopt their

management accordingly. This also includes decisions on which form of


external exploitation, i.e., out licensing or selling, should be chosen. For out

licensing, firms should decide whether the technology should be spread using

non-exclusive licenses, or if the best benefit is reached by licensing it

exclusively to one partner firm. While broad licensing can be appropriate to

introduce an industry standard, exclusive licensing can be applied for early

technologies that need further development.

Organizational structure

The way how patent management is implemented within the firms’

organizational structure differs basically between a centralized versus a

decentralized IP structure (Carlsson et al., 2008; Granstrand, 2000). In our

sample, nine of the firms have a centralized and five a decentralized IP

organization. At Firm14, IP management is a decentralized function organized

in multifunctional teams consisting of patent attorneys, legal attorneys, and

licensing specialists. These teams act as interfaces between the R&D department

and the business units and provide support during the creation of IP and the

subsequent transformation thereof into intellectual capital. They also support

decisions regarding the continuation and strategic orientation of projects by

providing the relevant information regarding the legal situation and state of the

art of the technology to ensure freedom to operate. At Firm3 and Firm12, the IP

function is organized centrally in a holding firm. The IP holding is the owner of

all IP rights of the two firms. At Firm12, the IP holding is financed by licensing

patents internally to own companies and externally to third parties. While

currently most of the licensing deals are still conducted internally, Firm12 aims

to enhance the exploitation of patents outside of the firm.

However, with regards to the firms’ desorptive capacity another

organizational aspect seems to be more important than differentiating between

centralized versus decentralized function. Instead, supporting the findings from

Bianchi et al. (2011b) and Lichtenthaler (2011), we find that dedicated or

temporary functions for external patent exploitation impacts the firms‘

management of external patent exploitation. In our sample, eight of the firms

have dedicated functions for external patent exploitation. Firm5, for example,

has established a technology transfer and licensing department exclusively


responsible for the externalization of its intellectual assets. However, our

findings suggest that a dedicated external patent exploitation function is not

always the best solution. Firm11, for example, has had a dedicated function but

recently reduced it and integrated it into the patent acquisition function because

of the low frequency of external patent exploitation projects. Hence, especially

firms focusing on product commercialization with limited external patent

exploitation activities should consider the cost benefit ratio of a dedicated

function and assess which desorptive capabilities they need and can afford. For

them, a well-organized project based temporary team staffed with experts

related to the respective technology might be the more efficient way to manage

the external exploitation project.

Despite these differences regarding the organizational structure, all firms have

in common that the teams managing the external patent exploitation – within a

dedicated or a temporary function – are highly multidisciplinary. Besides patent

specialists there are employees from the R&D, business development, legal, and

marketing department involved to decide whether a patent should be

externalized or not and to prepare and realize the transfer of the patent. This is in

line with Bianchi et al. (2011b) who find that for both dedicated and temporary

functions employees with heterogeneous skills are involved. For example,

within their sample firms the dedicated functions are composed of at least six

experts from different disciplines.

The multidisciplinarity of external patent exploitation is seen by the firms

both as a challenge to coordinate the different perspectives of e.g., the IP, R&D,

marketing, and legal departments, but most importantly as necessary in order to

manage the complexity of the external patent exploitation. Thus, firms should

move away from regarding patent management as a pure legal function and

increase the awareness of the multidisciplinarity of external patent exploitation

to increase the chances of success. This involves, for example, to ensure that all

needed information for an external exploitation project can be accessed by the

external exploitation function, e.g., at the R&D, marketing, and business

development department. This requires a general openness and commitment at

the firm to use the patents beyond the firm’s traditional boundaries (Chesbrough,


2003a; Kline, 2003), or differently put, to overcome the not-sold-here attitude

(Lichtenthaler et al., 2010).

4.5.2 External factors influencing the firms’ external patent exploitation

Partners

The requirements of the partner firms with regards to additional know-how

besides the patent itself as well as their expectations regarding the quality of the

patent significantly impact the management of the external patent exploitation at

the investigated firms. To ensure the quality and to meet the expectations of its

partners, Firm2, for example, bases the internal selection of tradable patents on

specific quality criteria. The technology must be internally tested through a

feasibility study and prototypes, and the documentation of the technology must

be available. Also, Firm2 has an internal policy that the remaining life time of

the patent should be more than six years to allow the partner firm a reasonable

period for commercialization. Due to its earlier experiences, Firm2 avoids out-

licensing or selling patents of unsuccessful research projects or to trade solely

the patent rights. The finding that the management of external patent

exploitation depends on the extent of know-how transfer in addition to the pure

patent right can be compared with Granstrand’s (2004) conceptualization linking

a firm’s technology exploitation strategy with the degree of organizational

integration of the technology at the receiving firm. A partner firm that requires

comprehensive additional know-how probably intends to integrate the

technology to a higher degree than a partner firm that only in-licenses the pure

patent right. Hence, one can conclude that the management of external patent

exploitation at the patent owning firms depends on the organizational integration

of the patent at the receiving firm. Interestingly, the analysis of the firms has

shown that all firms usually have at least a medium extent of know-how transfer

when they commercialize their patents externally. According to the firms,

offering a package of technology together with the patent is a key success factor

of external patent exploitation. Firm2, for example, offers its partners

comprehensive reports of the technology development. Also Firm3 mainly

conducts out-licensing deals with know-how transfer providing documents and


personal support through an R&D employee. Firm4 often cooperates with its

partners for several years because the firm generates patents of early

technologies which are not yet ready to be commercialized and need further

development. Therefore, the transfer of technical know-how in addition to the

patent is a core aspect for Firm4 to commercialize its patents. While literature on

external technology and knowledge exploitation implicitly includes the transfer

of know-how, but also considers the exploitation of unpatented technologies

(Arora et al., 2001; Lichtenthaler, 2009), literature approaching the topic from a

patent management perspective mostly neglects the aspect of know-how transfer

along with the patent (Kline, 2003; Rivette & Kline, 2000). Only Chesbrough

(2003a) underlines that the successful commercialization of patents should be

treated as a business case and requires a business model. Hence, our results

contribute to patent management literature by emphasizing the importance of

offering additional know-how along with the patent transfer. To increase the

success of external patent exploitation, firms should consider to provide a

technology package rather than the sole patent right. This makes it easier for the

partner firm to integrate the patent into its technology portfolio and to realize

and market the final product successfully. Selling or licensing the pure patent

right is mainly appropriate to solve freedom to operate issues.

Technology market

The target market for an external patent exploitation can either be within the

firms’ own competitive environment or outside of it. Especially when the patent

is out-licensed within the own industry, the firms conduct a comprehensive

analysis of the competitive situation. This helps on the one hand to assess the

potential of the technology in the market, and on the other hand, to reduce their

risk of unintended losses of their competitive position (Kline, 2003). Out-

licensing into another industry involves less risk regarding the firm’s own

competitive position and can be a source for substantial additional revenue

(Elton et al., 2002). Firm12, for example, intends to out-license a technology,

but considers licensing it first to firms in other industries because it is less risky

with regards to the own competitive position than within its direct competitive


environment. Before out-licensing the technology within the own industry,

Firm12 intends to conduct a more comprehensive risk analysis.

Furthermore, the choice in which market the patent is transferred also

influences the firms’ willingness to cooperate with IP intermediaries. From a

desorptive capacity perspective, cooperating with an IP intermediary can be an

alternative to build own desorptive capacities. IP intermediaries can complement

the firms capacities by helping the firms to find a partner firm and to prepare

and realize the transaction (Benassi & Di Minin, 2009). Our interviewees state

that their main reason for working with an IP intermediary would be to

complement the limited resources and realize a fast transfer of patents without

huge internal effort. Firm8 for example, considers working with intermediaries

to realize a fast commercialization of abandoned patents. At Firm2, the

identification of a transaction partner sometimes requires the support of IP

intermediaries, e.g., for the commercialization of patents in specific

geographical regions such as China. The Chinese market is nearly unknown to

Firm2. Additionally, cultural differences play an important role for a successful

patent transfer deal. Therefore, for transferring patented technologies into

Chinese markets Firm2 mandates IP intermediaries. In a study on the importance

of intermediary services in the market for technologies, Lichtenthaler and Ernst

(2008) argue that IP intermediaries should be seen as a complement for internal

competencies. Hence, cooperating with IP intermediaries can help firms to

complement and extend their own desorptive capacities of external patent

exploitation. However, some efforts at the sample firms to close a deal with the

support of an intermediary have failed because internally required resources

were still higher than expected. Thus, while intermediaries should be considered

as a supporting option for certain external patent exploitation projects, the firms

should carefully assess which tasks could be done by an intermediary and which

still have to be accomplished internally. Also, the intermediary should be chosen

according to his competencies which best complement the firms’ own desorptive

capacities.


4.5.3 Internal-external factor: locus of initiative

The analysis of the firms reveals that another factor which was not considered

in our research framework impacts the firms’ management of their external

patent exploitation: the locus of initiative of the external exploitation. An

external patent exploitation project can be initialized either internally by the firm

itself or externally by a third party. In case of an external initiation, a third party

approaches the patent owning firm and makes a request to access certain patents.

For the patent owning firm, the external patent exploitation process starts with

assessing the value of the patents on which the keep-or-sell decision and the

potential price for the transfer is based. Firm8, which usually out-licenses based

on external requests, decides from case to case if the deal could be interesting.

Especially licensing requests from firms in other markets are promising options

for Firm8. In case of an internal initiation, the management process starts much

earlier with identifying potential patents for external exploitation. At the

investigated firms, a starting point often is a regular, e.g., annually, patent

portfolio review. Based on the result of the periodical review, Firm12, for

example, creates an exploitation portfolio containing patents for potential

external exploitation. The exploitation portfolio allows Firm12 to structure the

potential patents for external commercialization and to offer packages of patents

to the partner instead of only single patents. The patents in the exploitation

portfolio are evaluated with regards to their commercialization potential. The

evaluation is based on market data and the technology life cycle. Another major

challenge of the self-initiated approach is to identify a partner firm. At our

sample firms, the technologies are often quite specific which makes it difficult

for the firms to find a suitable partner who can potentially use the patent.

Proceeding with the example of Firm12, the firm creates in a first step a list with

possible transaction partners. The list is based on experience and previous

contacts. In a second step, Firm12 conducts patent searches to identify potential

partners. To do this, patent data bases are analyzed according to patent

classifications. For this patent search Firm12 cooperates with an IP service

provider because this task would exceed Firm12’s internal resources. The results

of the patent search help Firm12 to find firms that might be interested in the

technology because of related technologies and applications.


For the firms the active, internally initiated approach implies a lot more effort

in the pre-commercialization phase than in case of an external initiative where a

third party approaches the firm and asks for certain patents (Kutvonen et al.,

2010). While in the externally initiated case the patents and partners are already

known, an internally initiated exploitation project requires efforts to identify a

potential patent as well as to find a suitable partner firm. The importance of

these activities has been highlighted in several studies, especially the

identification of a partner firm is considered a major challenge or even a barrier

of external patent exploitation (Arora et al., 2001; Palomeras, 2007). Thus,

moving from a passive towards an active approach is a big step for every firm.

Firms who consider shifting their external patent exploitation towards an active

approach should especially pay attention to establishing capacities to manage the

potential patent and partner identification.

4.6 Three archetypes of external patent exploitation

Based on the above discussion, four main factors influencing the external

patent exploitation management at the investigated firms emerge. Firstly, based

on the motive why the firm wants to externally exploit its patent the type of

value the firm intends to create through the external exploitation influences the

way it is managed. Secondly, the organizational structure at the firm is

important. The findings suggest that a centralized or decentralized IP structure

does not have a direct effect on the management of the external patent

exploitation. Instead, it seems that the fact if and to what extent the firms have

established dedicated functions for external patent exploitation is crucial.

Thirdly, the locus of initiative of the external patent exploitation project

determines at which point of the process the firm actively starts to manage the

external exploitation. Fourthly, the requirements of the partner firms regarding

additional know-how along with the patent has shown to be an important aspect

the firms have to consider when out-licensing or selling their patents. Thus, the

extent of know-how transfer from the patent owning firm to the partner firm is a

factor impacting the firms’ external patent exploitation management. The


combination of different characteristics of these factors lead to three distinct

archetypes of firms adopting different modes towards their management of

external patent exploitation (table 8). In the following, the three archetypes are

described.

4.6.1 Ad hoc mode

The business strategy of the firms adopting the ad hoc mode is focused on

product commercialization. Thus, their IP strategy is optimized to exploit their

patents internally in own products and processes. External patent exploitation is

not the focus of their IP management and therefore occurs only on an ad hoc

basis and is mostly initiated externally by firms that wish to use certain patents.

The patent out-licensing and sale projects are mainly conducted to generate

additional income or recoup costs. Hence, these firms basically aim to create a

financial value through external patent exploitation. In our sample, the only

exception is Firm6, who does not intend to generate revenue through licensing

in the first place but engages in cross-licensing to access third party patents

emphasizing the mutual exchange without a financial compensation. Due to the

small role external patent exploitation plays for the business of these firms, they

do not have a permanent dedicated function. The teams conducting the external

exploitation are either staffed temporary for each project or the external

exploitation function is coupled with the patent acquisition function.

4.6.2 Hybrid mode

The hybrid mode archetype includes firms following a twofold IP strategy.

The firms consider both internal and external exploitation as an equal means to

generate benefits of their patent portfolios. The main motive of external patent

exploitation is often of strategic nature such as entering new markets difficult to

access through a product strategy, introducing an industry standard, or

transferring further development and production to a partner firm because of

limited internal resources. An example for the hybrid mode is Firm3. Firm3 is a

developing and producing firm for specialty chemistry. During the development


of new products, Firm3 cooperates closely with partner firms leading to two

options to exploit its patents. The first option is to use the patents internally in

own products. The second option is that the partner firm takes over the

production and the patents are exclusively out-licensed. In this case, the firm

emphasizes to offer ‘licensing packages’ which, besides the patent itself, include

the transfer of know-how for the integration and application of the technology at

the partner firm. In contrast to firms following an ad hoc mode, the hybrid firms

actively initiate the external patent exploitation themselves. Firm5, for example,

estimates that roughly 95% of their external patent exploitation projects are self-

initiated, while only 5% are initiated externally. Regarding the organizational

structure, the firms in the hybrid mode have established dedicated external

technology exploitation functions which complement the classical product

commercialization.

4.6.3 Leverage mode

The firms following a leverage mode use external patent exploitation as their

business strategy. Hence, they aim to create both strategic and financial value to

ensure the survival of the firm. Respectively, the organization and the process

management are tailored to external patent exploitation and are highly

professionalized. In our sample, Firm4 adopts the leverage mode. Firm4’s

business strategy focuses on the research intensive part of the pharmaceutical

value chain. Thus, the firm aims to develop drug candidates until clinical phase

two and then tries to partner with established pharmaceutical firms for late-stage

development and marketing of the product. This strategy requires a

comprehensive technology transfer phase in which the transfer of know-how is

as important as the patent itself. The firms following the leverage mode often

cooperate with their partners for months or even years to further develop the

technology and realize the final product. Thus, especially for the firms adopting

the leverage mode, external patent exploitation involves a long-term

commitment regarding their own resources and the collaboration with their

partner firms.


Table 8: Three archetypes of external patent exploitation Extent of know-how

transfer

Very high:

comprehensive know-

how transfer, often

lasting for months or

years

High: intensive but

limited know-how

transfer

Medium: short know-

how transfer phase

Locus of initiative

Internal

Active, professionalized

Internal

Active

External

Reactive

Organizational

structure

All functions focused on

external exploitation

Dedicated function,

separated from

acquisition function

No permanent dedicated

function, often

combined with

acquisition function

Type of value creation

Strategic + financial

Long-term perspective

Strategic

Mid to long-term

perspective

Financial

Short-term perspective

Investigated

firms

Firm4

Firm2

Firm9

Firm3

Firm5

Firm7

Firm12

Firm14

Firm1

Firm6

Firm8

Firm10

Firm11

Firm13

Arc

hetype

Lev

erage

mode

Hybrid

mode

Ad h

oc

mode

Lev

el of

des

orp

tive

capacity

High

Medium

Low


From a desorptive capacity perspective, these three archetypes are

characterized by different levels of desorptive capacity. The highest level of

desorptive capacity can be found at those firms adopting the leveraging mode.

Based on their long-term strategy to generate strategic and financial benefits,

they have organized their daily business accordingly and all functions are

focused on the externalization of the patented technologies. In contrast, the firms

in the hybrid archetype consider external patent exploitation as a complement to

their product commercialization. While they, equivalent to the leverage

archetype, actively initiate external exploitation, the external patent exploitation

function is not the focus but a separated part of their business. Firms using

external patent exploitation on an ad hoc basis have the lowest level of

desorptive capacity. Focus of their business is clearly the product

commercialization and revenues through external patent exploitation rather a

side effect. This finding is also in line with discussions on the role of earlier

experience for building dynamic capabilities. Equivalent to absorptive capacity,

Lichtenthaler and Lichtenthaler (2010) suggest that a firm’s desorptive capacity

is path-dependent, i.e., a firm’s previous engagement in external patent

exploitation influences its probability and success thereof (Kim & Vonortas,

2006; Teece et al., 1997). Firms using external patent exploitation more

frequently are more experienced and thus able to build a higher level of

desorptive capacity than firms which rarely conduct external exploitation

projects. To profit from their experience, firms should carefully analyze earlier

patent exploitation projects and use their lessons learned to increase the chance

of success for future projects. For example, one lesson learned at Firm2 was that

many deals were not closed because it turned out that the expectations of the

supply and demand side did not meet. To avoid this for future projects, Firm2

now pays attention that the expectations of both sides are clearly defined and

communicated right from the beginning.

Furthermore, it should be noted that reaching a high level of desorptive

capacity is not necessarily the most effective way to manage external patent

exploitation. On the contrary, as the example of Firm11 in section 4.5.1,

organizational structure, demonstrated, firms using external patent exploitation

on an ad hoc basis might work more effectively with a relative lower level of


desorptive capacity. Hence, firms should establish their desorptive capacities

according to their needs, i.e., external patent exploitation frequency and value

creation objective.

4.7 Conclusion

Along with the open innovation trend, rethinking patent management by

considering increased external exploitation of patents to improve the efficiency

of the patent portfolio is a crucial aspect for firms. While some pioneering firms

use external patent exploitation with great financial and strategic success, many

other firms experience substantial managerial difficulties. This paper has

explored which factors influence the firms’ management and their success of

external patent exploitation using a case study approach with fourteen firms

from the pharmaceutical and chemical industry. Adopting a desorptive capacity

perspective, four main factors were identified: the type of value creation for the

firm, the firm’s organizational structure, the locus of initiative and the extent of

know-how transfer. Furthermore, three archetypes of external patent exploitation

with different levels of desorptive capacity were deduced. Specifically, our

findings emphasize that creating value through external patent exploitation is not

a simple quick win, but requires a certain commitment by the firms in terms of

internal effort, collaboration with the partner firm, and the transfer of know-

how. This study is the first which uses the concept of desorptive capacity to

analyze the management of external patent exploitation at the firm level. Thus,

the article contributes to the concept of desorptive capacity and existing

literature on intellectual property management in the context of open innovation.

The findings might also help firms to improve their management and success of

creating value of their patents by exploiting them outside of the firm boundaries.

Naturally, our exploratory study also has some limitations. First, our study

focuses on the pharmaceutical and chemical industry, i.e., industries with

discrete technologies. Conducting the study within other industries and different

characteristics of the technology, e.g., the semiconductor industry might result in

other key factors impacting the firms’ approach towards external patent


management. Furthermore, we studied mainly European firms. Due to cultural

reasons or a development within the open innovation trend that differs from

European firms, firms in other countries, e.g., the USA and Japan, might behave

differently regarding managing external patent exploitation. Lastly, it has to be

taken into account that the generalizability is restricted to due to the number of

analyzed firms. Hence, a large scale study testing the influence of the identified

factors would be a promising further research path.

The phenomenon of external IP commercialization is becoming increasingly

relevant in research and practice, and while existing literature has addressed

some issues, many open questions still remain. This paper invites researchers to

further engage and investigate white spots in this young research field.

5 Open IP strategies: Why do firms give away their

patents for free?

Single-authored

Commercializing patents beyond firm boundaries through licensing and

selling is an increasingly discussed topic among scholars and practitioners.

Collecting royalty payments or similarly contractually defined monetary and

strategic returns have become a viable business model for many firms. However,

within this external patent exploitation, a recent phenomenon where firms give

away their patents free of charge can be observed. This seems contradictory to

the original intention of the patent system of enabling firms to create temporary

monopolies to appropriate returns from their R&D investments. Consequently,

this paper explores why firms make their patents available for free and which

benefits they may gain from this behavior. Adopting the open source software

phenomenon as a background and using firm data from 27 patent release cases,

we identify a typology consisting of four types of free patent release approaches

- namely the profit maker, the cost cutter, the innovation catalyst, and the

technology provider - and discuss the motives of the firms to offer their patents

as ‘open source’. We find that firms may obtain valuable technological input for

subsequent innovations as well as social benefits in return for their free patent

release. The article contributes to the burgeoning literature on open innovation

by highlighting the importance of open IP strategies.

82 5 Open IP strategies: Why do firms give away their patents for free?

5.1 IP management in the open innovation paradigm

The open innovation paradigm in which firms increasingly share know-how

and resources has reached many industries such as software, electronics,

telecommunication, pharmaceuticals, and biotech. Prominent examples for open

innovation in practice are Philips with its open innovation park, Siemens’ open

innovation program, or Bayer’s Creative Center. Also Microsoft and SAP have

initiated decentralized research labs to increase the absorption of external

knowledge (Gassmann et al., 2010). Many firms have recognized that internal

idea development is only one part of successful innovation and that many

valuable ideas are whirring outside of the firms’ boundaries. In addition to the

outside-in approach, open innovation also implies inside-out activities where

firms externalize know-how to obtain monetary or strategic benefits in return

(Gassmann et al., 2010; Lichtenthaler, 2010). This also impacts the firms’ IP

strategy which traditionally focuses on protecting know-how and retaining

freedom to operate. From an IP strategy perspective, opening up the innovation

process means also to consider using IP, and especially patents, as a means to

exchange and share knowledge. Extant literature on open innovation emphasizes

that IP should be considered as an enabler of open innovation instead of a

disabler (Alexy et al., 2009). Out-licensing, cross-licensing, and selling of

patents are the most prominent forms of how to use the IP portfolio in open

innovation systems (Granstrand, 2004; Lichtenthaler, 2005). These external

patent exploitation forms actively make use of the patent right system by

demanding a contractually fixed compensation for the use of the patented

technology. In recent years, however, the scholarly debate has evolved around

the question how patents can be effectively used other than licensing or selling

(Hasper, 2009; Henkel & Maurer, 2009; Reisch, 2002). Also in practice one can

observe cases where firms apply another form of external patent exploitation:

they donate patents or make patents freely available either to the open public or

a specific community. At first sight, this behavior stands in contrast to the

original sense of the patent system aiming to prevent third parties from using the

patented technology. So the question arises why firms release technologies in

which they have invested R&D resources and which they have protected

5 Open IP strategies: Why do firms give away their patents for free? 83

through a patent right? Consequently, this article aims to answer this question by

exploring why firms give their patents away freely.

While literature on open IP approaches mainly focuses on the software

industry discussing the open source software phenomenon (Andersen-Gott et al.,

2012; von Krogh & von Hippel, 2006), there has been, to our knowledge, no

comprehensive discussion on providing IP free of charge in other industries.

Furthermore, open source software is mainly based on copyrights, and the

perspective of releasing patents is a new perspective on open IP strategies.

Patent release or give away for free means that in contrast to classic licensing

and cross-licensing agreements, there is no contractual definition of

compensation from the receiving side to the original patent holder. Instead, the

benefits for the original patent holder are either obtained indirectly through tax

benefits in the case of donation, or they are highly uncertain, difficult to

quantify, or based on a long-term perspective.

The article is structured as follows. Section 5.2 provides a theoretical

background by reviewing extant literature related to open IP strategies. Section

5.3 describes the methods used for this article. In section 5.4, a typology of

patent release approaches is developed and illustrated by 22 case study firms.

Section 5.5 briefly presents selected non-commercial patent pools which

aggregate patents freely released by firms. Finally, section 5.6 discusses the

findings and concludes the article.

5.2 Theoretical background

5.2.1 Motives for open IP strategies: evidence from the open source

software phenomenon

In the software industry, the success of open innovation strategies through

open sourcing is widely known and acknowledged. The open source approach to

create software innovations has become a vital alternative to in-house

development for many firms. In fact, in open source software projects, the major

innovations come from the users, or in other words, the open source community

(von Krogh & von Hippel, 2006). Open source communities consist of people


who voluntarily contribute to the open source software development by writing

software code and sharing their modifications with the community and the

original software supplier (von Krogh & von Hippel, 2006). Open source

software projects are mostly based on copyright licenses. Historically, software

was not patentable prior to the 1970s. Today, only in the US and in Japan

software can be generally protected through patents. Some other countries such

as China or the UK allow software patents under certain conditions, e.g.,

including a visible technical contribution (Yang, 2012). However, in most

countries and IP regimes software patenting is not possible but falls under the

copyright protection. The motives why firms contribute to the open source

software development by releasing their software code and related IP rights to

the public are have been discussed by many scholars during the last decade.

Open source software literature basically distinguishes between three major

areas of motivations of firms for participating in open source development:

economic, technological, social reasons (Bonaccorsi & Rossi, 2006; Dahlander

& Magnusson, 2005). These three areas of motivations are briefly presented in

the subsequent paragraphs.

Economic reasons

Commercial firms are driven by maximizing profits, thus the economic

perspective behind releasing innovations free of charge is obviously an

important, although counterintuitive, aspect for the firms. In the software

industry, literature emphasizes the selling of complementary services as a

dominant strategy of firms to appropriate returns through open source software

activities (Dahlander, 2005; Dahlander & Magnusson, 2005; Lerner & Tirole,

2002). Besides the software itself, complementary products and services such as

installation, training, maintenance, consultancy, and certifications play a major

role for firms to achieve competitive advantage (Andersen-Gott et al., 2012).

Another economic reason for releasing software to the open source

community are cost savings. By using the community in addition to internal

development efforts, the firms on the one hand lower their internal R&D costs

(Hawkins, 2004), and on the other hand they increase their R&D resources by

profiting from external ideas (George et al., 2005). Without receiving any


monetary compensation in return, the developers in the community for example

identify and report bugs and test the software on its functionality (Henkel, 2004;

Lerner & Tirole, 2002). This enables the firms to develop their products faster

and make them better than what they would be capable of doing solely by

themselves (Andersen-Gott et al., 2012).

Technological reasons

By opening the innovation process to the open source community, firms can

also profit on the technology side through comments, ideas, and further

developments from users and developers, thus enabling a cumulative innovation

process (Henkel, 2004). Through this, firms can lower their development costs

and improve quality and applicability of the technology (Bonaccorsi & Rossi,

2006). Moreover, the open source concept allows the developers in the

community to ‘stand on the shoulders of giants’, i.e., to base their further

development and contribution on an already existent basis of technology

(Scotchmer, 1991). For the technology releasing firms, using the feedback of the

community on their basic software technology involves to profit from capacities

that go beyond their internal development capacities, and thus enables them to

speed up their innovation process (Andersen-Gott et al., 2012). Also, promoting

a technological standard can be a reason for firms to freely release their software

(Bonaccorsi & Rossi, 2006).

Social reasons

Besides the mainly profit-driven motivations based on economic and

technological reasons, literature also points to social reasons to contribute to

open source development. On the one hand, firms aim to conform to the social

norms of the open source community and feel a moral obligation (Andersen-

Gott et al., 2012; Bonaccorsi & Rossi, 2006). On the other hand, due to rising

public interest and attention to the open source phenomenon firms have

recognized that participating in this movement can be a chance to enhance

corporate reputation (Bonaccorsi & Rossi, 2006). In a study on open innovation

practices of firms in the UK, Holmes and Smart (2009) analyze partnerships

between firms and non-profit organizations and find that firms commit


themselves to cooperations which are not purely economic-driven, but driven by

social responsibility. Firms share their innovations voluntarily with non-profit

organizations in exchange for social legitimacy, which is becoming part of the

firms’ innovation capital (Holmes & Smart, 2009).

5.2.2 Patent donation

From the patent management perspective, some studies exist regarding patent

donation as a form of patent release. Patent donations are especially common in

the US and are based on the concept that patent owners donate patents to non-

profit organizations such as universities and other research institutions. For the

patent donation, the original patent owner transfers the entire patent right

including all obligations to the receiving party, i.e., the receiving party

becoming the new patent owner. By donating a patent, the original patent owner

can gain both tax benefits and cost reductions, e.g., by reducing yearly patent

maintenance expenses. On the side of the receiver , the donated patent is

integrated in the own research and development process with the aim to generate

a new product, i.e. the patent donation is representing a potential source of

income (Reisch, 2002). Additionally, both sides can benefit from strengthening

their research network through cooperating during the patent donation process

and subsequent collaboration (O'Haver, 2003). While patent donations have

been possible in the US since 1954, firms only began during the 1990s to

recognize the potential benefit and to make increasingly use of it. At that time,

the tax benefits were calculated based on the patent’s fair market value. Because

of increasing cases of abuse in which donors have overestimated their patents

significantly, the law regarding patent donations was changed in 2004. Under

the new law, tax benefits are now defined by the lower amount of either the

patent’s fair market value or its cost basis (Mcbean, 2005). In a study with 36

US based firms, Carlsson et al. (2008) analyze the role of patent donations

within the firms’ IP process. They find that generating good will, profiting from

tax deductions and other financial benefits, and philanthropy were motives of

the firms to donate their patents (Carlsson et al., 2008).


5.3 Methods

To answer the question why firms release their patents free of charge to third

parties, we investigated 22 firms in which a total of 27 patents release projects

had been conducted. The data was collected by searching publicly available

cases of patent donation and free-licenses, i.e., using data bases, press releases,

firm reports, website information, and journal publications. We focused on mid

and large sized firms that are pioneering in open innovation approaches. The

investigated firms have their home bases in the USA (15), Switzerland (3), the

UK (2), Germany (1), and the Netherlands (1) and operate in the

pharmaceutical, chemical, life sciences, information technology, and electrical

and mechanical engineering industries. In addition to the releasing firms and due

to their eminent role for some of the investigated patent release cases, four major

players in terms of non-commercial patent pool organizations were investigated.

Here too, data was gathered through the pools’ websites, reports, presentations,

and journal publications.

5.4 Creating value through patent release

The literature review has shown that firms engage in open source activities for

economic, technological, and social reasons. For open source software activities,

the economic reasons comprise reducing costs and selling complementary

services to boost their profit. In addition, the patent donation perspective

emphasizes the financial aspect of benefiting from tax deduction and reducing

patent maintenance costs by donating patents to a non-profit organization.

Furthermore, literature also points to reasons that do not have a direct financial

effect. Technological reasons such as profiting from feedback from the open

source community as well as moral obligations, social responsibility, and

generating good will seem to play an important role for firms to decide on

opening up their innovations. Based on these findings from literature as well as

our case studies, we identified four different types of approaches towards patent

release. On the one hand, these types differ regarding financial and non-financial

motives of firms with regards to patent release. On the other hand, we


differentiate regarding the type of the patent. In addition to literature, the

analysis of the case study firms revealed that the firms’ motives to release a

patent often depend on the type of patent at question. For example, donating

patents, i.e., transferring the entire patent right to a third party, was solely

applied for patents that had no more function for the firm, i.e., did no longer fit

their business. We call this type of patent non-core patent. But the firms also

made patents freely available to others that were still in use within the firm, e.g.,

in current or future products and processes, to maintain freedom to operate, or to

block competitors. These patents are referred to as core patents in our typology.

Based on the differentiation regarding motives and type of patents, we term the

four identified types profit maker, cost cutter, innovation catalyst, and

technology provider. In the following, each type is briefly described and

illustrated by the case studies.

5.4.1 Type 1: Profit maker

The profit maker approach represents firms releasing selected core patents

mainly based on financial motives by benefiting from the open source

community and gain network effects (table 9). This trend of open source

strategy is mainly driven by the software industry where many firms have

become aware of the potential of know-how and ideas of the users to improve

own products and thus secure their dominant market position and boost profits.

Examples for open source technology providers including the free release of

related patents are Sun Microsystems, ARM, and IBM. In 2005, for example,

IBM made 500 valuable patents freely available to the open-source software

community with the objective to stimulate the flow of innovation. Another

example refers back to the 1970s when Dolby decided to free-license patents

covering its noise-reduction technology through releasing pre-recorded cassettes

encoded with this technology. Instead of gaining licensing fees directly from the

patents, Dolby successfully profited from the lock-in effect of its noise-

reduction technology and earned its profits through the sales of the tape players

using this technology.


Table 9: Examples for the type profit maker

Form of patent

release

Firm Year Description

Free-license Dolby 1970 Licensed patents covering its noise-

reduction technology on pre-recorded tapes

for free.

Free-license IBM 2005 Made freely available 500 patents to the

open software community.

Free-license Sun Microsystems 2005 Made freely available 1670 patents, mostly

related to the Solaris operation system, to

the open source community.

Free-license ARM n/a Made freely available specific parts of its

patent portfolio to current and potential

clients.

5.4.2 Type 2: Cost cutter

In the cost cutter category, firms donate obsolete patents to universities, other

research institutions, and non-profit organizations with the main motive to

reduce their costs for the patent (table 10). These costs include on the one hand

maintenance fees which have to be paid to the patent offices to keep up the

patent, and on the other hand any liabilities attached to the patent, e.g., costs for

enforcement in case of infringement. Furthermore, in the USA firms can benefit

from tax deductions. During the last decade, firms such as DuPont, Shell,

Kellogg and Lubrizol donated patents worth several millions US dollars to

universities and institutions such as the Mid-America Commercialization Group,

or the National Institute of Standards and Technology and enjoyed substantial

tax savings. Often, patent donations are caused by a firm’s shift of its business

strategy so that valuable patents become obsolete for the firms’ business. In the

late 1990s, Shell, for example, shifted its core business to petrochemicals and

gave up its specialty chemicals technologies (Tullo, 2011). Towards this

backdrop, Shell donated the patents covering its Carilon and Carilite

technologies, which were considered to be applicable across a wide spectrum of

industries, to the non-profit research institute SRI who incorporated the patents

into its own polymer technology portfolio.


Table 10: Examples for the type cost cutter

Form of patent

release


Donation DuPont 1999 Donated patents valued at 64 million USD

to Pennsylvania State University (6 million

USD), University of Iowa (35 million

USD), and Virginia Polytechnic Institute

(23 million USD).

Donation Eaton 1999 Donated 57 patents valued at 17 million

USD to Kansas State University.

Donation Shell Technology

Ventures

2000 Donated patent s and equipment valued at

83.5 million USD to University of Texas.

Donation Caterpillar 2001 Donated patents valued at 50 million USD

to Mid-America Commercialization Group.

Donation Kellogg 2002 Donated patents valued at 49 million USD

to Michigan State University.

Donation Lubrizol 2002 Donated 17 patents valued at 22.4 million

USD to National Institute of Standards &

Technology.

Donation Shell 2002 Donated patents on Carilon and Carilite

technologies to SRI International, a non-

profit research institute.

Donation DuPont 2007 Donated 250 patents to the Delaware

Economic Development Office (DEDO)

Donation Hercules 2007 Donated 5 patents to the Delaware

Economic Development Office (DEDO)

Since a change of law regarding tax benefits through patent donations in 2004

(Mcbean, 2005), the incentives for firms to donate are moving away from the

mainly financial-driven motive towards a combination of financial benefits and

fostering innovation. In 2007, DuPont and Hercules donated patents that had

become obsolete to their businesses to the Delaware Economic Development

Office (DEDO). One of Hercules’ patents, for example, was considered

particularly promising as an environmentally friendly alternative to a current

technology impacting the depletion of the ozone layer. Instead of abandoning

the patent and to ensure its further development and exploitation, Hercules


donated the patent to the DEDO, which licenses such patents to entrepreneurs to

commercialize the technologies via new business ideas. In this model, the patent

maintenance fees are covered by the state of Delaware (Bond, 2007).

5.4.3 Type 3: Innovation catalyst

Firms also release parts of their patent portfolios for non-monetary reasons.

The innovation catalyst firm gives away non-core patents to universities or other

research institutions in order to trigger innovation activities and open up new

fields of business (table 11). Boeing, for example, developed a material they

used in aircraft antenna units but which, due to its bio-compatibility, strength,

and density, also showed remarkable potential for being used in the medical

sector to replace bones in humans. Since the medical area is very different from

Boeing’s business and the firm also lacks respective know-how, Boeing donated

the patent covering these applications to the University of Pennsylvania, where

the technology was further developed (MCAM, 2003). Also Celera granted free

access to patents which were beyond Celera’s core business to a non-profit

organization, the Institute for OneWorld Health, whose mission is to develop

affordable drugs against neglected parasitic diseases. The patents cover a drug

against the Chagas disease, a tropical parasitic disease affecting approximately

18 million people in Central and South America. Celera did not expect financial

benefits by releasing its patents, but wanted to make the patented drug

component available for further clinical development. Another example is

Procter & Gamble which started in the late 1990s to increasingly donate patents

to third parties. The company realized that they were creating more technologies

than they could finalize into a product and decided to open its doors and make

its patented technologies available to other institutions. One example is the

donation of 196 patents and all associated IP covering chemical compounds

which have the potential to become a new ‘super aspirin’ drug, i.e., a new drug

without the gastric side effects of the current aspirin drug. For this patent

donation, Procter & Gamble selected the patent receiver carefully according to

its competence for developing the technology further. In the end, they

considered the Vanderbilt University as the most appropriate institution and


Table 11: Examples for the type innovation catalyst

Form of patent

release


Donation Procter & Gamble 2000 Donated 196 patents covering a technology

with potential for a ‘super aspirin’ drug to

the Vanderbilt University. Besides the

patents, P&G provided funds to maintain the

patents as well as assistance for

development.

Donation Procter & Gamble 2001 Donated a patent for testing manufacturing

process emissions with the potential of

being used in ca. 4000 manufacturing

utilities to the Midwest Research Institute.

Donation Boeing 2001 Donated patents with potential applications

in the medical sector to the University of

Pennsylvania.

Donation DuPont 2001 Donated patents for a new papermaking

technology to the University of Maine for

further development and implementation at

an industrial scale. Besides the patents,

DuPont employees support the continuing

studies.

Free-license Celera 2002 Granted an exclusive free-license of patents

covering compounds to treat the Chagas

disease to the Institute for OneWorld

Health.

provided besides the patent rights also technical assistance as well as financial

assistance to cover the patents’ maintenance fees for three years (MCAM,

2003).

5.4.4 Type 4: Technology provider

The fourth type, the technology provider, is characterized by making specific

core patents freely available to third parties. The motives of this behaviour is

mostly a combination of creating good will, serving the society, and accessing

third party patents via patent pools (table 12). In 2010, for example, Hewlett-


Packard pledged three patents on a battery recycling technology to the Eco-

Patent Commons patent pool. Although the technology had the potential of

generating earnings for Hewlett-Packard, the company made the patents

available without any purchase or royalty obligations in order to support the

green technology initiative of the Eco-Patent Commons. Syngenta released

patents on a specific rice breed to the Golden Rice patent pool. Since the patents

of Syngenta entailed the key patents for this technology, new inventions based

on these patents were assigned to Syngenta, so that the company received in

return an advanced, nearly marketable technology with relatively little internal

R&D effort. In another case, Boehringer Ingelheim, a German-based

pharmaceutical company, granted a free-license of patents covering a HIV drug

to Aspen Pharmacare, a South African pharmaceutical manufacturing company.

This free-license allows Aspen to produce and distribute the HIV drug in South

Africa as well as in thirteen other countries of the South African Development

Communities at an affordable price. For Boehringer Ingelheim, this voluntary

free-license marks a step towards its commitment to fight HIV. As Boehringer

Ingelheim, many other pharmaceutical firms have realized the need to bundle

efforts to provide medical treatment also to the poorest regions of the world.

Thus, many pharmaceutical firms such as Roche and Novartis do not file or

enforce patents, especially related to antiretroviral drugs, in least developed

countries7, thus providing free access to its patents to express their social

responsibility.

In summary, the above presented four types of patent release can be compiled

into a typology differentiating between financial and non-financial motives of

the firms to release their patents on the one axis, and between the release of core

versus non-core patents on the other axis (see figure 9).

7 As defined by the United Nations


Table 12: Examples for the type technology provider

Form of patent

release


Free-license Syngenta 2000 Granted free-license of patents covering a

technology to produce vitamin A enriched

rice to the Golden Rice patent pool.

Free-license Boehringer

Ingelheim

2002 Granted free-licenses of patents covering a

HIV drug for a period of 5 years to Aspen

Pharmacare, a South African pharmaceutical

manufacturer.

Free-license Alnylam 2009 Granted free-licenses of more than 1500

patents to the pool for Open Innovation

against Neglected Tropical Diseases.

Free-license GlaxoSmithKline 2009 Granted free-licenses of more than 800

patents to the pool for Open Innovation

against Neglected Tropical Diseases.

Free-license Hewlett-Packard 2010 Granted free-licenses of 3 patents covering a

technology for battery recycling to the Eco-

Patent Commons pool.

Free-license Gilead 2011 Granted free-licenses of patents covering

certain HIV drugs to the Medicines Patent

Pool.

Free-license Roche 2011 Started negotiations for free-licenses of HIV

patents to the Medicines Patent Pool.

Free-license Novartis , Roche general Do not file or enforce patents in least

developed countries


Figure 9: A typology of different patent release activities and motives

5.5 Non-commercial patent pools

For the free release of patents without direct financial benefits, non-

commercial patent pools seem to be a platform that is accepted by many firms.

In our sample, this has been shown by firms such as Syngenta,

GlaxoSmithKline, Hewlett-Packard, Gilead, Roche, and Alnylam. Non-

commercial patent pools are alliances in which patent owners license one or

more patents on a royalty-free basis to an organization that manages the patent

pool. By doing this, the licensed patents are available for other members of the

pool as well as non-member research institutions. In return, the patent owners

are granted access to all patents within the pool, can initiate new research and

business collaborations, reduce development costs and risks through shared

Cost cutter

Patent donation to research institutions and non-profit

organizations.

Benefit: reduce patent maintenance and liability

costs, achieve tax deductions

Technology provider

Free-licenses to patent pools,

certain geographical regions, and for certain technologies.

Benefit: Serve society, reputation, access to third

party patents (pools), generate

good will

Innovation catalyst

Patent donation or free-license

to research institutions, non-and for-profit organizations.

Benefit: avoid throwing away potentially valuable

technologies, strengthen

research network, speed up exploitation of innovation

Profit maker

Free-licenses as open source

strategy and setting industry standards.

Benefit: improve product by integrating user modifications,

network effects to increase

profit

financial non-financialMotive of

the firm

core

Type of

patent

non-core


efforts, and generate good will by serving society (WIPO, 2011c). To shed light

into how such non-commercial patent pools work and why firms participate in

their concept, in the following section four selected non-commercial patent

pools and their purposes are shortly presented.

5.5.1 Eco-Patent Commons

Eco-Patent Commons is an initiative providing an online repository of patents

covering environmental friendly technologies that are provided by firms for free

use, without a need to license or to purchase. The Eco-Patent Commons patent

pool was launched in January 2008 by the World Business Council for

Sustainable Development (WBCSD) and a firm consortium. The objectives of

the Eco-Patent Commons are to foster the sharing of technologies that help to

protect the environment in order to establish collaborations between patent

holders and facilitate the implementation of the technologies. The patents

included in the Eco-Patent Commons have to provide an environmental benefit

and are basically selected via their International Patent Classification (IPC)

class. Currently, thirteen firms8 have joined the Commons and released specific

environmental-related patents, among them Bosch, IBM, Nokia, and Sony. The

patent holding firms grant free access to the patents to members and non-

members of the patent pool interested in further development of these

technologies. In return, the firms can profit from the innovative outcomes of this

research collaboration and gain recognition through their contribution to

enhancing the development of green technologies.

5.5.2 Golden Rice project

Another example for a non-commercial patent pool is the Golden Rice

initiative which is dedicated to increase accessibility to agricultural technologies

to users in developing countries. The Golden Rice breed has been developed to

fight diseases and deaths in developing countries in Africa and Asia caused by

vitamin A deficiency. The Golden Rice is genetically modified in order to reach 8 Bosch, Dow, Dupont, Fuji Xerox, Hewlett-Packard, Hitachi, IBM, Nokia, Pitney Bowes, Ricoh, Sony, Taisei, Xerox


a higher level of vitamin A in the rice. Having started the Golden Rice project in

1992 as an initiative of the Rockefeller foundation, the project soon faced patent

issues regarding the Golden Rice technology. Eleven patents belonging to

different firms were identified as crucial to produce the vitamin-A rich Golden

Rice. Thus, in 2000, the initiative successfully negotiated to pooling the needed

eleven patents and to make them available to small farmers and humanitarian

research institutions in developing countries free of charge. The firms

contributing their patents to the Golden Rice pool are Syngenta, Bayer,

Monsanto, Novartis, Orynova, and Zeneca Mogen. By freely providing their

patents for a humanitarian use to the highly observed Golden Rice project, the

firms may gain positive public relations and reputation effects, especially

towards the backdrop of the critics regarding patenting in the life sciences

industry.

5.5.3 Medicines Patent Pool

The Medicines Patent Pool was established in 2010 by UNITAID, an

international institution hosted by the WHO dedicated to improve the treatment

of HIV/AIDS, tuberculosis, and malaria. The Medicines Patent Pool’s objectives

are to improve the access to HIV drugs in developing countries by decreasing

their prices through providing access to patents related to these drugs. To date,

the US National Institutes of Health (NIH) and Gilead have granted free-licenses

to the pool and five more firms, namely Boehringer Ingelheim, Bristol Meyers

Squibb, Roche, Sequoia, and ViiV Healthcare, are negotiating to contribute one

or several patents to the pool. The main driver behind the Medicines Patent Pool

is public health rather than commercial interests. Hence, the motivation of the

patent holding firms to release patents to this pool is to express their

responsibility for the supply of HIV drugs for developing countries and to

generate a long-term reputation enhancement. Also, it offers the pharmaceutical

firms an alternative to non-voluntary measures, e.g., compulsory licensing, and

avoids dismay both from public as well as from generic drug firms regarding

patenting in these disease areas.


5.5.4 WIPO Re:Search initiative

The most recent example of non-commercial initiatives to pool patents is the

WIPO Re:Search initiative. The WIPO Re:Search initiative was established in

October 2011 with the objective to provide a platform where firms and research

institutions share their knowledge and intellectual property regarding the

treatment against neglected tropical diseases9, which affect approximately 1

billion people worldwide. WIPO Re:Search is based on the Pool for Open

Innovation against Neglected Tropical Diseases (POINT), which was launched

in 2009 by GlaxoSmithKline and Alnylam and is now sponsored by the WIPO

and BIO Ventures for Global Health. Besides GlaxoSmithKline and Alnylam,

also AstraZeneca, Eisai, MSD, Novartis, Pfizer, and Sanofi have joined the

initiative and grant royalty-free access of their patents in order to promote the

development of drugs, diagnostics, and vaccines against neglected tropical

diseases. Moreover, drugs related to these patents are sold royalty-free in least

developed countries. By participating in WIPO Re:Search, pharmaceutical firms

can contribute to their role as important players for global health and generate a

positive effect on their public perception.

5.6 Discussion and conclusion

This paper conceptualized why firms make their patents available for free to

other firms or institutions and which benefits they gain from doing so. Adopting

insights from open source literature and based on 27 patent release cases, a

typology with four different types of patent release approaches and their

motivation was developed. Based on this, four major findings can be derived.

First, comparing our results with those from open source software literature

which is mainly based on copyright aspects in terms of intellectual property

rights (Yang, 2012), we find that the firms’ motives to give away patents for free

are more diverse. Within the economic reasons, the main motivations are

reducing costs through saving R&D efforts as well as cost reduction in terms of

maintenance fees when patents are donated (Carlsson et al., 2008; Reisch, 9 As listed by the World Health Organization (WHO)


2002). Furthermore, tax deductions through patent donation (Mcbean, 2005) is a

benefit that is unknown in the open source software literature. Within the

technological reasons, our results are in line with open source software literature

finding that speeding up the innovation process and profiting from network

effects are important motives (Andersen-Gott et al., 2012; Henkel, 2004; von

Hippel & von Krogh, 2003). In addition, donating or making patents freely

available is also seen by the firms as an option to avoid ‘throwing away’

potentially valuable technology that does not fit into the firms’ business strategy.

Second, we find that the importance of the motives differs between the open

source software phenomenon and our investigated firms. Firms engaging in

open source software are mainly driven by economic and technological reasons,

while the social reasons are less important (Bonaccorsi & Rossi, 2006). In

contrast, we find that social reasons play a major role for releasing patents in the

firms acting in other than the software industry. Especially the examples of the

green technologies and the medical sector show that the firms emphasize their

public perception and feel a need to respond to their social responsibility.

Third, releasing non-core patents free of charge is only reasonable for

valuable patents. Releasing a patent, either through donation or free-licensing,

always involves a certain effort for the patent owner (Reisch, 2002). Identifying

an appropriate organization to receive the patent, going through the formal

process of e.g., donation, and providing technical assistance to the patented

technology only makes sense for the patent owner if the patent at question is

considered to be valuable. If this was not the case, the firms would rather

abandon the patent without having any additional effort (Bader et al., 2012). The

patents in the Eco-Patent Commons pool, for example, are assessed to be more

valuable than the average patent of the participating firms (Hall & Helmers,

2011). At the investigated firms, patents for donation and free-licensing were

selected carefully and covered technologies that were considered valuable but

did not fit into the firms’ business strategy. This is in line with earlier findings

on external technology exploitation that emphasize the need to put effort into

commercializing technologies based on a business decision (Anokhin et al.,

2011; Ziegler et al., 2012).


Fourth, our results indicate that releasing patents can also be effective other

than in the software industry. This finding contributes to the question asked by

Lerner and Tirole (2002, p. 230) if “the open source process can be transported

to other industries”. They state that even though the open source software model

may not be easily adopted in other industries, there are a number of aspects that

are not software industry specific. As an example they compare the selling of

additional services with giving away the razor to sell more razor blades (Lerner

& Tirole, 2002). In our sample, Dolby used this strategy by offering its noise

reduction technology for free in order to gain returns through selling the tape

player using it. Furthermore, in the current dynamic and fast development of

high technologies, most technical progress is based on a foundation provided by

earlier innovators (Scotchmer, 1991). Thus, participating in this extreme form of

open innovation (Dahlander & Wallin, 2006) by sharing know-how and

intellectual property free of charge can be a viable strategy in many high-tech

industries to foster innovation.

In conclusion, releasing patents by making them freely available to research

partners, customers, users, and suppliers, and profiting from rewards in the long

term can help firms to establish a sustainable ecosystem. The results of this

article contribute to the burgeoning literature on managing intellectual property

within the open innovation paradigm by highlighting the importance of open IP

strategies and exploring how firms can benefit from opening up their patent

portfolios. Being among the first works on the question why firms release their

patents free of charge, this article is hoped to encourage research in this field

where many questions are still open. A large-scale survey on the firms’ motives

to give away their patents freely could provide important statistical evidence

testing the conceptual findings of this article. Furthermore, details on which sort

of patents are considered for releasing as well as an analysis of industries would

be an interesting research avenue. Lastly, investigating the long-term effects of

patent release in terms of benefits or losses for the original patent owner would

shed light on the impact of such open IP strategies on firm performance.

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Curriculum Vitae

Personal Details

Nicole Ziegler, Dipl.-Wi.-Ing., Ingénieur INPG

Born November 26th 1982 in Saarbrücken, Germany

Educational Background

2011-2012 Chalmers University of Technology, Gothenburg, Sweden

Visiting Researcher at the Department of Technology

Management and Economics (Prof. Ove Granstrand, PhD)

2008-2012 University of St. Gallen, Switzerland

Research Associate and doctoral candidate at the Institute of

Technology Management (Prof. Dr. Oliver Gassmann)

2007-2008 Grenoble Institute of Technology (INPG), France

Studies of Industrial Engineering (Ingénieur INPG, Master

de Recherche en Génie Industriel)

2002-2008 Karlsruhe Institute of Technology, Germany

Studies of Industrial Engineering (Diplom-Wirtschaftsingenieur)

2002 Max-Planck-Gymnasium, Dortmund, Germany

German-French high-school diploma

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