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In today’s world, intellectual property is the life’s blood of value creation in the corporate setting. But, often corporate intellectual property departments are treated as just patent generation machines, with little input into the strategy of the corporation. This approach does not capitalize on the expertise and agility of an intellectual property department to achieve business goals; specifically access to market for innovations that will generate profit.

Here, we discuss best corporate practices to exploit the capabilities of a corporate intellectual property department and how best to structure it to meet a company’s changing needs. There are various approaches for organizing an intellectual property function. It can be a central corporate function reporting to the legal organization that acts as a hub of intellectual property resources for business units and management or it can be a hybrid organization. This hybrid organization allows IP lawyers to work directly with business unit teams to handle each unique business need. These lawyers would be involved in every strategy meeting of their assigned business units. They would report into a Head of Global Intellectual Property. This would enable the Head of Global Intellectual Property to mobilize additional resources as required to serve the needs of businesses that have different business models. The Head of Global Intellectual Property would also be a central repository of information about what different business units are doing and suggest synergies. The Head of Global Intellectual Property apprises management of any significant developments, potential business synergies, or risks. This model is particularly suited for the multinational entity which serves different markets with different business models. The intellectual property department in its very foundation must be (1) flexible, (2) agnostic to corporate re-organization, and (3) ready to address business and market changes rapidly. The concepts of flexibility and market oriented approach may be counter-intuitive to the traditional view of an intellectual property department. The rapidly changing dynamics of our market demands it and the technical mindset and backgrounds of IP lawyers lends itself to implementing such a structure if managed properly.

Intellectual Property Department as Strategic Partner

The IP department does much more than just file patents. A good IP department is a strategic partner and decision maker with veto power to allocate resources and help build business cases. IP departments need to develop a continually updating understanding of the market space and engage in research and market intelligence from an IP perspective. The IP Department mitigates risks to business objectives by identifying potential problems early and providing solutions. What good is having the next big idea if someone else already owns it or if it is not what the market wants?

IP is also a central hub of information for the company. Whether it is different individuals, business units, or even subsidiaries, the intellectual property team forms a repository of information on resources available in the company and in the market. It encourages cross discussion and exploits synergies, while guiding those discussions around potential pitfalls.

Organizational Approaches Across the Industry

In organizing IP functions, multinational entities have the following models: (i) centralized corporate legal, (ii) divisional IP/Legal, (iii) standalone IP company, and (iv) centralized corporate R&D. In the Centralized Corporate Function Model, the intellectual property lawyers report to an IP head, who in turn reports directly to global General Counsel. The Divisional Approach, there are several IP departments, each of which reports into its respective business head. In the IP company structure, the IP department is spun out as a separate company and reports directly to the CEO or similar. This is especially popular with universities. Finally, in the Centralized Corporate R&D Approach, the IP Department is integrated into the R&D services of the company. This approach is common in the generic pharmaceutical industry where the business model is based on a close relationship between R&D and IP.  

Based upon external industry reviews and benchmarking interviews, more than 80% of companies have an IP department that reports into the global General Counsel. Exceptions to the widely accepted reporting structure tend to be with small to mid-size organizations where IP may report to R&D or the CEO.

The organizations are heavily favored to the centralized corporate function approach with a reporting line directly to the General Counsel. Very few had other structures. The IP company is the next favored reporting structure.

Special Legal Considerations Driving Organizational Structure

There are many factors to consider when deciding how to structure legal departments, or the use of lawyers within a company. Here, we discuss the three most important ones: independence and accountability; depth of expertise; and privilege.

Legal and IP departments are guardians of the company. In matters of strategic importance, the IP head or GC must advise the CEO and the board of potential risks and solutions to those risks. For example, IP guards against antitrust or infringement risks. Therefore, independence is tantamount. The IP function and legal function of the company can only be a guardian to the corporate organization if the independence of the legal function is maintained, which is why both are typically corporate functions.

The legal and IP departments need both authority and resources to fulfill their organizational missions. For example, an EU IP lawyer is unlikely to be the best resource when assessing infringement risk in the United States and vice versa. Rather, having a centralized IP function allows the right team member to be assigned to the situation, which greatly increases the chance of success. In cases where companies have moved to a divisional model, a loss of synergies often results with an increase of cost and necessary duplication.

Generally, an IP department often has a dual role in providing legal advice and supporting and deciding on business direction based on IP analysis of the competitive landscape for whitespace or potential infringement risks. In reporting organizations where a lawyer (IP or commercial) reports to business unit leaders, otherwise privileged attorney-client communications could be subject to disclosure because the lawyer is considered to be functioning in a business role. These risks invariably arise if those lawyers are not giving “legal advice” or in any way working as a capacity as lawyers. The best way to mitigate that risk is for attorneys in a business function to have a role and job description that clearly does not blur the lines between legal advice and business advice.

To maximize the protections, we recommend the following best practices:

•  Whenever possible, separate legal and business communications.

•  Consider the organization’s corporate structure and, if possible, place in-house counsel within the organization’s legal department and/or working for the organization’s general counsel.

•  Use the title of legal counsel when communicating about legal matters.

•  Review corporate policies for any corporate committees with legal counsel representation. Emphasize in such policies the role of legal counsel to provide legal advice to the committee and the purpose of the committee to act on such legal advice.

Recommendations for Structures of an IP Department

Structuring a centralized IP department takes some finesse to maximize the benefits. The first step looks to the business model. Is it B2C, B2B, service business or product business? Secondly, consider the market forces. Is the market crowded, innovative, commoditized? Next, determine the nature of the technology. Is it a mature technology like commodity basic chemistry or is it advanced like cell therapies? Finding these answers will determine the best structure for the business. As a foundation, the ideal IP team has a Head of Global Intellectual Property, business partners (who are senior IP lawyers charged with being engage with each business), a team of prosecution experts (including patent and trademark), and a paralegal team for support.

Assigning single points of contacts—IP business partners—for each business unit allows that person to be fully engaged on strategies and ensures IP alignment with the strategy. More importantly, it helps drive the business model and create IP assets that will result in a market advantage. The IP department can identify synergies created by one team with another. The IP department also should have a range of expertise so that it has the ability to leverage hands to provide value to the organization without duplications of roles or expertise. It gives the organization flexibility to properly allocate expertise which would not be the case in a more siloed organizational structure.

The model works when aligned within a centralized legal corporate function. However, it is critical that the central legal function not relegate the IP function into the role of service provider to the legal department. Rather, the IP department should be a key supporter of business strategy, IP transaction work and traditional IP protection activities. To do this the business partner role in an IP organization is paramount.  

The proposal above works and works well. But, what can be done differently? Can organizations envision changes to the business models to really optimize driving IP as a value provider? One consideration is to look at the IP department as a department that creates and manages innovative assets. This can report to an executive (ideally lawyer with business acumen and expertise) who is in charge of external innovation and innovative assets with two key functions: external innovation (i.e., external technology alliances and licenses) on one side and intellectual property on the other. This function will have to be closely integrated with the businesses and IP. Such a function will have clear metric, including financial. It does not stand as a business unit per se, but supports value to the businesses through its innovation and licensing activities which are measured by performance. Financial metrics could include: a virtual P&L for IP licensing activities (virtual because the revenues go to the BU P&L to encourage collaboration and promote independence); an NPV analysis with the business unit to determine the appropriateness of the strategic alliance; or a 3-5 year assessment of the project business plan and return on investment. In other words, make the business of innovation and IP as real as possible.

Whichever function is selected, corporate legal or something new, an IP department must organize to fit the business models that it serves to achieve and be more than a passive service organization. The IP department is a business value driver and should be structured and treated as such.

References:

1. Schultz, K.D., HBR.org “Put Your Corporate Counsel Where Your Business Is”, May-June 1990.

2. www.wipo.int/edocs/mdocs/sme/en/wipo_smes_sha…/wipo_smes_sha_04_1.ppt.

3. “5 Insights from General Electric’s Alex Dimitrief,” Law360, Jan. 6, 2017, https://www.law360.com/articles/877885/5-insights-from-general-electric-s-alex-dimitrief.

4. Steves, Rich, “The IP counsels’ role in integrating IP in the business plan: Chief IP counsel sit at the boundary line between ideas and business value,” Inside Counsel, Feb. 24, 2014

5. “2011 IPO Corporate IP Management Benchmarking Survey,” Intellectual Property Owners Association, Feb. 27, 2012, http://www.visiond.com/IPO2012/MATERIALS/WilliamsonJohn_BenchmarkingSurvey.pdf.

6. Women’s Inter Art Ctr. Inc. v. N.Y.C. Econ. Dev., 223 F.R.D. 156, 190 (S.D.N.Y. 2004).

7. Byrnes v. Empire Blue Cross Blue Shield, 98CIV.8520 (S.D.N.Y. 1999).

8. Huff and Dodds, “Privilege Tips for the In-House Counsel with Dual Legal and Business Roles,” Dallas Bar, March 16, 2017, http://www.dallasbar.org/book-page/privilege-tips-house-counsel-dual-legal-and-business-roles.

In today’s world, intellectual property is the life’s blood of value creation in the corporate setting. But, often corporate intellectual property departments are treated as just patent generation machines, with little input into the strategy of the corporation. This approach does not capitalize on the expertise and agility of an intellectual property department to achieve business goals; specifically access to market for innovations that will generate profit.

Here, we discuss best corporate practices to exploit the capabilities of a corporate intellectual property department and how best to structure it to meet a company’s changing needs. There are various approaches for organizing an intellectual property function. It can be a central corporate function reporting to the legal organization that acts as a hub of intellectual property resources for business units and management or it can be a hybrid organization. This hybrid organization allows IP lawyers to work directly with business unit teams to handle each unique business need. These lawyers would be involved in every strategy meeting of their assigned business units. They would report into a Head of Global Intellectual Property. This would enable the Head of Global Intellectual Property to mobilize additional resources as required to serve the needs of businesses that have different business models. The Head of Global Intellectual Property would also be a central repository of information about what different business units are doing and suggest synergies. The Head of Global Intellectual Property apprises management of any significant developments, potential business synergies, or risks. This model is particularly suited for the multinational entity which serves different markets with different business models. The intellectual property department in its very foundation must be (1) flexible, (2) agnostic to corporate re-organization, and (3) ready to address business and market changes rapidly. The concepts of flexibility and market oriented approach may be counter-intuitive to the traditional view of an intellectual property department. The rapidly changing dynamics of our market demands it and the technical mindset and backgrounds of IP lawyers lends itself to implementing such a structure if managed properly.

Intellectual Property Department as Strategic Partner

The IP department does much more than just file patents. A good IP department is a strategic partner and decision maker with veto power to allocate resources and help build business cases. IP departments need to develop a continually updating understanding of the market space and engage in research and market intelligence from an IP perspective. The IP Department mitigates risks to business objectives by identifying potential problems early and providing solutions. What good is having the next big idea if someone else already owns it or if it is not what the market wants?

IP is also a central hub of information for the company. Whether it is different individuals, business units, or even subsidiaries, the intellectual property team forms a repository of information on resources available in the company and in the market. It encourages cross discussion and exploits synergies, while guiding those discussions around potential pitfalls.

Organizational Approaches Across the Industry

In organizing IP functions, multinational entities have the following models: (i) centralized corporate legal, (ii) divisional IP/Legal, (iii) standalone IP company, and (iv) centralized corporate R&D. In the Centralized Corporate Function Model, the intellectual property lawyers report to an IP head, who in turn reports directly to global General Counsel. The Divisional Approach, there are several IP departments, each of which reports into its respective business head. In the IP company structure, the IP department is spun out as a separate company and reports directly to the CEO or similar. This is especially popular with universities. Finally, in the Centralized Corporate R&D Approach, the IP Department is integrated into the R&D services of the company. This approach is common in the generic pharmaceutical industry where the business model is based on a close relationship between R&D and IP.  

Based upon external industry reviews and benchmarking interviews, more than 80% of companies have an IP department that reports into the global General Counsel. Exceptions to the widely accepted reporting structure tend to be with small to mid-size organizations where IP may report to R&D or the CEO.

The organizations are heavily favored to the centralized corporate function approach with a reporting line directly to the General Counsel. Very few had other structures. The IP company is the next favored reporting structure.

Special Legal Considerations Driving Organizational Structure

There are many factors to consider when deciding how to structure legal departments, or the use of lawyers within a company. Here, we discuss the three most important ones: independence and accountability; depth of expertise; and privilege.

Legal and IP departments are guardians of the company. In matters of strategic importance, the IP head or GC must advise the CEO and the board of potential risks and solutions to those risks. For example, IP guards against antitrust or infringement risks. Therefore, independence is tantamount. The IP function and legal function of the company can only be a guardian to the corporate organization if the independence of the legal function is maintained, which is why both are typically corporate functions.

The legal and IP departments need both authority and resources to fulfill their organizational missions. For example, an EU IP lawyer is unlikely to be the best resource when assessing infringement risk in the United States and vice versa. Rather, having a centralized IP function allows the right team member to be assigned to the situation, which greatly increases the chance of success. In cases where companies have moved to a divisional model, a loss of synergies often results with an increase of cost and necessary duplication.

Generally, an IP department often has a dual role in providing legal advice and supporting and deciding on business direction based on IP analysis of the competitive landscape for whitespace or potential infringement risks. In reporting organizations where a lawyer (IP or commercial) reports to business unit leaders, otherwise privileged attorney-client communications could be subject to disclosure because the lawyer is considered to be functioning in a business role. These risks invariably arise if those lawyers are not giving “legal advice” or in any way working as a capacity as lawyers. The best way to mitigate that risk is for attorneys in a business function to have a role and job description that clearly does not blur the lines between legal advice and business advice.

To maximize the protections, we recommend the following best practices:

•  Whenever possible, separate legal and business communications.

•  Consider the organization’s corporate structure and, if possible, place in-house counsel within the organization’s legal department and/or working for the organization’s general counsel.

•  Use the title of legal counsel when communicating about legal matters.

•  Review corporate policies for any corporate committees with legal counsel representation. Emphasize in such policies the role of legal counsel to provide legal advice to the committee and the purpose of the committee to act on such legal advice.

Recommendations for Structures of an IP Department

Structuring a centralized IP department takes some finesse to maximize the benefits. The first step looks to the business model. Is it B2C, B2B, service business or product business? Secondly, consider the market forces. Is the market crowded, innovative, commoditized? Next, determine the nature of the technology. Is it a mature technology like commodity basic chemistry or is it advanced like cell therapies? Finding these answers will determine the best structure for the business. As a foundation, the ideal IP team has a Head of Global Intellectual Property, business partners (who are senior IP lawyers charged with being engage with each business), a team of prosecution experts (including patent and trademark), and a paralegal team for support.

Assigning single points of contacts—IP business partners—for each business unit allows that person to be fully engaged on strategies and ensures IP alignment with the strategy. More importantly, it helps drive the business model and create IP assets that will result in a market advantage. The IP department can identify synergies created by one team with another. The IP department also should have a range of expertise so that it has the ability to leverage hands to provide value to the organization without duplications of roles or expertise. It gives the organization flexibility to properly allocate expertise which would not be the case in a more siloed organizational structure.

The model works when aligned within a centralized legal corporate function. However, it is critical that the central legal function not relegate the IP function into the role of service provider to the legal department. Rather, the IP department should be a key supporter of business strategy, IP transaction work and traditional IP protection activities. To do this the business partner role in an IP organization is paramount.  

The proposal above works and works well. But, what can be done differently? Can organizations envision changes to the business models to really optimize driving IP as a value provider? One consideration is to look at the IP department as a department that creates and manages innovative assets. This can report to an executive (ideally lawyer with business acumen and expertise) who is in charge of external innovation and innovative assets with two key functions: external innovation (i.e., external technology alliances and licenses) on one side and intellectual property on the other. This function will have to be closely integrated with the businesses and IP. Such a function will have clear metric, including financial. It does not stand as a business unit per se, but supports value to the businesses through its innovation and licensing activities which are measured by performance. Financial metrics could include: a virtual P&L for IP licensing activities (virtual because the revenues go to the BU P&L to encourage collaboration and promote independence); an NPV analysis with the business unit to determine the appropriateness of the strategic alliance; or a 3-5 year assessment of the project business plan and return on investment. In other words, make the business of innovation and IP as real as possible.

Whichever function is selected, corporate legal or something new, an IP department must organize to fit the business models that it serves to achieve and be more than a passive service organization. The IP department is a business value driver and should be structured and treated as such.

References:

1. Schultz, K.D., HBR.org “Put Your Corporate Counsel Where Your Business Is”, May-June 1990.

2. www.wipo.int/edocs/mdocs/sme/en/wipo_smes_sha…/wipo_smes_sha_04_1.ppt.

3. “5 Insights from General Electric ’s Alex Dimitrief,” Law360, Jan. 6, 2017, https://www.law360.com/articles/877885/5-insights-from-general-electric-s-alex-dimitrief.

4. Steves, Rich, “The IP counsels’ role in integrating IP in the business plan: Chief IP counsel sit at the boundary line between ideas and business value,” Inside Counsel, Feb. 24, 2014

5. “2011 IPO Corporate IP Management Benchmarking Survey,” Intellectual Property Owners Association, Feb. 27, 2012, http://www.visiond.com/IPO2012/MATERIALS/WilliamsonJohn_BenchmarkingSurvey.pdf.

6. Women’s Inter Art Ctr. Inc. v. N.Y.C. Econ. Dev. , 223 F.R.D. 156, 190 ( S.D.N.Y. 2004 ) .

7. Byrnes v. Empire Blue Cross Blue Shield, 98CIV.8520 (S.D.N.Y. 1999).

8. Huff and Dodds, “Privilege Tips for the In-House Counsel with Dual Legal and Business Roles,” Dallas Bar, March 16, 2017, http://www.dallasbar.org/book-page/privilege-tips-house-counsel-dual-legal-and-business-roles.