Twelve Essential Ingredients Needed To Create The Perfect
Chief Intellectual Property Officer.

By Rob Sterne and Ron Laurie

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The corporate best practice of assigning 360-degree responsibility for maximising shareholder value from
investment in intellectual property to a single senior executive has gained substantial momentum since the
start of the new millennium. While the general concept of the CIPO (chief intellectual property officer) position
now receives support from many circles, as yet there is no consensus as to the precise formula for success.
There have been some trailblazing initiatives undertaken by CIPOs at corporate titans such as Hewlett
Packard (Joe Beyers), IBM (John Kelley), SAP (Tim Crean) and Philips (Ruud Peters) that raise the question:
what are the essential ingredients for CIPO success? This article offers some answers.

Ingredient one – board-level and CEO support
Perhaps the most important ingredient for CIPO success is an IP mandate
from the board of directors, as well as full support and involvement from
the chief executive officer. The board must enthusiastically embrace the
need for a well-articulated, comprehensive, corporate IP strategy that will
maximise IP value, minimise IP-related risk, provide direction to
management on how to implement the ROIP (return on IP) strategy and
measure whether the implementation has been successful. Management
in turn needs to support and implement the IP strategy and make it part of
the DNA of the enterprise.

This board mandate and top management embrace of IP are just what
occurred at HP and SAP. HP's board mandated the CIPO position in
January 2003, in response to the post-merger integration of four
IP-intensive companies over a relatively short period of time: Digital Equipment, Tandem, Compaq and the
legacy HP. According to urban legend, SAP got IP religion after its founder read the seminal book
Rembrandts in the Attic by Kevin Rivette and David Kline and heard Rivette speak on IP asset optimisation at
the World Economic Forum in Davos, Switzerland.

Ingredient two – reliable performance Metrics.
The second essential ingredient for CIPO success involves the development of metrics for measuring the
success of an integrated corporate IP strategy. Recent celebrated flame-outs of high-profile CIPOs illustrate
the dangers of over-promising IP returns and inability to quantify IP success. The HP experience has been
successful in no small part because of the company’s ability to demonstrate dramatic increases in IP return.
HP claims that it now enjoys a more than tenfold increase in IP return since its CIPO position was created
four years ago. HP employs three measures to quantify IP return:

  • The actual revenues obtained from IP licensing. This includes both front-end licence revenues and
    net present value of predicted licence royalty streams (aka tails).

  • The quantification of in-kind value obtained from IP. For example, this could include lower cost of
    products and services, and expanded business relationships (such as joint ventures or strategic

  • The elimination or reduction of IP risk resulting from exposure to actual or prospective infringement
    claims by competitors, reduced royalty payments due to leverage of the HP IP portfolio and the ability
    to move into new technology areas and markets without facing crippling infringement exposure. This
    measure imputes value to such reductions of IP risk, which, though sometimes difficult to quantify,
    represent bottom-line (cost savings) rather than top-line (revenue generation) value.

Ingredient three – business unit buy-in
The third essential ingredient is the ability of the CIPO to develop buy-in for the IP strategy and
implementation from the heads of the important profit centres in the enterprise. The CIPO must be an adept
communicator and consensus builder, able to identify grounds of shared interests and opportunities. It is
critical that such business managers fully understand and support the IP strategies being pursued to
increase the profitability and asset creation of their centres.

In the real world this takes time, patience and an accumulation of successes that can be leveraged to obtain
profiles of optimised IP models. This is a continual, cooperative effort between the CIPO and such managers
that requires trust, real dialogue, accountability, follow-through and responsiveness. To establish this
relationship of trusted adviser to the business units, the CIPO must possess the right personality traits,
domain expertise, managerial skills and ability to deliver results.

Ingredient four – adequate resources
A fourth essential ingredient is the resources given to the CIPO to plan and execute the IP strategic plan. One
approach employed successfully at Philips, SAP and other companies is to give the CIPO a separate stand-
alone organisation with assigned people and allocated resources necessary to carry out all aspects of the IP
strategy. This requires major reallocations of personnel and responsibilities in most established
enterprises, because the various IP functions usually reside in various parts of the organisation, such as
legal, R&D and finance, assuming they are being addressed at all.

Having a separate CIPO organisation is resisted in many enterprises because of institutional impediments
for this change and because historically the IP function has resided in the office of the chief legal officer
(general counsel or VP law).
Alternatively, the CIPO organisation can have strategic oversight over certain IP professionals or functions
which reside in the office of the GC or CTO, such as patent protection or IP litigation, as is done at HP.

Ingredient five – involvement in all IP-related transactions
A dramatic increase in IP return can occur if the CIPO is given review responsibility for the IP aspects of all
corporate contracts and transactions. This creates the opportunity for IP to become a value driver in every
deal, which is often missed using the conventional approach of having IP review only in limited
circumstances (eg, licences).

As IP is usually present in nearly all contractual contexts, typically as a mix of the four modes of IP protection –
patents, copyrights, trade secrets and trademarks – the CIPO can optimise the deal in ways that create
substantial added value. This IP optimisation is critical for obtaining the overall enhanced IP return mandated
by the board.

Staffing plans can be created to process effectively the hundreds or thousands of contracts a year that are
typical in many enterprises so as to eliminate review bottlenecks and reduce transaction costs. HP claims
that since the creation of its CIPO position, this IP review has been applied to over 5,000 proposed contracts
and has resulted in substantive IP changes in over one-half of these, which has produced significant benefit
in IP return.

Ingredient six – direct access to top management
Direct access to the CEO, or perhaps an executive VP in very large enterprises, is an essential ingredient of
CIPO success. The message from the CIPO, who must constantly address a full-spectrum view of IP across
the enterprise, should not be filtered by the perspective of other C-level personnel such as the general
counsel (whose primary focus is risk management) or the CTO (whose primary focus is product

The IP dialogue with the CEO is critical both strategically and tactically, and should be frequent and informed.
Whether this direct reporting structure should be formal or de facto (ie, dotted-line reporting) will vary from
company to company because CEOs typically already have six to nine direct reports. But even if the reporting
structure is de facto, it is essential for the CEO to engage fully in regular briefings and dialogue with the CIPO
for mastery of the key IP issues confronting the enterprise, and for oversight of the lesser IP issues and
corporate processes.

Ingredient seven – facility with all IP protection modes
The IP domains that most critically impact on corporate value depend on the business model of the
enterprise. Utility patents usually are most significant in enterprises engaged in the design or manufacture of
industrial products, communication services and prescription drugs, to name a few. Trademarks or design
patents often dominate in business models involving consumer products and services, and copyrights are
most important for contentfocused enterprises. But in each business model the effective mix of the IP modes
creates the greatest value. The CIPO for each different type of business model must master all of these IP
modes and optimally integrate them for maximum return.

Ingredient eight – working knowledge of all relevant technologies and markets
The technology focus of the enterprise drives its IP return. The CIPO must have a working understanding of
all relevant technologies in order to map the IP to them and to the business model effectively. Often, larger
enterprises have a mix of related or disparate technologies embedded in their products and services.

Additionally, the business landscape of the enterprise needs to be understood along with the competitive
forces at work and the emerging technology, market and industry trends. This requires a deep understanding
of the technology and business sectors of the enterprise, and how they interrelate and map to the IP.
Because this is key to IP success, some of the most effective CIPOs to date have come from business or
technology organisations and not from the legal profession.

Ingredient nine – IP litigation competency
IP litigation poses a significant IP risk in many contexts and the possibility of an injunction can bring the
affected activities of the enterprise to a standstill. While the CIPO does not need to be a trial attorney to
provide sufficient oversight into the IP litigation function, a practical, informed understanding of the realities of
IP litigation is absolutely required. IP litigation can often be resolved in a deal context, requiring the CIPO to
marry IP litigation skills with transactional expertise in order to settle a difficult case.

Ingredient 10 – deal-making expertise
The CIPO must be a shrewd negotiator and adept at doing deals. This requires the CIPO to possess skills
and attributes usually honed in the M&A world. These skills are usually developed by CIPO candidates who
come up through the corporate development side of the enterprise and not through the legal function,
although legal training does not necessarily preclude success on the business side and many an in-house
IP lawyer has migrated to the corporate development or strategic planning group.

However, many excellent IP experts do not posses the necessary business skills, background and/or talents
to become an effective CIPO. Real-world experience and natural talent are what really matter in this context.
They are also important to the CIPO to assist in building consensus within the organisation and buy-in to the
IP strategic plan. These skills help the CIPO deliver on what is promised from the IP function and help close
opportunities that produce IP value-add.

Ingredient 11 – people skills
The CIPO must be an excellent manager of projects, processes and people. The myriad tasks that the CIPO
must ensure are addressed and properly completed can quickly result in failure for an otherwise highly
competent CIPO.

It is a challenge, to say the least, for a CIPO to be a highly effective IP strategist, tactician and evangeliser,
while at the same time being an efficient, effective and trusted manager of the IP function. These critical
abilities often are honed in the engineering manager ranks and not in the legal or dealmaking functions.

Ingredient 12 – leadership
As the CIPO position is new to many enterprises, the credibility of the person holding the CIPO position to
superiors, peers and subordinates is critical. This requires the CIPO to have the characteristics of a great
leader in order to be successful.

The CIPO has to be trusted and respected, and viewed as a team player, looking out for the best interests of
the enterprise. The CIPO cannot be viewed as having a parochial IP agenda that transcends other conflicting
corporate objectives in a manner that produces a result skewed in the IP direction but not in the overall best
interest of the enterprise.

CIPOs can be found
These essential ingredients for CIPO success must be taken into account by the board and senior corporate
management in the creation of the CIPO function in the enterprise, the selection of the appropriate CIPO
candidate and the ongoing evaluation of the CIPO and the results obtained by the CIPO’s organisation. The
upside potential for increased shareholder value and for optimal management of the IP assets is great if
these essential ingredients for CIPO success can be found in a single individual. They are few and far
between, but they do exist.

Robert Sterne is a founder and a director of Sterne Kessler Goldstein Fox, Washington DC

Ron Laurie is co-founder and managing director of Inflexion Point Strategy, Palo Alto
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