Intellectual property in the Global Enterprise

The role of IP in the Global Enterprise departs in important ways from its role in traditional multinational companies

Our current era of unprecedented globalization has led to the emergence of companies that are more than just multinational — they are truly global in their thinking and in their view of themselves and in their view of the world. In addition to products, services, capital and ideas, the Global Enterprise utilizes global supply chains, global leadership, and global management for intellectual property. And the role of intellectual property in the Global Enterprise departs in important ways from its role in traditional multinational companies.

The Global Enterprise uses both proprietary and open innovation models

An important feature of the Global Enterprise is that it understands — and can deploy — both the classical proprietary model of product/service development as well as the open innovation model that has become prevalent in recent years. The proprietary model applies where technology is not already available in the market, is not easily created using an open model, and where IP is available to prevent others from easily copying. The open model, on the other hand, brings a strong return on investment where undifferentiated infrastructure is acceptable — such as is the case with the Linux operating system. This high rate of return is brought about by the availability of leverage from multiplying the Global Enterprise’s investment by like investments from others contributing to the same technology. Return on this investment comes from the proprietary value-add built on top of the open technology. The open innovation model is especially attractive where value chain input (from customers, suppliers, etc.) can improve products or services, and where crowd-sourcing can provide fast, inexpensive answers to questions. But harnessing the strength of the open model can require careful compliance with applicable license agreements, such as open source licenses in the case of open source software.

The Global Enterprise exercises care in crafting the desired IP rights split in order to pursue marketplace advantage from an open model. By comparison, the traditional multinational corporation tends to remain within the proprietary development model. It attempts to develop its technology individually, keep that technology to itself, and recoup development expense through its product sales. The Global Enterprise takes a more nuanced view that interweaves both proprietary and open development models.

The Global Enterprise licenses out its applicable technology, promoting ecosystem development

Another feature of the Global Enterprise is that it licenses out applicable technology for royalty income and to promote ecosystem development around its innovation model. It utilizes an innovation-driven model that continuously maintains the current generation of technology proprietary while licensing the technology of previous generations. Parameters for deploying this model include timing, pricing, geography, support, and attributes of follow-on generations. The strategic advantage over models used by traditional multinational corporations is that the Global Enterprise sets up an ecosystem of products, components, knowledge, expertise, scale and standards — all around its licensed IP.

The Global Enterprise considers every innovation and every brand a corporate asset

Critically, and in contrast to the multinational company in which IP is balkanized along geographical and business unit lines, the Global Enterprise considers every innovation and every brand a corporate asset. This approach enables IP everywhere to be deployed for the benefit of the enterprise anywhere. And the model is employed regardless of what business unit or country created the applicable IP. For example, a particular patent can be used by one part of the enterprise to counter a third party assertion in the United States, while at the same time being used by another part of the enterprise to close a royalty-bearing license in Germany.

The Global Enterprise employs a global IP protection strategy

A global outlook leads the Global Enterprise to select its IP protection strategy based on two major insights: where competitors will make or sell infringing product and where the strongest protection is available. This departs from traditional multinational corporations, which base their IP strategies on where each invention or brand was created. In order to operationalize its global IP management model, the Global Enterprise utilizes portfolio managers who sit between technologists and the business, wherever in the world the technology/business nexus is strongest. These portfolio managers make portfolio decisions on invention solicitation and forward-patenting, patent filing, licensing/enforcement/assignment, and maintenance, all on a worldwide basis.

The Global Enterprise establishes and maintains a culture of IP knowledge and awareness

Establishing and maintaining a culture of high IP knowledge and awareness is crucial to the Global Enterprise. Where a traditional multinational corporation might think of IP merely as a legal asset, the Global Enterprise appreciates IP as a business asset. This is accomplished by organizing IP as a business unit — accounting for profits and losses and incorporating other normal business attributes. Further, employee training is important. The Global Enterprise commits to training all employees to understand the basics of respect for the enterprise’s IP and the IP of others, as well as training all technical employees to identify and disclose possible inventions. This ensures that innovation is captured everywhere, so that good decisions can be made about what gets formal protection and where it is protected. Strong measures are put in place to avoid unintentionally coming into possession of third-party technology without appropriate licenses.

The Global Enterprise positions itself in alignment with global, social and policy trends, including around IP

Not surprisingly, the Global Enterprise positions itself in alignment with global, social and policy trends. Among these trends are customer participation in product development, open innovation incorporating user collaboration, anytime/anywhere access to information, multi-level supply chains, multi-source product development, and ubiquitous access to manufacturing resources. Importantly, IP supports   and accelerates the necessary positioning. This is accomplished through agreements that anticipate global scope (eschewing “China only” or “U.S. only” agreements), flexible approaches to IP licensing/ownership, and striking a balance between IP protection and public interest in product choice and price competition.

Looking out at the innovation landscape in which the Global Enterprise sits, two trends are readily identified. First, innovation is steadily becoming the only sustainable source of competitive advantage. Second and closely related, IP is the only viable tool for protecting innovation. Considering the impact of IP on business, then, business leaders can no longer afford to delegate IP strategy to lawyers. This is a habit of the traditional multinational corporation that, if not broken, will leave its adherents behind in the increasingly global economy.  

Instead, entities that are indeed Global Enterprises must take action to adopt new management strategies. One such action is to choose technology development models (proprietary or open) based on ability to capture competitive advantage versus development expense leverage. Another is to treat every IP asset as global for both protection and utilization. Today’s global economy demands greater appreciation for the critical importance of IP. Innovation is something to be cherished — and protected. Failing to adapt to this new reality will prevent a worldwide organization’s transition from the merely multinational to the truly global.

 

This article was sponsored by the Center for Global Enterprise, a non-profit institution dedicated to assisting enterprises in transitioning from multinational to global. For more information, see www.thecge.net.

Contributing Author

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David J. Kappos

David J. Kappos is a partner at Cravath, Swaine & Moore LLP. He is widely recognized as one of the world's foremost leaders in the...

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