Strategic Management of Intellectual Property

In recent years, the primary locus of value for many corporations has been found in their intellectual property rights. By one informed estimate from the late 1990s, some three-quarters of the Fortune 100’s total market capitalization was represented by intangible assets, such as patents, copyrights and trademarks.1 In this environment, IP management cannot be left to technology managers or corporate legal staff alone. Given that the generation of returns from IP rights is a capital-intensive, long-term activity and that decisions affecting intellectual property are usually irreversible at low cost, IP management must be a matter of concern for functional and business-unit leaders as well as a corporation’s most senior officers.

Little of the writing on the subject of intellectual property rights, however, has been directed at top-level executives; instead it has frequently been done by specialists, for specialists. And senior managers, in order to effectively govern and exploit their often huge IP assets, need help to answer these specific questions:2 How can the company use intellectual property rights to gain and sustain competitive advantage? How do IP rights affect the industry’s structure? What options do IP rights offer vis-à-vis competitors? How can IP rights grant incumbency advantage and establish barriers to entry? How can IP rights help the company gain vertical power along the value chain? What organizational design accommodates an intellectual property strategy most effectively?

Enormous knowledge is hidden in the economics literature and in the heads of corporate IP managers about the way companies have developed answers to these questions.3 Making such information available to top-level management will help lead intellectual property rights out of their shadowy existence in patent and legal departments and enable companies to tap into their strategic value. (See “About the Research.”)

The article presents first-phase findings of a larger research study on the managerial use of intellectual property rights that is currently being conducted at the Copenhagen Business School. Primary data were collected through in-depth interviews with senior corporate representatives responsible for IP matters. Secondary sources include both scientific publications and publicly available information about companies as well as information from patent and trademark databases.

At first, a broad synopsis of the scientific literature was carried out. Its essence is a distillation of managerially relevant insights from various sources encompassing theoretical and empirical economics as well as applied management. Classic strategic aspects were then buttressed by IP-related findings from these earlier scientific studies, preferably from large-scale empirical studies. Remaining strategic aspects not touched upon in prior studies on IP were addressed by providing real-world examples. A test of the emerging IP strategy’s comprehensibility for future managers with other than technical or legal backgrounds was carried out in a teaching experiment with students at the Copenhagen Business School.

Intellectual property rights can help a company gain competitive advantage in various ways, but three are paramount: They can provide a temporary technological lead (incumbency), protect brand names and help form an industry standard. Combinations of patents and trademarks can help to sustain IP-based competitive advantages.