Ideation: The Birth and Death of Ideas

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IDEATION The Birth and Death of Ideas Douglas Graham Thomas T. Bachman

John Wiley & Sons, Inc.

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IDEATION

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IDEATION The Birth and Death of Ideas Douglas Graham Thomas T. Bachman

John Wiley & Sons, Inc.

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Copyright © 2004 by Douglas Graham and Thomas T. Bachman. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specif ically disclaim any implied warranties of merchantability or f itness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. The publisher is not engaged in rendering professional services, and you should consult a professional where appropriate. Neither the publisher nor author shall be liable for any loss of prof it or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Graham, Douglas, 1950 – Ideation : the birth and death of ideas / Douglas Graham, Thomas T. Bachman. p. cm. ISBN 0-471-47944-6 (cloth) 1. Creative ability. 2. Creative ability in business. 3. Intellectual property. I. Bachman, Thomas T. II. Title. BF408 .G664 2004 153.2—dc22 2003023870 Printed in the United States of America. 10

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Chelsea Amanda Moffatt Graham

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Contents

SECTION A

Foreword Preface Acknowledgment

ix xiii xv

Introduction

1

1 Why Ideas Matter 2 The Mothers and Fathers of Invention 3 Taxonomy of Innovation SECTION B 4 5 6 7 8 9 10 SECTION C

The Life Cycle of Ideas Innovate: The Birth of an Idea Register: The First Step for Every New Idea Protect: Ensure Recognition and Reward Develop: Improve Your Idea Value: What Is Your Idea Worth? Market: Finding Investors and Customers The Death of an Idea

The Innovation Industry: A Call to Action

11 The Individual Innovation Imperative 12 The Corporate Innovation Imperative

3 11 44 53 59 82 91 128 133 147 159 163 165 170 vii

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CONTENTS

13 14 15 SECTION D

Academic Innovation Imperative Creative Innovation Imperative The Global Innovation Imperative

A Vision for the Future

191 198 205 211

16 The Providers, Merchants, and Consumers of Innovation

215

Notes

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Index

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Foreword Ideas are something we take for granted. However, the struggle ideas go through to become realized is daunting and few make the journey all the way through. I have been very much involved in early stage investments both as a venture capitalist and as chairman of the Small Business Investment Taskforce (SBIT) and am aware of the difficulty early stage companies have in raising capital to develop ideas. In fact our motto is: We help translate good ideas into great businesses.

But in some ways what we call early stage is closer to middle stage. Before even an “early stage” venture capitalist gets to see an idea, it is already far along on its journey. Someone has to have the idea in the first place. Then they must do the research to see if it is original and commercially viable. Often they would need to pay for legal advice and feasibility studies as well as organizational costs for creating a corporate structure. However often the skills required to move these ideas along—administrative and business—are not the kind of skills that we typically find in our inventors and innovators. It is no surprise that so few ideas ever see the light of day. If we can catch these ideas earlier in their life cycle, we can possibly bring to bear skills and resources that greatly improve their chances of success—or at least of getting as far as the corporate stage. ix

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This book starts with a discussion of how we can better help innovation become realized and discusses the profound impact this could have on our economy and our society. It is a topic that is rarely discussed—we just take ideas for granted—and I welcome any book that brings the issue into public debate. There are also many practical suggestions that may help both in the innovation process itself and the process of developing it through the life cycle. One of these ideas is the creation of funds that allow small investors to invest directly in intellectual property in the same way that our Venture Capital Trusts (VCTs) allow private investors to invest in early stage companies that they would not normally have access to. At the same time, these funds would bring capital to ideas at a very early stage when they often “die on the vine” because of a lack of even very modest funds. The abstract nature of ideas is a large part of the problem. We are not used to managing something so abstract but manage them we must as a wave of new regulation in many parts of the world is requiring companies to identify and value their intangible assets. One of the reasons these new accounting rules are being introduced is because market regulators feel that investors are not getting a very complete picture of a company with past accounting procedures. So much of the company value is now in their intangibles that they should attempt to give investors a much clearer picture of what these intangibles are and what they are worth. One of the unique properties of intellectual assets is that, unlike physical and financial assets, they are often continuing. We can use them again and again in different geographies, industries, and companies. Any new breakthroughs in drug delivery (another area I have an interest in) can be usefully deployed in any pharmaceutical company. Often the more it is used the more valuable it becomes. So not only is there a tremendous amount of value buried in our often unrecognized and unused intangibles (trillions

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of dollars by even the most conservative elements) but this value can be used over and over again if we were only better at informing others of its existence and easing the process of licensing it. Hopefully the discussion we are starting will go some way to releasing all of this value for the benefit of the innovators, the users of the innovation, and the intermediaries. That will help the ideas become realized. In addition, every reader can take advantage of a web site that allows them to register their ideas at no charge. SIR DAVID COOKSEY, Chairman of the Committee of Non-executive Directors of the Bank of England

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Preface What we become as individuals, companies, and nations depends primarily on our ideas and our ability to realize them. This book discusses the process of ideation from the perspectives of psychology, finance, economics, and law. In the process, it improves the chances that our ideas will ever see the light of day. The value of intellectual capital in our corporations is close to $20 trillion. However, over 90 percent of this consists of unmanaged, unused, illiquid, and largely unknown, intangible assets. This makes the topic of how we manage ideas within our corporations very relevant. The first section of Ideation elaborates on why ideas are so essential, and how fundamental the ideation process is for us, our companies, and our economy. It looks at innovators from the past and the present in all walks of life and discusses the personality of innovators as well as the terminology and taxonomy of innovation. The second section introduces the concept of a life cycle for ideas and follows ideas from creation to protection, including the legal protections of copyright, trademarks and patents, development, valuation, and marketing. We discuss how an innovation is handled by many different functional units within the corporation as it matures. We also discuss why so few ideas become realized, the many potential pitfalls ideas face on their journey, and how many pitfalls can be avoided or at least minimized. xiii

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The third section contains practical advice about what we can do to better use the vast resource of ideas and innovations in our personal lives, our corporate lives, and in society as a whole. We discuss the impact of the innovation infrastructure for developing countries. The last section suggests how we can better manage innovation and the impact that it could have on our future. It also explores developing an entire industry, equivalent to the equities industry, but in which the investment is not in the corporations but in the intellectual property itself. This gives rise to intellectual property (IP) mutual funds, IP sector funds, and the IP equivalent of every financial instrument in the equities markets. Ideas are the essence of the individual, the corporation, and society. Yet, we understand little of the ideation process. Ideation will correct this gap in our knowledge. This book is supported by the Ideation web site (www .ideation.com) that provides:

f f f f f f

A secure repository for the reader’s ideas, An initial level of protection, Attestation as to when readers thought of their ideas (and thus the ability to prove they were the original author in the event of conf licting claims), Tools that assist in the ongoing development of their ideas, Potential access to licensors of their ideas, and Interactive tests to help them determine the extent and type of their creativity (CQ).

Ideation helps everyone who has ever had an idea gain a better chance of realizing it and in the process gives you a profound insight into the ideation process.

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Acknowledgments One of the principles throughout this book is that one should recognize contributions to all innovations so the acknowledgements in this book requires more thought than in most. First, many of these thoughts and ideas arose while brainstorming with a very talented group of individuals including Ben Binford, Dennis Dugan, Prabakah Jayade, Sam Keall, Andrei Osipov, Andrew Quale, and John Wood. Lawrence Price provided invaluable advice and had the courage of his convictions to jump in without any immediate or obvious reward. This group was way ahead of the pack. I hope the group will be reconstituted as we move forward with some of the projects discussed in this book. In addition, I must thank the early contributions from the KPMG team including Chris Kapsaroff, Kaisha Muoto, and Kathrlyn Wang as well as all the team at Innovation Trust. I must also thank the many researchers who gave their time generously. These include Amber Jacobs, Antonia Badon, Camilla, Marghretta McBean, Neanda Salvaterra, and Yannique. Finally, I would like to thank my editor at John Wiley and Sons and my team at Publications Development Company of Texas who helped the book through its difficult gestation.

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The next empires will be empires of the mind. Winston Churchill

Between the idea and the reality falls the shadow. T. S. Eliot

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SECTION A f f f f f f

INTRODUCTION

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1 Why Ideas Matter Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world. Albert Einstein (1879–1955), mathematician

Why are ideas of such overriding importance that we live and die by them? Nations have been founded on ideas; civilizations have been destroyed by ideas. In this book, we discuss their impact in all fields of life and gain insights into their management from economics, finance, law, and psychology. Ideas are important because they are the source of every aspect of human endeavor. Our potential is limited only by the quality of our ideas. What we become as individuals, companies, and nations depends primarily on our ideas and our ability to realize them. Every project starts in someone’s mind. From there it begins the complex path that we discuss in depth in this book. Most ideas will not survive the journey. They wither on the vine for many reasons including lack of funds, resources, confidence, and markets, but generally they die because the person who thought of the idea does not know what to do with it. We offer some solutions to that particular problem regardless of whether 3

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the innovation is in business, science, or the arts. Some of these simple ideas will change the world. The value of the intellectual capital derived from ideas in our companies is close to 70 percent of their value according to a recent PriceWaterhouseCoopers study.1 This means the value of intellectual capital in corporate America is close to $12 trillion and globally this value is $21.9 trillion. However, because of our inability to manage abstract entities such as ideas and innovation, the vast majority (over 90 percent by most estimates) of these assets go unused. This is a staggering $19.8 trillion that is being wasted and, if through the simple procedures discussed in this book we are able to start using even 5 percent of these, then we are contributing almost $1 trillion to the global economy. This would make even Ted Turner’s gift of $1 billion to the United Nations seem modest.

Terminology The terminology used can be confusing—probably a ref lection of how little this topic has been discussed. We are talking mainly about ideas—often referred to as innovations. To be accurate, innovation implies ideas that improve something that already exists but it is commonly used to refer to all new ideas. Within the corporate setting, innovation is often referred to as intellectual capital or when viewed from a financial perspective as intangible assets. The innovation within the intellectual capital that is formally protected is referred to as intellectual property. However, all of these terms tend to be used interchangeably but with certain functions having preferences (see Table 1.1). To clarify the overlap in usage of these terms, it is useful to refer to the Venn diagram in Figure 1.1. The confused nomenclature is very much part of the problem. Innovation impacts many different parts of a company and each

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Why Ideas Matter Table 1.1

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Terms Used for Ideation

Job Function

Preferred Term for Ideation

Researcher R&D Manager CFO CKO General Counsel CEO

Invention Research Intangible assets Intellectual capital Intellectual property Innovation

manages it as best they can and in isolation from the other business functions that also interact with the innovation. Little is written about something as important as ideas because, by their very nature, ideas are intangible and thus largely unknown. We are surrounded by the unknown. The more we learn and understand, the more we realize there is an ever-greater field of the unknown lying beyond.

Intangible assets

Intellectual capital

Intellectual property Innovation

Figure 1.1

Venn diagram of ideation terms.

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All our knowledge brings us nearer to our ignorance. T. S. Eliot (1888–1965), poet

We are surrounded by the unknown. Ninety-five percent of the universe is radio silent consisting of “dark matter” and “dark energy,” also 90 percent of our brain is electrically silent—we have little knowledge of what, if anything occurs there. Similarly, according to one study, 78 percent of a typical company consists of unknown, unmanaged intangible assets (Figure 1.2).2 This is a tremendous waste. If we value this proportion for just the world’s public companies, it comes to approximately $21.9 trillion. This $21.9 trillion of value tied up in nonfungible, illiquid, unmanaged assets is a primary drag on the global economy and represents an opportunity of unprecedented size for those who can tap into this value. Almost all of this number exists of f the balance sheets providing interesting opportunities for new financial vehicles (see Chapter 15, The Global Innovation Imperative). John Kendrick, a well-known economist who has studied the main drivers of economic growth, reports that there has been a general increase in intangible assets contributing to U.S. economic growth since the early 1900s. The dramatic change in the Unknown intangible assets 68%

Tangible assets 30%

Figure 1.2

Known intangible assets (IP) 2%

Unknown, unmanaged intangible assets.

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Why Ideas Matter

proportion of value represented by intangible assets over the past 10 years is illustrated in Figure 1.3. These intangible assets are the assets that a company has that are neither financial nor physical. They are the business plans, marketing plans, advertising slogans, technology, formula, URLs, trademarks—all largely the result of innovation. However, most of management’s time appears to be focused on managing tangible assets. This does not apply only to Fortune 500 companies; it is even more important for an early stage company founded as a vehicle to realize one particular idea. One very important aspect of intangible assets that makes them so much more valuable than tangible assets is that they are nondepleting. That is, no matter how much you consume them they are still available for use. Tangible assets can be deployed in one place at one time. For instance, a hotel room—a tangible asset—can be rented to only one guest at a time. The

100 90 80 70 Percent

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60 50 40 30 20 10 0 1982 Tangible

Figure 1.3

2000

Year Intangible

Change in intangible proportion of value.

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software—an intangible asset—that books those rooms on the Internet, however, can be used any number of times. It can be used for each hotel in a chain, licensed to competitive hotels, or adapted for use in other industries. That is why intangible assets are so much more valuable while being so much more difficult to value. One final perspective on how important ideas are is an economic one. How much do we spend to try to generate ideas? We really do not know. What we do know is how much we spend on research and development (R&D) to develop ideas within the formal environment of scientific research. For 2002, that figure is $245 billion in the United States alone. This does not include the huge but uncounted cost that goes into innovation in creative fields such as entertainment, art, and advertising. The total output of these “copyright” industries in 1999 for the United States is $457 billion—almost 5 percent of the gross domestic product (GDP). Neither does it include the countless efforts to generate business ideas within the corporation but outside of the lab. The global figure is a significant portion of the $21.9 trillion existing as intangibles, which makes it one of the primary, if not the primary, drivers of economic activity. Investment in intangibles is difficult to measure because much of it is not accounted for separately. However, Leonard I. Nakamura studied the level of intangible investment by analyzing R&D expenditures in addition to investments in advertising and software. He concluded that the level of intangible investment includes not only the substantial investment in R&D but also in advertising and software. Nakamura attempted to measure the level of investment in intangibles through an analysis of investments, labor inputs, and operating margins. Nakamura estimated the level of intangible investment at least $0.5 trillion a year and estimates it is probably $1 trillion a year. As a result, he feels the U.S. economy is in

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better shape than we have thought being it is underpinned by significant investment that has not been visible due to the inadequacies of current accounting procedures. Baruch Lev has been a pioneer in leading us to understand the importance of intangibles for the economy and more specifically to the analysis of corporations and the prediction of their future performance. He, along with others, point to the anomaly of the way tangibles and intangibles are treated for accounting purposes—the former being reported as assets on the balance sheet and the latter usually written off in the income statement as an expense. He and his collaborators point to the inadequacy of the information that investors currently use in analyzing companies and suggests his own metrics for analyzing company intangibles.3 These include metrics related to patents: • Number of patents granted to firm in given year • Intensity of citations to a firm’s patent portfolio by subsequent patents • Number of citations in a firm’s patents to scientific papers • Technology cycle time In addition, there are metrics related to: • Investment in basic R&D • Investment in applied R&D Their research found a statistically significant correlation between these metrics and the return on equity, annual stock return and especially the market to book ratio. A paper portfolio using his methodology has consistently outperformed the market indices in good and bad economies. Baruch Lev intends to put his theory into practice with a fund based on these methodologies.

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Realizing the Potential of Ideas This book provides practical advice on how we should manage ideas and innovation both in our personal lives and in our companies and society. We show how we can make the most of our ideas and greatly improve their chances of becoming realized even with the current infrastructure that exists for their support. We also argue that this infrastructure is hopelessly antiquated and that a radically new infrastructure is needed that, once developed, will provide an enormous stimulus to the world economy. This new infrastructure is based on developing global markets for ideas that are parallel to the equity markets. Instead of being based on shares of corporations, they are based on shares of intellectual property and intangible assets. This provides an investment marketplace that matches capital and market access to ideas at a much earlier stage than usual. Normally it would take years for an idea to be developed, protected, have a corporation built around it, and then eventually made available for public investment. The intellectual property market would greatly reduce this delay in funding new ideas and also allow corporations to raise badly needed capital or cash f low from their intellectual property. As you will see, it is all common sense and relates to your everyday experience, but the impact is global.

2 The Mothers and Fathers of Invention

What can we learn of innovation from the innovators? Is there a personality profile associated with inventiveness? How is the talent for innovation distributed by gender, nationality, and even handedness? We asked some of today’s prominent innovators about their ideas. How do they come up with them? Can they inf luence their appearance or do they just arrive on their own? Do innovators do anything to increase their creativity? The questionnaire used was designed to work with all types of innovation whether creative, scientific, or business-related. But first, we look at some historic innovators. It is difficult to characterize inventors but it does seem, when we look at the selected brief biographical sketches that follow, that there are a few generalizations that can be made. 11

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The following vignettes illustrate just a few selected innovators in varying fields. We discuss some of the characteristics the innovators seem to share.

The Innovators We start our discussion of the ideation process by looking at the lives of some well-known innovators selected from various disciplines and times. We then discuss some of the aspects of the inventive personality. Leonardo da Vinci Leonardo, the illegitimate son of a 25-year-old notary, Ser Piero, and a peasant girl, Caterina, was born on April 15, 1452, in Vinci, Italy, just outside Florence. His father took custody of him shortly after his birth because his mother married someone else and moved away from their town. Each parent continued to have children with other partners so that Leonardo had in total 17 half sisters and brothers. Vinci provided Leonardo with an environment rich in scholarship and artistic tradition. Leonardo was a strong, handsome man, a great singer, and a vegetarian. He loved animals, buying them at markets just to free them. When he was 15, his father apprenticed him to Verrochio, a renowned artist in Florence. It was here that Leonardo’s genius was first recognized after he was given the opportunity to paint an angel in Verrochio’s Baptism of Christ. He did so with such mastery that Verrochio vowed never to paint again. In 1477, Leonardo set up his own studio and started looking for patrons. His first commission was The Adoration of the Magi, which he abandoned unfinished for the patronage of the Duke of Milan. This habit of abandoning projects while half finished recurred throughout his

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life and, as we shall see, is characteristic of many inventors who like to work on many projects at the same time and move from one to the other before completing any. Until he fell from power in 1499, the Duke Ludovico Sforza used Leonardo’s inventive and engineering skills to design new weapons for warfare. Leonardo designed and drew plans for tanks, submarines, and even a helicopter, but these weapons inventions were never built until centuries later. Also during this period, Leonardo became very interested in anatomy and would dissect bodies to better understand their physiology. He recorded his studies in meticulously illustrated notebooks written using enigmatic mirror writing that may have been his way of encoding them. Throughout his work, he seemed to be aware of the “Golden Number” (Phi) of 1.618. His drawing—Vitruvian Man—has many Phi-related ratios (see Figure 2.1). Did he really consider all this complexity? Probably—we know he had a love of enigmas (such as his mirror writing) so it is possible that he encoded many clues that are still being discovered today. He was left-handed as were his contemporaries Michelangelo and Raphael. His work covered four main areas: painting, architecture, mechanics, and human anatomy. One of his manuscripts, the Codex Hammer, sold for $30,802,500 in 1994 at auction. After the fall of his patron the Duke of Milan, Leonardo worked and traveled throughout Italy for a number of employers, including the notorious Cesare Borgia, the illegitimate son of Pope Alexander VI. He traveled for a year with Borgia’s army as a military engineer and met Niccolo Machiavelli, author of The Prince, who procured for Leonardo a commission to paint the Battle of Anghiari. During this period, Leonardo also designed a bridge to span the straits in Constantinople and began work on the enigmatic, smiling Mona Lisa, which is now believed, based on computer image analysis, to be a self-portrait of

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Figure 2.1 Vitruvian Man with mirror script, self-portrait, warrior. Photo credit: (top) Scale/Art Resource, NY, Academia, Venice; ( left) HIP/Scale/Art Resource, NY, Science Museum, London, Great Britain; (right) Foto Marburg/Art Resource, NY.

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Leonardo as a woman. In 1504, he received notice of the death of his father, Ser Piero, but was deprived of any inheritance by his scheming half siblings. After receiving a modest inheritance from his uncle, he went to Rome where he worked for the Pope for several years. When his patron Giuliano de Medici died in 1516, he was offered the title Premier Painter and Engineer and Architect of the King by Francis I of France. King Francis proved to be a generous patron and Leonardo continued to draw and teach despite paralysis of his right hand. Leonardo died on May 2, 1519, in Cloux, France, with Francis I at his side. Mozart Johannes Chrisostomos Wolfgang Gotlieb (Amadeus) Mozart was born in 1756 in the city state of Salzburg amid a chaotic Europe that was giving birth to the ideas that would inf luence every aspect of human enterprise for centuries to come. Against this backdrop, Mozart was reared by his father, Leopold Mozart, an accomplished musician and vice-kapellmeister of the Salzburg royal orchestra, to become a music virtuoso. The young Mozart displayed a remarkable talent for identifying the composer of any musical piece presented to him. Mozart is an example of a genius innovator who should have led a financially comfortable life, but his inability to budget left him impoverished for most of his productive years. Mozart tried to solve this problem by composing for rich patrons. An example of Mozart’s commissioned work is the popular opera Figaro’s Wedding written in 1786. Toward the end of his life, when Mozart was impoverished and desperate for work, he produced two of his most popular musical pieces, The Magic Flute, a hymn to the Freemason order of which he was a member, and the

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Requiem Mass, which he did not finish before he died in 1791 of exhaustion and kidney failure. Isaac Newton Sir Isaac Newton was a physicist and mathematician best known for his works in mechanics and gravitation—Newton’s first, second, and third laws. He was born in Woolsthorpe, England in 1642, where his father was a farmer. Newton showed little interest in farming and was always building things. Because of that, his mother sent him off to Trinity College in Cambridge to study chemistry. Newton was modest with simple tastes. He never married but devoted himself to his work and the Royal Society of which he became president. He was angered when criticized and, although his critics claimed he was difficult, his friends commended his generosity. His lectures were not always well attended but even if there were no attendees, he would lecture. Sir Isaac Newton discovered that after white light was refracted, it split into a rainbow spectrum, a major breakthrough in the study of optics. He contributed to the science of mathematics in differentiation and integration as well as adopting a “method of f luxions.” It has been said that after watching an apple fall, he reasoned that the force that pulled the apple to the ground was the same force that was needed to hold the moon in its orbit. Making the necessary calculations led to the birth of mechanics and gravitation, a huge breakthrough in physics. He studied Greek mythology and tried to link it to the Bible. Although he believed in the Bible and in divine creation, he expressed a belief in a strong link between God and nature. Unlike many innovators, much is known about Sir Isaac Newton because he kept a diary and documented most of his works and Ideas. He died in 1727.

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Nikola Tesla Tesla was born in Croatia of Siberian descent in 1856. As a child, Nikola Tesla had few friends and was involved in many accidents, several of which were life threatening. However, he seemed to not need friends because he was able to conduct lengthy conversations with characters in his imagination. In his autobiography My Inventions, Tesla claims that from an early age he had an “inner world of personal vision.”1 He could invent machines in his head, testing and repairing them even before building them. He could travel places and meet people in his mind, having conversations that seemed as real as life. Today, Nikola would probably be advised to seek psychiatric help and his condition would most likely be treated with medication. As a teenager, he spoke four languages and invented a frictionless wheel. Tesla claims that he could envision f lashes of light with his senses so heightened that he could tell where objects were in the dark and that words had a smell and taste to him. He studied engineering, mathematics, physics, and philosophy while in college and claims that it was due to his “sharp” sense that he first had his idea of alternating current. He immigrated to America in 1884 with four cents in his pocket and began to work with direct current power advocate Thomas Edison. Tesla and Edison became bitter rivals and parted ways. Tesla had problems funding his projects because Edison was well connected and very inf luential. As a result, most of Tesla’s ideas to this date remain in his lab notebooks. The major fallout was when Edison said that if Tesla could repair all the generators and motors in the Edison plant, he would receive $50,000. Tesla accomplished that task but Edison did not follow through with payment. He went on to do manual labor, digging ditches for $2 a day until he met an investor. Tesla and Edison argued for years over the merits of alternating current and direct current for electric power. Tesla eventually

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won, and Niagara Falls and other power plants were founded on the Tesla system. The two men were very different: Edison inventing practical everyday products, while Tesla was a visionary for the future. Besides AC, he also invented the Tesla coil, which led to the engine starter in your car. He was also the actual inventor of the radio. He invented radio-controlled devices, f luorescent lighting, and what we now call radar. He had numerous patents and inventions but this “forgotten father of technology” never received the credit he deserved. It was reported in 1915 that he would share the Nobel prize with Edison and was very disappointed when this turned out not to be true. He received the Edison medal in 1917, which is the highest medal of esteem an electrical engineer can receive. “Inventors of the modern computer have repeatedly been surprised, when seeking patents, to encounter Tesla’s basic ones already on file,” noted Tesla historian Leland Anderson.2 Tesla lived a reclusive life with his only passion his work. He never married and lived as a celibate and hermit. He claimed that marriage was bad for inventors. He usually dined alone and never dated. He slept four hours each night and maintained the same weight of 142 pounds throughout his life. He never contested people who claimed credit for his inventions. Like Howard Hughes, he was afraid of germs and washed his hands all the time. Tesla ended his life miserably. At the age of 60, he was living on credit in cheap hotels. He had given up significant royalty licenses for the common good and was haunted by his failure to discover anything else as magnificent as his alternating current. He had few friends in his later years but Albert Einstein would regularly send greetings. Tesla spent much of his day in the New York Public Library or feeding pigeons who he claimed were his “true friends.” He died of heart trouble in January 1943.

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The Painful Story of Anesthesia Joseph Priestley, who lived next to a brewery in England, became interested in smells and gases. Self-taught, he discovered nitrous oxide in 1772 and oxygen in 1774. Priestley hired Humphrey Davy—the inventor of the miner’s safety helmet, which he failed to patent—to test his theory that oxygen could help with breathing problems. In the process, Davy discovered the “high” from breathing nitrous oxide. Soon it became a recreational activity with “laughing gas” parties. Davy subsequently became ill from breathing so many toxic gases and died in 1829; George Stephenson, inventor of the steam engine, incorrectly claimed the invention of the miner’s safety helmet (an example of idea theft). In the state of Georgia, a general practitioner, Dr. Crawford Long, was asked in 1841 for nitrous oxide for a party. All he had was ether. Some of the party revelers injured themselves without feeling pain. One of them, with moles on his neck, asked Dr. Long to remove these while he was breathing ether. Dr. Long did this on March 30, 1842, but did not publicize it. In 1844, a dentist named Horace Wells was visiting a fair in Hartford where a showman put on a display of laughing gas. Wells noticed that during the demonstration one of the participants bumped into a chair but appeared to feel no pain (a “serendipitous invention”). The next year, Wells tried to demonstrate the use of nitrous oxide as an anesthetic but it failed. Wells told William Morton, a former student, and Crawford Jackson of his discovery. They teamed up and applied for a patent for the discovery of anesthesia, which was granted in 1846. Morton gave it the name “Letheon” because Morton wanted to keep the actual substance he used a secret. However, the secret got out. He offered free rights to all charitable

20

INTRODUCTION

institutions throughout the country, but the government appropriated his discovery for its own use without compensating him. Various claimants opposed his right of discovery, including Jackson and Wells, and the matter was investigated by the French Academy of Sciences and was also the subject of two appeals in Congress. He died in poverty but also had his statue erected in Boston. Mortified by the failure of his demonstration and his inability to get the credit for his discovery, Wells became addicted to chloroform and committed suicide by jumping into a river in 1848. However, Wells did gain some of the recognition he coveted when the citizens of Hartford erected a statue in his honor after his death. Jackson had a long and successful career as a geologist but the controversies around anesthesia also had their impact on him. In 1873, his mind became deranged and the remainder of his life was spent in retirement—and no statue! Long also went largely unrecognized for his earlier discovery but finally he was named, along with Morton, Jackson, and Wells, in a bill passed by the U.S. Senate in 1854 acknowledging the probable discoverers of practical anesthesia.

Innovator Syndrome Innovators throughout history have rarely had easy lives. They seldom had the funds they needed to develop their ideas, few saw their innovation in common use in their lifetime and most moved from one project to another. They had difficulty relating to their contemporaries, not many recognized the importance of their ideas and unfortunately those who did often stole them! We discuss these personality traits more later in this chapter. As we will see, the contemporary innovator fares little better.

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Contemporary Innovators Lee Iacocca, Business Innovator Lee Iacocca is a legendary business innovator. After a successful career with Ford, he went on to turn around Chrysler. He took the unusual step of going to Congress to get loan guarantees of $1.5 billion that many thought would never be repaid. However, he surprised his doubters by not only paying the loan back in full but also paying it early. As one of the leading business innovators, we were interested in his thoughts on innovation in the business world and the automotive industry in particular: “The automotive industry is often thought of as an ‘old’ industry but innovation is central to the automotive industry to an extent that is often not realized. In fact, the industry ranks third (after pharmaceuticals and communications for intangible-driven earnings). Ideas are important and it is important for them to be heard within the corporation. I speak frequently on the topic of innovation and always emphasize the importance of innovation as a way to stay ahead of the competition. “However, it is very difficult for ideas to survive in the modern corporation. They have to survive politics, lack of understanding, envy, theft, lack of funding and other resources, as well as just plain corporate inertia. The more we can make our companies a fertile breeding ground for new ideas the better. Some of the ideas in this book will help— especially the importance of rewarding the original inventor and those that help the idea on its difficult journey with both recognition, often the most important factor, and, where possible, a small share of the resulting revenues or profits.

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INTRODUCTION

“In addition, the idea of creating intellectual property funds that will allow individuals to invest in intellectrual property and provide new ideas with early funding is invaluable. “Finally, in the past I created the Online Asset Exchange to provide a liquid market in physical assets that were not being used. Today there is a need today for an Online Intellectual Asset Exchange to provide liquidity for intellectual assets.”

Craig Fields, Innovator in Government Dr. Fields was the chairman of the Defense Science Board and director of the Defense Advanced Research Projects Agency (DARPA). He was elected a fellow of the American Association for the Advancement of Science and is a member of the Council on Foreign Relations. We asked him about innovation in Defense: “In Defense R&D, you have to remember that the R is a lot smaller than the D. The budget for developing an F22 fighter is massive and the research aspect is relatively small by comparison. “Sometimes, but not frequently, there is spillover to the commercial sector—the Internet deriving from ARPANET is one example—there are others in mathematics, oceanography, aerodynamics, and materials science. “A challenge is that to commercialize innovation you have to move quickly and be in a continual process of selfobsolesence. You have to keep re-inventing your own products that, in itself, requires considerable ongoing investment. And, of course, you need overmatching performance in all the other elements of competitive commercial business. “The theft of intellectual property is not as significant problem a problem as you might think. The real key is speed

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and rejuvenation—you have to develop it and get it to market as fast as possible. “The biggest issue is that the intellectual property is the brainpower of your researchers and managing the recruitment and retention of highly trained, highly intelligent employees is always challenging. “In the commercial sector, there are a few companies that do manage innovation well but underneath these are many that are at best mediocre in terms of managing their technology. “The idea of a fund to invest in and support intellectual property is interesting but it will have to be highly focused because of the tremendous diversity among kinds of intellectual property, for example, from melodies to software, and the among the companies and customers selling and buying products and services derived from said intellectual property. Funds with very specif ic focus and fund managers highly knowledgeable in the area are critical. “It really comes down to people. You need smart creative people who have good intuitions that are in tune with the industry gossip.”

Ron Altbach, Innovator in Music and Business Ron Altbach is an innovator in both arts and business. He was a former Beach Boy and wrote some of their most popular songs as well as several movie themes. He then went on to a successful career as a concert pianist and then another in business as an investment banker and chairman of a public company. We talked with him about ideas and in particular the nature of business and artistic ideas: “Musical ideas usually appear as thoughts in my mind. I don’t try a series of notes on the piano to see what sounds good— they appear in my head and then I play them. Some I recognize

24

INTRODUCTION

as derivative from an existing melody but others are truly original. Some of these, if they are good, then survive over time—I don’t write them down—and I incorporate them into a project. It is my own form of vetting. “In some ways it is Darwinian—I suppose nature uses similar processes at many levels. However, I describe the ideas as random but in some ways I think nature is never random. It is truly remarkable that from a base of just 12 tones we have developed the hundreds of thousands of melodies that exist today. “Business and musical ideas have the same genesis—they all come from the silence of a still mind. They both then need to be ‘produced’ and that is much of what I do. I don’t just have ideas—I like to develop them. With both kinds of ideas, there is often the ‘big idea’ and then many small ideas that help them develop and grow. In business and music alike, the initial ideas need to be orchestrated. “About 50 percent of the time I work with others. They can suggest changes, enhancements, or point out problems. Often their input will be sufficient for a cowriting credit. This applies to both business and songwriting but often the process of attributing credit is more developed in the creative sphere. In fact, often in the business sphere the credit is stolen. “I don’t really set time aside to create. Ideas just come whenever they come and I hold them in my mind. However, if I am in the middle of a project and ideas are not coming I meditate for a few minutes and then from the quiet mind that that produces I find the ideas start to come again. (You may remember many of the Beach Boys and our musical contemporaries were involved with meditation.) “An idea on its own may not have sufficient force to develop alone. It needs a channel and that often comes about

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through collaboration. A metric for measuring innovation and collaboration would be useful as both are invaluable and both are underappreciated and under-rewarded in a corporate environment. “The ideas are there; they just need to be encouraged. In a consulting project I have been doing for Tony Robbins, we asked for suggestions from the employees. Out of a workforce of 6,000 employees, we already have over 60 suggestions and that is in just the first couple of months. “Only a very small percentage of my ideas are ever developed. The main reason is time—I just don’t have time to evaluate and develop them all myself. An easier way to find partners to run with some of these ideas would be very helpful. As an investment banker, I applaud the steps you are taking to create financial instruments that would allow investors to invest in ideas and innovators to secure seed stage funding.”

The Inventive Personality Creativity is the sudden cessation of stupidity. Edwin H. Land (1909–1991), inventor of Polaroid photography, the zoom lens, and the light meter

Creative intelligence is the specific quality that most characterizes the inventor and is probably the quality that is the most difficult to test, because in testing open-ended or “divergent” thinking, there is no one correct answer. The Ideation web site (www.ideation.com) provides questionnaires that test some answers and score them automatically. Creative intelligence or the creativity quotient should not be confused with what is normally understood as intelligence (IQ). We test intelligence by

26

INTRODUCTION

measuring convergent thinking as opposed to the divergent thinking associated with creativity. Convergent thinking narrows down all the possibilities to a single solution. Multiple choice tests work well here. There is a perception that traditional IQ tests are biased against creative people who look for many answers. Creative thinkers are divergent and tend to think of many answers for each problem. This phenomenon of divergent thinking was first introduced by the psychologist P. J. Guilford, who associated it with four main characteristics: 1. 2. 3. 4.

Fluency: Producing a large number of solutions. Flexibility: Considering a variety of approaches simultaneously. Originality: Producing ideas that others have not thought of. Elaboration: Thinking through details and execution.

Guilford developed the Aptitudes Research Project (ARP) at the University of Southern California and devised an extensive sequence of tests to measure creativity.3 The project includes tests of word f luency, which asks test takers to think of as many words as they can that contain a given letter, and ideational f luency, which involves naming things that belong to a specific category, such as objects that float. This is reminiscent of the board game Scattegories, which we recommend in Chapter 4, both as entertainment that sharpens the creative aspect of the mind but also as a crude test of your own creativity. ARP also includes tasks such as creating titles for a short story plot. The alternate uses test, which asks a person to name as many uses as possible for an everyday object such as a paper clip or a brick is frequently used to test creativity in children. The consequences test asks a person to list the possible consequences of an imaginary event such as “What would happen if we had no lawyers?” ARP also devised tests to measure spatial aptitude

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27

such as drawing objects using geometrical shapes. Another popular approach is to ask for uses of a set of objects such as “How many uses can you think of that combine a brick and a handbag?” S. A. Mednick developed a creativity test that is associated with the ability to create new combinations of elements to achieve a goal or use. It is called the Remote Associates Test (RAT) (1967, Boston: Houghton Miff lin). Mednick devised this test to investigate these ideas. The original RAT contains 30 items comprising three words that are mutually remote (e.g., surprise, line, birthday). The participant’s task is to supply a fourth word that is a common associate of all three remote words (i.e., party). Mednick reports a correlation of 0.7 between RAT scores and rated creativity in design students, suggesting that the RAT may be a good, objective measure of creative thinking ability. The more remote the elements of the new combination, the more creative the process or solution. The RAT test has been negatively correlated with grade point averages, which is not surprising given the difficulties that many inventors seem to have in school. Robert Sternberg in his book Successful Intelligence points out that some of our most successful people score high on creative intelligence as opposed to analytical intelligence.4 They tend to love their chosen vocations and are thus productive and effective. Thomas Stanley in his book The Millionaire Mind goes on to point out that if individuals are low on analytical IQ scores, they are less likely to be encouraged to attend the better schools but they do tend to select a vocation that they love and thus have high productivity.5 Unfortunately, there are many people with high creative intelligence scores who do not succeed commercially (as discussed next). The information in this book should help many of this latter group become more successful by

28

INTRODUCTION

providing basic advice on how to protect and develop the fruits of your creativity. Intelligence Once an idea has been conceived, it generally takes intelligence to shape and articulate it. Although there is a correlation between creative intelligence and traditional IQ scores, it is not a high correlation. Those fortunate individuals who score high on both traditional IQ (convergent) and the creative quotient (divergent) possess a rare talent that should be cultivated rather than, as is often the case, being misdiagnosed as having Attention Deficit Disorder (or Adult Attention Deficit Disorder)—we used to call it boredom! Alienation The monotony and solitude of a quiet life stimulates the creative mind. Albert Einstein

This seems to be a common theme among creative thinkers. Often others could not understand their work or they were met by a skeptical public. One of the major functions of the Society for Creative Intelligence is to offer social meetings to cope with alienation. Similar situations occur with high traditional IQ. One of the most frequently quoted reasons that people join organizations such as MENSA and Intertel societies in which the only qualification for membership is an IQ score in the top two and one percentiles, respectively, is the desire to meet others with the same level of intelligence.

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Alienation is a theme that recurs whether we are looking at scientists, artists, musicians, or even innovators in business. Neither Einstein, Tesla, Edison, nor Newton had many friends as children. Nor did Van Gogh, Lautrec, Munch, or Turner. Beethoven, Rachmaninoff, Tchaikovsky, and even Mozart were considered social outcasts. Even in business, “difficult” company founders are legendary: Ray Kroc, for example, was bankrupt 13 times before successfully starting McDonalds. Psychopathology There has often been an image in literature of the “mad inventor.” Is there any truth in this myth? Unfortunately, maybe yes. Some of our most famous inventors seem to have shown distinct behavioral aberrations from Archimedes on. (He ran naked through the streets of Skypos when he realized that the mass of the weight of water that he was displacing was equivalent to the mass of his own body.) Most of us would probably have dressed first before passing on this good news. Another example is the precocious and outrageous behavior of Mozart, who inspired the jealousy of Salieri, the court musician of the time. Ironically, the genius of Mozart generally went unrecognized except by Salieri. Although he recognized his own inferiority by comparison, Salieri could not believe that such genius was packaged in such a giggling, promiscuous form. A recent study by Professor Simon Baron-Cohen of Cambridge and colleagues at Oxford University suggested that even Albert Einstein had a form of autism known as Asperger’s syndrome.6 Einstein’s lectures were notoriously confusing, and he spent much of his early life as a loner. The researchers also believe that Newton displayed classic signs of this condition. He hardly spoke and was so engrossed in his work that he often forgot to

30

INTRODUCTION

eat. He had few friends and no known girlfriends. He was lukewarm or bad-tempered with those friends he had. If no one turned up to his lectures, he talked to an empty room. At the age of 50, he had a nervous breakdown brought on by depression and paranoia. Others believe these traits can be attributed to high intelligence. In artistic invention, the link to psychopathology is even stronger, for example, the high suicide rates of visual artists such as Modigliani and Van Gogh and authors such as Hemingway and Platt. Some of this behavior is attributable to the frustration of seeing the truth clearly but being unable to convince anyone else of this obvious vision. Another possibility advanced by Huxley (The Doors of Perception), Laing (The Bird of Paradise, The Divided Self, The Gilded Cage), Satz (The Myth of Madness), and others contends that what is often diagnosed as schizophrenia is actually a mind that is operating in enhanced mode in terms of its ability to make connections but the part of the brain that is observing this (the id in classical psychoanalytical terminology) is unable to cope with the intensity of the vision.7 Many people exhibited the delicate balance between visionary and madman—for example, William Blake, mathematical genius, and Nobel Laureate John Forbes Nash Jr., the subject of the recent film A Beautiful Mind. Often the state or ruling institution took advantage of those whom they regarded as a threat to their control because those visionaries exhibited signs of eccentricity. When it came to school, none of them seemed to give any indication of the genius that must have been still latent:

f

Thomas Edison was always in trouble as a child and was nearly expelled from school because he was “addled.” Apparently, he was fidgety and inattentive. His mother

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f

f

f

31

pulled him out of school and taught him at home. As a teenager, he left home and drifted through innumerable jobs, moving on when he got bored or, as often was the case, was fired. The peripatetic Ben Franklin traveled extensively both domestically and overseas, pursuing his multiple interests, which included starting the first fire department in Philadelphia, inventing wood stoves, rocking chairs, lightning rods, along with a host of political intrigues. Nikola Tesla also had difficulty as a child, frequently risking life and limb on his exploits, which were often driven by his insatiable curiosity. He also seemed to live apart from other children, preferring instead to engage in long conversations with the characters he conjured up in his imagination. He used his vivid imagination to good purpose when he built a new machine in his head and “ran” it, to see where faults might lie before it was ever constructed. Tesla described the bright f lashes of light that often accompanied his ideas, which are reminiscent of the “auras” often described by schizophrenics. Surprisingly, even Albert Einstein had problems at school. He described himself as a slow thinker and never felt he had any talent for mathematics. He did better when he was moved to another school, but he always had poor verbal skills and his lectures were notoriously confusing.

Even “sane” inventors have been known to get upset when someone has the temerity to alter their inventions, as witnessed by the remark of Lee De Forest, inventor of the triode: You have debased my child. You have made him a laughingstock of intelligence, a stench in the nostrils of the gods of the ionosphere.8

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INTRODUCTION

Poverty One might think that the money value of an invention constitutes its reward to the man who loves his work. But I continue to find my greatest pleasure, and so my reward, in the work that precedes what the world calls success. Thomas A. Edison (1847–1931), inventor

One major injustice, and one we frequently refer to in this book, is that few inventors ever seem to benefit financially from their inventions. The inventors who have made their mark on history often had some kind of sponsor who funded their projects, but often the relationship with the sponsor was fraught with difficulties and usually the sponsor benefited disproportionately from any success. This link to a sponsor will be discussed in depth later in the book. In the arts, the image of the starving artist living in a garret has become a stereotype and, unfortunately, with some justif ication. It is a tragedy that so few of the artists we enjoy today, such as Van Gogh and Modigliani, ever enjoyed recognition, let alone financial rewards for their creative genius, in their lifetime. Luis Bunel was a prolific inventor; he patented a system for making boots and invented machines for sawing timber, knitting stockings, and printing. But in 1814, his sawmills at Battersea, London, were nearly destroyed by fire. This incident, coming on top of poor financial management by his partners, drove him into debt, and in 1821, he found himself locked up in the debtors’ prison. He managed, with the help of friends, to secure his release several months later. His project to build the first tunnel under the Thames in East London was halted for seven years due to lack of funds. Later, even his son Isambard Bunel’s project to build the bridge over the Severn River was held up due to lack

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of funds. He never saw the finished masterpiece, which was completed after his death.

Persistence The will to persevere is often the dif ference between failure and success. David Sarnoff (1891–1971), inventor

I do not think there is any thrill that can go through the human heart like that felt by the inventor as he sees some creation of the brain unfolding to success . . . Such emotions make a man forget food, sleep, friends, love, everything. Nikola Tesla (1856–1943), inventor

The persistence of inventors comes from their conviction in their ideas. Tesla is a good example of both conviction and the importance of visualization. Tesla would build entire engines in his head, see where they were f lawed, and redesign them, all without so much as putting pen to paper. When he had ideas, and this seemed to occur very often, they would often be accompanied with a flash of light. Regardless of their circumstances, inventors are usually unshakeable in their conviction. When an experiment was conducted to test Einstein’s Theory of General Relativity, Einstein did not even bother to open the letter describing the results, saying he knew the theory would be confirmed. When asked what he would have done if the theory had been disproved, he exclaimed: In that case I would be sorry for the almighty—the theory is correct.

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INTRODUCTION

It is this conviction that has driven many inventors and innovators despite many setbacks and lack of resources. So convinced are they of their innovation that they will often work long hours in difficult conditions developing their idea. This drive often supersedes all other considerations such as money, family, and health. Because of their sacrifice, we enjoy and take for granted most of our modern comforts. Several inventors have referred to their repeated failures prior to success: I think and think for months and years, ninety-nine times, the conclusion is false. The hundredth time I am right. Albert Einstein

I have not failed. I’ve just found 10,000 ways that won’t work. Many of life ’s failures are people who did not realize how close they were to success when they gave up. I am not discouraged, because every wrong attempt discarded is another step forward. Thomas A. Edison

An inventor fails 999 times, and if he succeeds once, he ’s in. He treats his failures simply as practice shots. It is not a disgrace to fail. Failing is one of the greatest arts in the world. Charles F. Kettering (1876–1954), head of research for General Motors

Many inventors have been so convinced they are right that they have gone to jail over this belief. Galileo made tremendous contributions to science. He built a 30X telescope and made many astronomical discoveries, including the fact that the sun revolved on its own axis and the moon was composed of the same material

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as earth. Despite these contributions, he was called before a court of the Inquisition and sentenced to indefinite imprisonment for supporting the Copernican view that the earth revolves around the sun. In 1641, he died having invented the pendulum clock while still imprisoned. Two centuries later in 1835, Galileo’s Dialogue Concerning the Two Chief World Systems was removed from the Vatican’s list of banned books. Finally, in 1992 the Catholic Church formally admitted that Galileo’s views on the solar system were correct and the Vatican has since created two Galileo postage stamps as a way of making amends! Genrich Altshuller, the inventor of TRIZ, was convinced that TRIZ could help Russia solve its problems and met with Stalin to tell him so. Unfortunately, Stalin did not like to hear about problems and sent Altshuller to a Siberian labor camp for 25 years. We describe the ingenious system of TRIZ in some detail in Chapter 4. Immigration Alan Patricoff, one of the venture capital investors in an early project of ours (a database of all the software that existed in the world—later sold to Elsevier Publishing and Micom Communications), once commented that almost all of his portfolio companies were founded by immigrants. He thought this was not coincidental. He had taken the substantial risk of giving up all the comforts and contacts of home to move to a strange land and start over again, and immigrants had the ability to make similar sacrifices and take the same kind of risks to make their idea become a reality. There also seems to be a correlation with country of origin and number of inventors. Countries that seem to produce a disproportionate number of inventors include Hungary, Ukraine, Israel, Scotland, Singapore, China, and India. We suspect a variety of reasons for this correlation, including educational systems,

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INTRODUCTION

support from strong family units, and need arising from deficiencies in the internal infrastructure. However, we are left wondering if the inventive f lair is genetically transmitted. This does not seem to have been studied in depth, and we have identified few famous parent and progeny inventor pairs other than the mythical Daedalus and his niece Perdix. Ethics Throughout history, inventors have been worried about the implications of their inventions for both good and evil: What a man’s mind can create, man’s character can control. Thomas A. Edison

This theme of the potential destructive use of invention troubled Edison (inventor of the electric chair) as evidenced in this disturbing and partially prophetic quote: There will one day spring from the brain of science a machine or force so fear ful in its potentialities, so absolutely terrifying, that even man, the fighter, who will dare torture and death in order to inf lict torture and death, will be appalled, and so abandon war forever.

This in turn reminds us of Robert Oppenheimer’s quotation from the Bhagavad Gita on the first testing of the atomic bomb: I have become Death, the destroyer of worlds. spoken by Arjuna, charioteer in the Bhagavad Gita

Alfred Nobel was worried about the military use of dynamite that he invented with peaceful applications in mind, such as mining. He used the wealth created from his invention to fund the Nobel Prize.

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Humanity is acquiring all the right technology for all the wrong reasons. Buckminster Fuller (1895–1983), inventor, philosopher, author, architect, and humanitarian

The Mothers of Invention We have talked a great deal about the fathers of invention but not much about the mothers. There is a serious gender gap in that only 1.5 percent of patents are granted to women. Much of this may be attributable to less recognition and opportunity in the workplace and some to the differing gender scores on divergent thinking. There should be efforts to encourage women with ideas to step forward and register. To help the process, the Ideation web site (www.ideation.com) waives all charges for female and minority inventors. Notable women inventors are listed in Table 2.1. Sinistrality More commonly know as left-handedness, sinistrality seems to be very prevalent throughout the innovator community. The major

Table 2.1 Innovator

The Mothers of Invention When

What

Madame Curie

1903

Radium for which she won two Nobel prizes

Gertrude Belle Elion

1945

Leukemia and antirejection drugs

Rachel Fuller Brown and Elizabeth Lee Hazen

1954

Nystatin®, antifungal antibiotic Both donated all royalties to science

Stephanie Louise Kwolek

1970

Kevlar®

Patsy Sherman

1960

Scotchguard®

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INTRODUCTION

innovators of the Renaissance—Michelangelo, Leonardo Da Vinci, and Raphael—were all left-handed. Leonardo wrote not only left-handed but also backwards. It is thought that he used this mirror writing (so called because most of us would have to view it in a mirror to be able to read it) as a code to protect himself from the wrath of the church if they found any of his ideas to be too heretical. The church was, after all, one of his primary sponsors. We can find examples of left-handedness throughout history right up to Einstein, Jean Paul Gaultier, Jimi Hendrix, and Bill Gates. Research data seem to bear out this apparent correlation. S. Coren at the University of British Columbia, Canada, found that divergent thinking (previously discussed as a measure of innovative thinking) is significantly correlated with handedness in men. The curious result, however, is that divergent thinking is not correlated with handedness in women, but blonde women are twice as likely to be left-handed. The correlation also applies for traditional IQ with 20 percent of Mensa members being left-handed (as opposed to the 10 percent we would expect by chance).9 One theory as to why left-handed people have inventive personalities is that they have to develop the normally nondominant right hemisphere (physiologically connected to the left hand) much more than a right-handed person would. The right hemisphere is associated with abstract thought. A much more abstract thought process, which is generally felt to be a prerequisite of the creative process, is thus developed. This connection to left-handedness seems to continue in many spheres of life. In the general population, only 10 percent of the population are left-handed, whereas four of the last six U.S. presidents were left-handed; and 25 percent of astronauts, and 40 percent of seeded (ranked high so they do not play in early rounds) tennis players are left-handed. It is not all good, however—

39

The Mothers and Fathers of Invention

left-handers are more predisposed to manic depression, have significantly higher road and industrial accidents, are three times as likely to commit suicide, and have a life expectancy of nine years less than right-handers.

Survey of Inventors In addition to surveying prominent innovators, we mailed the Ideation questionnaire to 1,000 patent holders (see survey in Table 2.2). The results are still being collected and will be available on the Ideation web site: www.ideation.com. (We would like to keep the survey going as an active program, possibly adding or changing questions as data trends develop. If you complete the

Table 2.2

Survey of Inventors

Question Is your invention creative, scientif ic, or business related? Have you tried to license the invention? Did you succeed in licensing the invention? Have you sold any ownership interest? Have you made a prof it on your invention? The following questions are optional and answers will be kept conf idential and shown only in aggregate. Are you right- or left-handed? What is your date of birth? What is your country of origin? Do you have other patents? Do you have other inventions that you will not obtain a patent for because of cost?

Answer

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INTRODUCTION

questionnaire on our web site, you will have access to the aggregate results to date.)

Ideation Street Survey The street survey (see Figure 2.2) was conducted to test our hypothesis that most of us have had ideas at one time or the other (admittedly, some inventors have them much more frequently), but most of us have not done anything with our ideas. If true, there is an enormous waste of innovative potential and one that can be simply corrected through the widespread use of the Innovation Registration process as discussed in Chapter 5. The results of this survey are summarized in Table 2.3 on page 42, but check the Ideation web site for updated results with larger populations.

Inventors as Heroes When you go into a Barnes and Noble store, you see an ongoing theme. On all of their bags, on the wall, and on all publicity material, you will see a variety of authors. This is the Barnes and Noble author campaign dreamed up by the Farago advertising agency in New York. Their goal was to make authors into heroes. As a result, Farago would be our first choice when we want to market inventors. Could they do the same thing for inventors and innovators—the most important sector of society but the least appreciated? There are some beginning attempts at recognition such as the National Inventors Hall of Fame in Akron, Ohio, and the Intellectual Property Owners (IPO) annual awards presentation. This latter event is a fairly staid event that is still a long shot from the Grammys.

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41

Street Survey We are conducting a short survey on innovation. Could you spare three minutes? Thank you. Have you ever had an idea that you considered to be commercially valuable?  Yes  No Did you ever develop this (any of these) idea(s)?

 Yes  No

If not, why not: • Afraid others would steal it. • Did not know how to protect it. • Did not know how to develop it. • Did not know how to f inance it. • Did not know how to market it. • Did not have time. • Other.

 Yes  No  Yes  No  Yes  No  Yes  No  Yes  No  Yes  No  Yes  No

If you had an inexpensive ( less than $25), secure web site where you could safely register ideas and potentially f ind interested licensors or investors, would you take the time to register it?

 Yes  No

Are you:  Left-Handed

 Right-Handed

Would you be willing to sharing your idea now?

 Yes  No

If yes what is it?

Figure 2.2

The Ideation Street Survey.

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INTRODUCTION Table 2.3

Ideation Street Survey Results

Question Had viable idea? Developed it? Why not? • Afraid others would steal it. • Did not know how to protect it. • Did not know how to develop it. • Did not know how to f inance it. • Did not know how to market it. • Did not have time. • Other. Prior patent Would use registry? Left- or right-handedness Share idea(s) Country of origin

Results (%) Yes: 82.3 Yes: 14.6

No: 19.6 No: 80.3

7.8 5.8 43.1 25.4 7.8 17.6 11.7 0 Yes: 60.7 Left: 9.8 Yes: 3.9

No: 29.4 Right: 92.1 No: 00

The Immortality Index If you would not be forgotten as soon as you are dead and rotten, either write things worth reading, or do things worth the writing. Benjamin Franklin (1706–1790), inventor, statesman

If you want to achieve immortality, don’t freeze your body in a cryonics lab like Ted Williams or donate a fortune to have a building named after you. Instead, just come up with one really good idea. Archimedes never used a publicist, but we all know his name: If you search for Archimedes on the Google search engine, you will get at least 287,000 hits, more than Mick Jagger or Christina Aguilara. Archimedes has been dead for more than

43

The Mothers and Fathers of Invention Table 2.4 Innovator

Immortality Index for Innovators Hits (000s)

Archimedes 297 Leonardo Da Vinci 816 William Shakespeare 772 Benjamin Franklin 946 Isaac Newton 478 Charles Darwin 397 Albert Einstein 990 Amadeus Mozart 352 Thomas Edison 269 Pablo Picasso 456 Stephen Jobs 793 David Bowie 776 Christina Aguilera 1,980

Time since Idea ( Years)

Immortality Index ( h × y)/10 6

2,240 532 400 272 337 254 98 235 124 102 27 14 4

642 434 309 219 161 101 99 82 59 47 21 11 8

2000 years whereas Mick Jagger and Christina Aguilara are still very much with us. To have a common metric for how the impact of an innovator has endured over time, we have developed the Immortality Index, which is a function of the impact of the innovator as measured by Google hits and the time since the innovation (see Table 2.4).

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3 Taxonomy of Innovation The actual genesis of ideas has much in common whether we are considering scientific, business, artistic, or individual innovation. There is a broad taxonomy based on the origin of ideas that transcends discipline. The major categories are:

f f f f f f f f f

Problem solution Evolutionary idea Symbiotic idea Revolutionary idea Serendipitous discovery Targeted innovation Artistic innovation Philosophical idea Computer-assisted discovery

Problem Solution A problem solution results from trying to solve a particular problem and represents one of the most prevalent and certainly one of 44

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the earliest forms of innovation. Problems need to be solved and someone always, eventually, has the ingenuity to solve them. The zipper was invented in 1890 by Whitcomb L. Judson, who came up with the slide fastener to help out a friend with a stiff back. More recent examples of problem solutions are our own IPortation (a traffic control solution discussed in Section B) and Ron Popeil’s smokeless ashtray, which solved a prevalent problem in contemporary society. Throughout time, our society has moved forward because people have seen a problem and solved it. With that progress, further problems emerged, which were in turn solved.

Evolutionary Idea There ’s a way to do it better—find it. Thomas A. Edison

In both senses of the word evolution, Darwinism is evolutionary. It “evolved” from both Lamarckism and Wallace’s earlier work on natural selection. Darwin is the name remembered today because Charles Darwin published first (and was better connected), which often occurs. Later in his life, Darwin grudgingly acknowledged the earlier works—Jean-Baptiste Lamarck (1744–1829): Alfred Russel Wallace (1823–1913). Today, we refer to using previous works as “derivative,” or “inf luenced by,” or sometimes, less kindly, as “plagiarism.” The evolutionary idea simply takes something that already exists and improves it. Some nations have based their industrial policies on this kind of approach: improving things that already exist. Any system designed to manage innovation must recognize its elusive nature. Innovation is continually evolving and mutating, which makes it much more difficult to manage than, for instance, physical inventory.

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INTRODUCTION

Symbiotic Idea A symbiotic idea, which combines two or more existing ideas, can lead to significant breakthroughs. Much of the evolution of innovation occurs through an ongoing symbiosis that is described in economic terms in Chapter 8. An example of a symbiotic idea is the telegraph in which Samuel F. Morse (1791–1872) combined his inventions of Lightning Wire, the transmission of information as a series of electrical pulses over wires, with Morse Code, a simple and practical code for the alphabet with the shortest codes representing the most frequently used letters. Another example of a symbiotic idea is our example idea in Section B that combines the intellectual property set of Internet Protocol Networking with monorail technology to provide intelligently switched monorails. Symbiosis can occur within one individual or between individuals. Within the individual, the inventor links different elements of ideas into a useful whole. Symbiosis between individuals, however, requires a rare level of collaboration or a prompt from management or a third party in an environment in which people are incented to collaborate (see Chapter 7). If two creative individuals share ideas freely, brainstorming can be very productive. Legendary collaborative teams such as John Lennon and Paul McCartney or Jack Kilby and Robert Noyce, who invented the integrated circuit, are examples. Research has shown the benefit of collaboration with the right circumstances, particularly at the development and evaluation stages of ideation.1

Revolutionary Idea A revolutionary idea is one that breaks away from existing thought and provides a completely new perspective.

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Marxism was a revolutionary idea because it broke away from all the traditional economic thinking of the time with the simple concept that the state should own all the means of production for the collective good of all the workers. This concept led to many revolutions around the world as it replaced existing capitalismbased governments, often with violent overthrows that led to the tense decade of the Cold War. Most ideas can be tested in a matter of days, but the grand Marxist experiment, a large-scale concept, took more than a decade. Today, virtually no Marxist states exist.

Serendipitous Discovery One sometimes finds what one is not looking for. Sir Alexander Fleming (1881–1955), discoverer of penicillin

A serendipitous discovery is an unintended result in which the inventor recognizes its value. Alexander Fleming left several Petri dishes piled in the sink of his lab when he went away on vacation. On his return, one caught his attention. A few spores of mold had germinated on the plate, which in itself was not unusual. He normally would have considered it spoiled except that all around the mold, the staph bacteria he had been growing had been killed. When he cultured the bacteria on the plate, he found that they grew up to within a few centimeters of the mold, but any closer and they were killed. A crude extract of the mold was shown to have antibacterial properties. Fleming found that this extract was from the penicillium family, later specified as penicillium notatum. He made this discovery in 1928 and presented his findings in 1929, but as is often the case with major discoveries, the findings raised little interest

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INTRODUCTION

at first. He published a report on penicillin and its potential uses in the British Journal of Experimental Pathology but, again, a major discovery had to wait for the need—in this case, World War II, when penicillin became a major tool in fighting infections from wounds.2 In recognition of his contribution, Alexander Fleming was knighted in 1944, and with Sir Ernst Boris Chain (1906–1979) and Sir Howard Florey (1898–1968), who helped him later with the chemistry, he was awarded the Nobel Prize in 1945.

Targeted Innovation A targeted innovation is one derived from intensive research and development, often with the clear expectation of economic gain. One such innovation is the decoding of the rice genome. Given that rice is the staple diet of more than 50 percent of the world’s population, an understanding of the genome could lead to tremendous breakthroughs in the yield of new strains of rice developed for certain climates and have one of the most significant impacts on nutrition in the developing world. Other targeted projects include more complex missions such as the Kennedy promise to put a man on the moon, the determination to build an atomic bomb before the Axis countries did, and more recently, the search for a cure for AIDS. The budget for targeted projects is often enormous—the Kennedy moon program cost $9 billion in 1960 dollars. I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the Earth (see Figure 3.1). President John F. Kennedy (1917–1963), May 25, 1961

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Taxonomy of Innovation

Figure 3.1

49

Neil Armstrong and Buzz Aldrin plant f lag on moon.

Artistic Innovation An artistic innovation is created as an expression of an artistic impulse. This can be as simple as Claus Oldenburg’s idea of taking everyday objects and creating them on a massive scale or Javacheff Christo’s idea of taking familiar landmarks and “wrapping” them. Or it can be as complex as Amadeus Mozart’s Requiem or a plot for a new political thriller. Some consider artistic innovation one of the purest forms of innovation because it is creativity free of any practical constraints and has no other use than to give pleasure or, at the very least, an emotional resonance. Artistic ideas are protected through the copyright laws. Many works are heavily inf luenced by others, and it is sometimes difficult to determine where “influence” ends and plagiarism begins. Although there is no immediate practical use for the artistic idea, there may be economic value. For example, $53.9 million was paid for Van Gogh’s Irises. In this case, the innovator (the tragic Dutch artist Van Gogh) was never able to sell any of his

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INTRODUCTION

works except one that his sympathetic brother purchased for a nominal amount. For contemporary artists, the goal is to build another type of intellectual property—a brand or, as the art world says, a “name.” Creative innovations and their associated industries are discussed in Chapter 14.

Philosophical Idea Some ideas can never be reduced to practice and live only in the minds of their creators and those with whom they share it. Nonetheless, many such ideas have had a profound inf luence on individuals and the world. Solipsism, the belief that an individual is alone in the universe, is an example of an idea created as an untestable philosophical construct that, by its very nature, can never be tested. The value of this kind of innovation is typically just kudos for the innovator. Such ideas are protected by copyright but typically have no economic value.

Computer-Assisted Discovery A computer-assisted discovery results from using the a computer to assist in exploring a vast numbers of possibilities by searching for the desired properties. One of the first examples of this new field was also one of the first examples of the use of massively distributed computing. The SETI (Search for Extraterrestial Intelligence) Institute was founded to try to answer one the oldest questions: “Are we alone in this universe?” SETI was founded in (1984) by Thomas Pierson and Jill Tarter, the principal investigator of the Institute’s first project. The project was innovative, not just because of its use of computing power to search for any signs of intelligent life

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Taxonomy of Innovation

in the universe, but also because rather than using a central mainframe, it networked hundreds of thousands of computers around the world by asking people to load the SETI screensaver that processed data every time the computer was left unattended. Within the first 10 days of the project, approximately 370,000 participants in 203 countries contributed more than 2,000 years of computer time.3 Another example of computer-assisted exploration is the search for new drugs by companies that look for molecules with Table 3.1

Types of Innovation

Protect

Develop

Value

Problem solution

Patent/trade secret

Immediate market for new product

Signif icant

Evolutionary idea

Patent (often new use or modif ication)/trade secret

License to manufacture existing product

Potential

Symbiotic idea

Patent/trade secret

Typically through one or both of the owners of the component IP

Varies, sometimes diff icult to collect

Revolutionary idea

Patent/trade secret, copyright

Substantial work required

Kudos, possibly economic

Serendipitous idea

Patent/trade secret

Find user of invention and partner

Potential

Targeted innovation

Patent/trade secret

Already part of an R&D program

High

Artistic idea

Copyright

Venue, gallery, theatre, publisher

Kudos, rarely economic

Philosophical idea

Copyright/ publish

Symposia or publish

Kudos

Computerassisted discovery

Patent/trade secret

Already part of an R&D program

Potentially high

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appropriate properties among the millions of possible chemical structures. This field of medicine, bioinformatics, is characterized by the incredibly large data files (hundreds of gigabytes) that these explorations can generate. The intellectual property law that applies to these discoveries can also be very complex. The rewards can be great, however, for a pharmaceutical company that can discover a new blockbuster drug through this means. An example is the discovery of an important anti-ulcer drug by Trapkov, Boudunova, Burova, Filimonov, and Poroikov.4 While working at the Institute of Biomedical Chemistry, the National Research Center for Biologically Active Compounds, and the Chemical Pharmaceutical Institute in Russia, these researchers were able to screen many potential drug agents, predict the ones that would have the desired effect with an accuracy 300 percent better than experts, and derive three new drugs that could be tested for efficacy and nontoxicity. Computer-assisted technology has even been applied in the art world by Keith Tyson, winner of the Turner Prize for 2002. He developed an Art Machine that randomly generates proposals for artwork based on a computer program. Table 3.1 summarizes the various types of innovation.

SECTION B f f f f f f

THE LIFE CYCLE OF IDEAS When an idea is just rising on the horizon, the soul’s temperature with respect to it is usually very cold. Only gradually does the idea develop its warmth. Friedrich Nietzsche (1844 –1900), philosopher

Ideas, like everything else, have their own life cycle (Figure B.1). Every idea evolves through various stages, but these stages are not appreciated or understood in our business world. The simple recognition of the phases and the management of our ideas as they pass through these phases can have a profound impact on their chances of survival. The life cycle of an idea is the process from conception to eventual realization. It is a long and difficult journey; few ideas

Protect

Innovate Register

Figure B.1

Value Develop

Market

The innovation life cycle.

53

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THE LIFE CYCLE OF IDEAS

make it through to realization. The average life span of an idea is short although in some ways, you could argue, every idea lives forever but often, unfortunately, without recognition. One central thesis of this book is that this journey, although always difficult, could be made much less difficult, and in doing so, could greatly increase the chances of realizing an idea. Countless new ideas, the benefits of which we otherwise never would have enjoyed will, in turn, bring enormous economic benefit. The innovation process can be better seen as a ring because ideas generate new ideas that enhance and modify the original idea (Figure B.2). We study each phase of the life cycle in more detail in the following chapters.

IPortation As we discuss the various issues related to developing ideas, we will use as an example an innovation called IPortation. This

Innovate

Market

Register

Value

Protect

Develop

Figure B.2

The innovation life cycle.

The Life Cycle of Ideas

55

example is relevant to almost everyone’s experience and yet is based on a very simple concept—applying the principles of IP networks (in this case, IP refers to Internet protocol, rather than intellectual property). The problem is how to build transportation systems to cope with the continuing exponential rise in population given the reality that, even with existing population levels, the simple act of getting to work is misery for millions in every major city. On analyzing the situation, we see that the problem of automobile traffic is not so much the physical space that cars occupy but the distance that has to be maintained between them and the interruption to the f low when one f low has to cross another. One solution has been mass transit, but the problem is that it is indeed “mass.” It is not customized to individual needs, routes, and times, as a result, many people still take their cars instead of using mass transit. The proposed solution is extremely simple so I assumed someone must have already thought of it. However, a quick check of prior art shows that no one has. The idea is to apply the principles used by the Internet wherein routers and computers switch traffic. As a “packet” reaches a “node” on the network, the node looks at the IP address of its destination and switches it onto the next node. Once it reaches that node, its destination address is read and it is switched accordingly. This simple process eventually relays the message to its ultimate destination. IPortation uses the same process to relay traffic to its destination automatically without any need for waiting or braking. It is, if you like, a hybrid between mass transit and road traffic. The infrastructure is like a monorail but with two differences. First, instead of a large train of cars designed for many passengers, there are a series of “pods”—small vehicles designed for two or four people but with no “driving” controls, just a screen for inputting destination data, work, communication, or entertainment and a

56

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credit/smart card reader for identification or billing. Second, instead of one rail from an origin to a destination with preset stops, there are multiple “Y” junctions with a switch between the left and right forks. At each switch is a small microprocessor that can read the destination of an approaching pod by a small infrared transmitter on the pod. Once the address is read using simple logic, the microprocessor sets the switch to the appropriate position. Through a series of such switches, the pod eventually arrives at its destination where it is switched to a siding rail for disembarking. Such a system would clearly be expensive to build, although for a municipality considering a new mass transit system, the incremental cost over a traditional system is somewhat modest. The system was conceived while its originator was stuck in traffic approaching the Manhattan midtown tunnel and so is a problem solution. However, because it combines two coexisting ideas, it can also be considered a symbiotic idea. Because the prohibitive cost would give a start-up company intending to develop the concept a challenging task, a better approach is to patent it and then publicize it in the hope that someone would want to test the concept. We can call this the Buckminster Fuller approach. Fuller said: I just invent, then wait for a man to come along needing what I’ve invented. Buckminster Fuller

Once constructed, the system would have many benefits for its users and the economy:

f

Commuter gridlock would be eliminated, assuming average switching times of 0.1 seconds could be achieved. Calculations indicate that Manhattan’s daily commute could

The Life Cycle of Ideas

f f f f f f f

57

be handled by as few as two monorails for each existing roadway. Commuters get, if not door-to-door service, at least streetto-street service, and their travel time would be much more productive because they could read, check e-mail, or watch the news while commuting. The system can be rebalanced dynamically by dispatching empty pods automatically where needed. Bottlenecks can be handled by simply adding more switching points in parallel with random splits occurring at higher speeds to break up heavy traffic f lows. Pods can include a credit/smart card swipe to secure the door for cargo or alternatively allow entry of an account number and password. Commuters can use generic pods or order special pods, such as large capacity luxury, cargo, and so on via the Internet to be sent automatically to the starting point at a specified time. The system can be used for freight and mail transport and even garbage removal (using special nonpassenger pods) during off-peak hours. Energy consumption is minimized as is the consumption of fossil fuels.

It all sounds a little ambitious, but there is no major technology required that does not presently exist. The only barrier is the initial capital expenditure after the basic concept is proven. Such a patent could find its way into one of the more aggressive longterm growth IP funds discussed in Chapter 16.

4 Innovate: The Birth of an Idea Thoughts that come with doves footsteps rule the world. Friedrich Nietzsche

The only dif ference between a problem and a solution is that people understand the solution. Charles F. Kettering

What the human mind can conceive and believe it can accomplish. David Sarnoff

Genesis of Ideas Where do ideas come from? This is one of life’s mysteries and perhaps the one with the most practical application. If we can answer this question, we should be able to enhance the creative process for our own benefit and that of our enterprises and societies. Philosophers have long puzzled over this question. Thousands of years ago, the Vedic philosophers suggested that underlying all consciousness was a field of Atman or Being from which all thoughts and creativity arose. These thoughts are recognized as such once they enter the conscious mind. The goal was to deepen the conscious mind until it was aware not only of the very abstract

59

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THE LIFE CYCLE OF IDEAS

levels of the mind where these thoughts and ideas are forming but even the level of Being or Pure Consciousness from which the ideas originate. By tapping this inner potential of the mind, it was possible to greatly increase creativity. Many of the current forms of meditation derive from this philosophy. Scientific research has found an increase in creative thinking ability in practitioners of these meditation techniques. Higher levels of EEG coherence measured during the practice of Transcendental Meditation are significantly correlated with increased f luency of verbal creativity, increased efficiency in learning new concepts, higher verbal IQs, and better neurological efficiency as measured by faster recovery of the H-reflex.1 This philosophy goes even further to suggest that reality is actually structured in our consciousness; hence, if we have a strong enough concept of our idea, it makes it real. You will find this philosophy echoed throughout this book, with many inventors so convinced about their ideas that they manage to make them a reality despite tremendous obstacles. The philosophy also applied to Michelangelo, who, when asked about his technique of sculpting, said that he could see the sculpture clearly in the marble and all he had to do was chip the marble away to free it: I saw the angel in the marble and carved until I set him free. Michelangelo Buonarroti (1475–1564), sculptor

This philosophy was somewhat echoed by the Greeks, who referred to a field of ontology (cf. being) from which all thoughts arise (epistemology) and from there we finally act on them (ethics). Later Western philosophers such as the Scots philosopher Hume struggled to determine “the source of thought” through introspection, which led to what some would view as a long and somewhat muddled dissertation on the nature of creativity that includes little in the way of practical advice.

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61

When we turn back to Western science, we find that psychologists have identified a process called the “aha” phenomenon, which occurs at the point of creation or, to be more precise, at the point that the still very abstract “germ” of an idea is able to be expressed in rational terms. This point is characterized by measurable physiological changes—we have an objective, observable correlate of the creative process—something is going on in our brains. One of these physiological changes is called interhemispheric synchronicity—the electrical activities on both sides of the brain are showing similar wave patterns. It has already been determined that one side of the brain (usually the right) is associated with logical thought and verbal expression whereas the other is associated with abstract and intuitive thought, implying that at the moment of cognition of an idea, the intuitive and the rational parts of the brain momentarily synchronize and we are able to articulate what had previously been just a very abstract thought. The only other time this pattern of brain activity had been observed was during the practice of meditation but only among long-term regular practitioners—perhaps providing a physiological basis for the behaviorally observed improvements in creativity resulting from meditation. It has been generally agreed by psychologists that we are using only a small fraction of our brain based on the lack of electrical activity in many parts of it and our apparent ability to function relatively normally when significant portions of the brain are missing. Phineas Gage was a quarry worker who, when packing dynamite into a bore hole, had the misfortune to set off the explosive.2 The blast sent the iron packing rod through his eye, through both sides of the brain, and out the back of his skull. Remarkably, once he had recovered from the immediate trauma of the accident, he was relatively unimpaired—an indication of both the enormous redundancy of the human brain and the potential that we have if we could determine how to use more of it.

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Thomas Edison also referred to our enormous potential when he said: If we did all the things we are capable of, we would literally astound ourselves.

Further insights can be gained from the biochemistry of ideation. Many studies have looked at the impact of biochemical precursors to the substances that act as neurohumoral transmitters carrying messages between neurons in the central nervous system. If we make it easier for a cell to fire, we increase the creative potential of an individual. We also increase the risk of a “false positive”—that is, a response when there should not have been one. Stimulants such as Methedrine have been found to increase both IQ and creativity for a limited time. Hallucinogens sometimes increase creativity but usually decrease IQ scores (possibly because of attention deficits).3 Overdoses tend to result in individuals thinking their performance is enhanced; but by all objective measures such as test results, they are scoring at or below their own baselines. Perhaps this explains the frequent link between high creative potential and mental instability or even hallucination, which could be viewed as a series of “false positives.” It could also explain why illnesses such as epilepsy have been associated with increased creativity, particularly in the moments before an attack. The synaptic gaps between the nerves are sensitized to firing, which increases creative potential but ultimately leads to the chain reaction of firing associated with an epileptic attack. This is why in Roman times “the falling sickness” was considered a sign of greatness. The impact of education on these two aspects of brain function—logical and creative thought—has been researched. A study of students at Stanford University undergoing many

Innovate: The Birth of an Idea

63

different disciplines found that the students studying science improved their scores on rational, logical tests at the expense of the measures of their creativity, and the reverse was true for the students pursuing careers in the arts. The only subject that improved on both measures was architecture, which uses both the creative need for innovative new designs but within the constraints determined by the engineering requirements. Is there an external stimulus for ideas? That depends on the type of idea. In the previous chapter, we concluded that the type of idea to some extent determines whether there is an external stimulus for the idea. The problem itself is often the stimulus for the solution. With the serendipitous idea, the observation of the event is the stimulus. In others such as the targeted discovery and the computer-generated idea, the potential for financial gain is the stimulus. Although the exact theories and terminology may change, our ideas are coming from deep within our own psyche and there is a physiological correlate for this activity. With this knowledge, how can we optimize our creativity?

Creativity: Practical Advice To invent, you need a good imagination and a pile of junk. Thomas A. Edison

Our ideas determine what we will become. Yet, most of us have done little with the ideas we have had. We need to take some practical steps to improve the level of innovation we enjoy and to ensure that a higher proportion of our ideas become realized. This can have a profound impact on our future and that of our companies. We can apply everything we have learned in this book to increasing our own innovation and that of our colleagues.

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THE LIFE CYCLE OF IDEAS

The basic steps to optimize creativity are:

f f f f f

Assess Prepare Incubate Evaluate Express

Assess: Take Stock Everyone has an idea, and we will come back to yours later in the chapter. We will not rely on the ideas you have had already but will start by increasing your own output of ideas. You may not choose to take all of this advice, but every step you take will move you and your company nearer to realizing your ideas. An honest (and confidential) self-appraisal is a first step. The Ideation web site (www.ideation.com) includes several tests to determine your innovation potential. 1. Traditional IQ test, which does not measure innovation, but does measure one of the tools we use in developing ideas 2. Test of divergent thinking, which is less reliable and more subjective but a more accurate indicator of innovative ability 3. Several puzzle dilemmas that test your ability to think “out of the box” 4. Questionnaire to determine current level of innovation as well as the effectiveness in realizing that innovation After taking the tests, refer to the results matrix (Figure 4.1) to get a crude initial assessment of your innovation potential and effectiveness as well as an indication of areas of innovation you may be best suited to. Areas could include scientific, artistic, musical, literary, or business.

65

Innovate: The Birth of an Idea CQ

Good at solving open-ended problems

Talented innovator

Contribute through organizational and collaboration skills

Good at solving close-ended problems

IQ

Figure 4.1

The CQ/IQ matrix.

The matrix gives us a quick indication of the nature of problems that you are best suited to work with. If you fall into the bottom-right quadrant, you can do well in solving problems with a well-defined answer such as analyzing complex data or recognizing trends, as a financial analyst does. The top-left quadrant indicates good creative potential in solving open-ended problems such as designing industrial products or working as a marketing copywriter. If you fall into the bottom-left, you might do well in an area where you are executing a preset plan, such as a general manager position in a franchised operation. The top-right quadrant means you are a rare breed and should be able to write your own ticket. However, as discussed in this book, talented innovators often get neither the recognition nor financial rewards they should considering the value they contribute to the enterprise and the revenues that can result from their innovation.

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The Innovation Factor Radar Chart The chart in Figure 4.2 is derived from your answers to the questionnaires and tests that show the impact of various factors on your innovative potential. The chart shows at a glance what your strengths and weaknesses may be and where you can most improve your innovative capacity. Prepare We need to nourish our brains and exercise our minds through reading, physical and mental exercise, rest, and diet. Other issues concerning preparation of our minds include drugs and television. Reading Reading is always beneficial because it continually introduces you to new ideas, which, in turn, can often stimulate new ideas of your own. Some of your reading should be on your innovative IQ 150 Divergent thinking

100

Education

50 0 OTB thinking

Communication

Experience

Associations Normalized Score

Figure 4.2

Chart of CQ factors.

Innovate: The Birth of an Idea

67

topic, but some should be outside the topic to stimulate the “lateral” approach that we discussed earlier. An example of how ideas can come from a completely different field (in this case, literally) is the story of Philo T. Farnsworth, who was plowing the fields of his family’s potato farm and noticed the pattern that the plow lines made. This was the basis of the invention of television when Farnsworth realized that he could break every picture down into a series of lines. This idea became even more meaningful after this discovery of the persistence of vision when he realized that if the lines were drawn fast enough, the eye would perceive them as one picture. Physical Exercise In addition to the obvious benefits for the body and immune system, regular exercise is often a time of great creativity. Many athletes have described the creative thought process that occurs when they are “in the zone.” In his classic novel The Loneliness of the Long Distance Runner, Alan Sillitoe describes the rich mental life that occurs for a prisoner whose one moment of privacy is when he is running.4 It appears that a moment of great mental clarity can occur during sustained exercise, perhaps related to the well-documented release of endorphins, enkephalins, and cannabinoids. Mental Exercise Iron rusts from disuse; stagnant water loses its purity and in cold weather becomes frozen; even so does inaction sap the vigor of the mind. Leonardo da Vinci (1452–1519), artist

The mind needs exercise just as the body does. Challenge it from time to time with puzzles, crosswords, and board games

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of skill such as Scrabble, Pictionary, Scattegories, and the classic—chess. Rest The best thinking has been done in solitude. The worst has been done in turmoil. Thomas A. Edison

The often neglected factor in the basic health trilogy is rest. The body uses deep sleep to repair the minor damage it sustains during the day. The mind in turn uses the period of dreaming (technically referred to as rapid eye movement [REM] sleep) for repair. Some dreams will be remembered; some will not. Although some major breakthroughs have occurred during dreams (such as Kekule’s realization of the structure of the benzene ring), the important thing about dreaming is that it occurs—not that we remember our dreams. We do not need to write down our dreams. Nor need we eat difficult to digest food just before sleeping so that we sleep more shallowly and thus remember more of our dreams (as opposed to having more dreams). The mind needs this regular period of organizing itself and repairing the minor neurological damage. Once that organization and repair has occurred, the mind is more finely tuned and ready for creativity. If this is a helpful process, should we spend more time sleeping and, therefore, dreaming? No. There are two reasons. First, if you sleep more, you will not necessarily dream more. There seems to be a certain amount of REM sleep that is needed, and it is prioritized. Once we fall asleep, we go quickly to frequent periods of REM sleep, and these periods become less frequent during the course of the night. If the mind is deprived of its REM sleep, as in sleep deprivation, people start to hallucinate, as if they are going through the dreaming process while awake because the mind so desperately needs it. There seems to

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be an optimum balance between the amount of time we spend resting the mind and the amount of time we spend in full mental activity. There does, however, seem to be benefit in adding one other cycle of mental rest into our routine—regular practice of meditation. Regular meditation seems to have a positive inf luence on creativity because it provides a particularly deep level of rest in a conveniently short period of time. This is borne out by the study by Allison published in the Lancet, a prestigious British medical journal, and work by Wallace in Scientific American. 5 These studies show that during the practice of meditation, subjects were effortlessly reducing the metabolic rate by as much as 80 percent as opposed to the 8 percent drop experienced during sleep. In addition, meditation has been found to significantly increase the blood f low to the brain.6 Whatever cycles of rest we take, regular rest improves our creativity. The stereotype of the angst-ridden artist going without sleep for days is well known, but artists create despite their deprivation, not because of it. Similarly, there are many stories of inventors working feverishly through the night—a creative burst in which there may be release of endorphins just as there is in vigorous athletic activity (and also near-death experiences). However, once these periods have passed, rest is advised to recover just as the athlete rests after the big event. Recent advances in brain imaging at McConnell Brain Imaging Center, Montreal; Kings College, London; and the Wolfson Brain Imaging Center, Cambridge, among others, have thrown much new light on the mental processes that occur during the creative process.7 Why is rest so effective? The neurological repair that occurs during rest reduces the subsequent amount of random neural noise that is occurring in the brain. An example of this random neural noise is the spots of light we see in a pitch-dark room.

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These spots of light are not in the external world; they are caused by the random firing of neurons in the optic nerve and are perceived as tiny f lashes of light. All perception is a signal to noise detection task: We are deciding if something we perceive is really there or coming from our own brain. (The results of our work in the field of auditory perception support this hypothesis.)8 Extending this theory to creative thoughts, the very beginnings of an idea are a very subtle thought. To be able to detect it, we have to minimize the amount of random firing that is occurring in the brain to be able to perceive this nascent idea for what it is. What we are doing in effect is lowering the beta level—the level at which we are prepared to accept an idea as an idea, also called a temporary and expedient “suspension of belief.” Accept all ideas and worry later about whether they are valid or useful. Regular rest (and additional deep rest such as meditation) lowers the level of the random neural firing in the part of the brain associated with creativity and, thus, improves ideation. Further, working in a fairly quiet environment or with classical music promotes the creative process, which might explain why so many R&D facilities are located in bucolic surroundings. Diet A healthy body is a prerequisite for a healthy mind. The brain is responsible for 80 percent of the caloric activity of the body. Volumes of advice have been published on this topic, but in summary, eat fresh food with plenty of vegetables and fruit, some grains, some dairy, fish and occasional meat, and avoid saturated fats and sugar. Wash all this down with plenty of f luids—preferably water. In addition, certain minerals and vitamins have been shown to be important for good brain function, particularly memory. These include vitamins B5, B6, and B12; vitamin E; boron; selenium; zinc; and calcium and possibly the amino acid acetyl L carnitine. All but the last are found in most

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multivitamin supplements. Another popular supplement for creativity is creatine, which has long been used to replenish the energy compound ATP in the muscles of athletes. Catherine Rae at the University of Sydney postulated that because the brain is the major consumer of energy, creatine would help ensure a full supply of energy to the brain and thus would enhance cognitive performance. In her study, 45 vegetarians (who do not have much creatine naturally in their diet) were given 5 grams of creatine daily for six weeks and a control group was given a placebo. She found a significant improvement in performance in those who were given the creatine.9 Drugs Throughout time, people have experimented with using drugs to enhance creativity. There is some evidence that methamphetamine temporarily raises IQ and that some hallucinogenic drugs can temporarily increase creativity. However, it seems that these effects are short lived and the rebound effect caused by the body’s attempt to compensate for the increased levels of neurohumoral transmitters in the synaptic cleft then reverses the initial benefits once the effects of the drug have worn off. Most great innovators managed fine without any chemical assistance, and the few that did experiment produced little of quality after their initial experimentation. Timothy Leary and Sigmund Freud come to mind. I should add that this is not a moral judgment, just a practical one. There has always been interest in a “smart pill” that can increase cognitive function. The military, in particular, hopes to enhance the effectiveness of pilots, for instance, in combat fatigue situations. Another use for a smart pill is students cramming for exams. There has been considerable progress in this area.10 Tim Tully, a neuroscientist at Cold Spring Harbor Laboratory and founder of Helicon, has been one of the leading protagonists in the race to develop a new class of drugs that might improve memory

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in the memory-impaired—drugs that grow out of an increasingly sophisticated understanding of how we can remember things that happened 30 years ago to 30 minutes ago.11 Stephen S. Hall and Tim Tully were watching a video of a small brown rodent in an experimental scenario known as object recognition training. One day earlier this same mouse had been placed in this same box, which contained two knoblike objects, each with its distinct olfactory, tactile, and other sensory tags. A mouse that is allowed to explore this environment for 15 minutes will immediately notice any changes the next day, but a mouse that is allowed only 3.5 minutes will not. The mouse being watched was allowed 3.5 minutes of training but also had a pharmaceutical assist. It paid an inordinate amount of attention to a new object in the room while ignoring the second object—the one encountered the day before, which requires the formation of a long-term memory. The memory drug introduced is known as CREB enhancer, which Helicon hopes to begin testing on humans, perhaps by the end of the year 2003.12 This is all part of a new pharmacology: drugs that might enhance human cognition, improving memory in those whose memories have faltered due to neurodegenerative disease or aging, perhaps even reengineering memory-forming circuitry in stroke victims or people with mental retardation. There are 4 million Americans with Alzheimer’s disease and 76 million Americans over 50, many of whom exhibit associated memory impairment (AAMI), a form of mild forgetfulness. Judging by the $1 billion annual sales of the herbal medicine gingko biloba in the United States, consumers are interested in memoryenhancing drugs. Cortex Pharmaceuticals in Irvine, California, has developed a class of memory-enhancing drugs called ampakines, which have passed the Food and Drug Administration’s Phase I safety testing

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and are now in Phase II tests for Alzheimer’s, mild cognitive impairment, and schizophrenia. Memory pharmaceuticals, Helicon and Axonyx, among others, are competing in the race to find a cure for Alzheimer’s. Scientists are collaborating with pharmaceutical companies; for example, the Nobel Prize-winning Columbia professor Eric R. Kandel of Memory Pharmaceuticals; Princeton University neuroscientist Joe Z. Tsien, who caused an enormous stir in 1999 with a genetically enhanced smart mouse called Doggie, working with San Francisco-based Eureka!; and Phar, which is collaborating with scientists in Shanghai to merge modern genetics with Chinese medicine. The use of cognitive enhancers has been a feature of human life since people began drinking coffee. About 50 years ago, the practice gained a more pharmaceutical aura when normal, healthy adults discovered that amphetamines could improve alertness. The biggest worry is that the new cognitive enhancers are destined to replicate the pattern of Viagra and become lifestyle drugs. Several drugs used to treat lack of attentional focus and depression, such as Ritalin and Modafinil (which treats narcolepsy), are also cognitive enhancers. The U.S. Army is highly interested in this research to aid in treatment of sleep deprivation during warfare. Modafinil has been of special interest because of its low side effects, but some have argued that caffeine also has few side effects. Modafinil has been shown to overcome fatigue and maintain cognitive performance with few complaints of nausea. Ultimately, there is a place for it and it might be approved within a year. Donepezil is a drug approved by the FDA to slow the progressive memory loss of Alzheimer patients. Studies were done on two groups of pilots, one with a placebo and the other with Donepezil. The group on the drug was shown to have performed

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significantly better than their counterparts. Jerome A. Ysevage of Stanford University says: “If cognitive enhancement becomes possible in intellectually intact individuals, significant legal, regulatory, and ethical questions will emerge.”13 Television—The Idiot Box It got its nickname for a reason. Watching television dulls the mind—try to restrict watching even though some channels are educational. If you have children, program your cable box to limit the channels to the History Channel, Science Channel, Learning Channel, Bravo, and such. This is discussed in detail in Jerry Mander’s book, Four Arguments against Television. 14 Incubate Now our minds are rested and nourished. We are ready for some mental exercise in addition to our mental rest. These cycles of rest and activity always occur together throughout nature. The mental exercise can take several forms, which we discuss next. Be a Dilettante Learn to scan multiple sources quickly to stimulate ideas. Extract the core ideas quickly from books and articles. Read the table of contents of many journals, books, and magazines and then read in detail when you find something of interest. Use Internet search engines (Google and Alta Vista are the best for this purpose) to research topics or keywords on the Internet. Use Google to combine diverse concepts just to see what comes up. Download the Google toolbar to search within a web site or a web page. Don’t limit yourself to the written word. Look at pictures. You can use the image search functionality available with most

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search engines to find relevant images and just look at them. Ideas will come just as Confucius predicted. Communicate You may not have solved the problem, but explain to anyone (or just yourself if no one will listen) how far you have gotten and what you understand so far. Often, just the process of explaining will bring clarification for you, or perhaps a friend or colleague will have some insight that will help. Visualize Draw a diagram whenever possible. Then redraw it from a different perspective. Any kind of visual representation helps you see the problem in a different way. Mind mapping is a specific example of visualization. This is a technique of drawing maps to represent ideas and their branching out. Although not everyone finds mind mapping useful, some people swear by it. Try it—everyone is different when it comes to stimuli for creativity. Brainstorming In this technique, you get a group of people together to solve the problem, set a time limit, define the problem, and then have everyone shout out their ideas—all ideas are recorded no matter how useful they may be. The group then decides on the criteria and their weighting to rank the ideas. Each idea is scored on each of the criteria. The weighted averages are calculated, and the highest ranking ideas are used. TRIZ This little known technique (see Figure 4.3) has fierce loyalty from its few adherents. In the 1940s, a brilliant Russian inventor

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named Genrich Altshuller realized that most inventions involve the resolution of two conf licting properties, for example, wanting to increase the power of a plane, which, in turn, increases its weight. By analyzing more than 200,000 patents, he identified hundreds of these properties that tend to be in contradiction and identified the more than 1,000 underlying principles that were used to resolve them. He drew up a table of contradictions for looking up the two contradicting properties and being referred to a number of principles that had been used in the past to resolve similar contradictions. These principles involved suggestions such as abandon symmetry or replace linear motion with circular motion, which often help innovators get out of the rut they fall into. Unfortunately, although he was a brilliant inventor, he was a little naïve as a politician and wrote to Stalin telling him he could produce a greatly needed improvement in Russian productivity. Twenty-five years later, after he came out of jail, he was finally

200,0

00

KEY FINDINGS: • Patterns of evolution • Patterns of invention • Definition of inventive problem • Levels of invention 40,00

0

Pa screteents ned Inven patentive ts

Figure 4.3 Bar-El.

General Purpose Principles

TRIZ used to solve a problem. Used by permission of Zion

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able to introduce the TRIZ system in Russia, which was quickly adopted by the Russian equivalent of the U.S. Patent Office. TRIZ has been further enhanced by a U.S. company, Ideation International (www.ideationtriz.com), led by Zion Bar-El and assisted by Boris Zlotin, who studied with Altshuller. Ideation International has added many features, including a problem formulator to diagram a problem, automatically convert that to a problem statement, and lead into TRIZ to derive the solutions. Prior Art There are some software tools that help in the incubation period, such as Idea Fisher, which takes several base concepts as input and searches various databases to look for incidences of these concepts occurring together. Invention Machines also attempts this, but it is difficult to replace the breadth and speed of Google. The U.S. Patent and Trademark Office (USPTO) is also invaluable for searching. In some ways, the USPTO site can be regarded as a remarkable resource representing a concentrated form of much of the innovation that has occurred in the past two centuries. Thesis/Antithesis/Synthesis This dialectic is the traditional Marxist technique. Marx borrowed it from Hegel, who borrowed it from the Greeks. This is yet another example of multiple claims on the same idea. Regardless of its originator, thesis/antithesis/synthesis is an excellent intellectual technique. You take an initial thesis (or proposition), think of an opposite viewpoint, and then try to find a way to resolve the differences. One such approach is thinking of a more general case that embraces both. The last phase, synthesis, in turn, creates a new thesis, then a new antithesis, and so on. Marx’s contribution was to apply this thinking to history, which he saw as an ongoing series of conf licts between the

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oppressor and the oppressed, leading eventually to the final struggle between the bourgeoisie and the proletariat. Sensory Deprivation Try a sensory deprivation chamber where you float in saline water at body temperature in complete silence and darkness. If that is too expensive (typically $40 per hour), just turn off the television and turn out the lights. There is a physiological basis for why this seems to help: By reducing the external background sensory inputs, you potentially maximize the opportunity for subtle thoughts coming from your internal creativity. Some argue that some of the meditational techniques discussed earlier might achieve the same results with much less expense and on a more regular basis. Use what works best for you. Writer’s Block When one door closes another door opens; but we so often look so long and so regretfully upon the closed door, that we do not see the ones which open for us. Alexander Graham Bell (1847–1922), inventor

Although called writer ’s block, this condition applies to all forms of innovative endeavor. The innovative process is a sensitive one and cannot always be forced. If the ideas are not coming, take a break, go for a walk, or have coffee with a friend. Then try it again. Try to get as far as you can before you take a break. If, for example, you have a paper to write, try to develop the outline and then take a break. With some of the ideas partly formed, more new ideas are likely to come while you are “off line.” Look for certain times of day when you seem to be more creative and try to keep that time free for writing. Many people find that

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early morning is best for creativity and for working without interruptions. For further reading on the topic, see Write Now by Elizabeth Irvin Ross.15 Multiple Approaches It is always best to try many different approaches to find those that work for you. Even if they work only occasionally, it is worth keeping the technique in your repertoire.

Evaluate Unless you are brainstorming and thus have temporarily suspended critical judgment, you will need to periodically evaluate your ideas to see if they are really practicable. The tough questions you have to ask and answer are:

f f f f f

Can it be built? Does it solve the problem? Is it economically viable? Will it interfere with some other essential process? Is it built on some intellectual property that is not available to you?

Then the final test is—can you convince someone else? This question leads us to the final stage of the ideation process, express. Express Articulate, write down, sketch, or explain to a friend (see Figure 4.4). Sometimes ideas come at the most inconvenient moment, so be in the habit of always having pen and paper (or a

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ASSESS Know your strengths going into the task.

Is there a particular problem you want to solve?

No

Look for an area that needs improvement.

Yes

Explore TRIZ methodology.

Define problem. Deconstruct problem.

PREPARE Research Read Prior art

INCUBATE Brainstorm Thesis/Antithesis Visualize No

Is this a nontrivial engineering problem? No

Is this a potential solution?

Yes

REGISTER Chapter 5

Figure 4.4

Flow chart for creating ideas.

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PDA) handy so that you can at least capture the gist of the idea. Get in the habit of recording ideas or fragments of ideas as soon as they occur. Go back to these notes periodically to see if you can move any of your ideas forward. Some will turn out to be deadends; others, you may think are deadends, but you may come back to them later and realize how you can develop them. Remember, though, don’t tell too many people without first registering, which we explain in Chapter 5.

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5 Register: The First Step for Every New Idea Register your idea with a service such as the one provided to you as a reader of this book. This is an important first step whether you plan to protect your idea as a patent, copyright, trademark, trade secret, or to publish it openly. Ideas often start as a vague intuition, but at some point we need to recognize them as ideas— something concrete—and capture them as a clear, although possibly brief, concept. Once you think you have a meaningful idea, you can start the process of protecting it. Some forms of protection can be very expensive; others are not. It is worth starting on the inexpensive forms of protection very early because:

f f

82

You may forget your idea. You want to ensure your recognition for having thought of it. Alexander Graham Bell managed to file for his patent on the telephone two hours before Elisha Gray which is why his name is always associated with the invention and

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f f f f f

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he died wealthy (rare for inventors in any event) whereas Elisha Gray died in poverty and obscurity. You may wish to send it to others to further develop or license it and do not want them to claim it as their own. You may want to make it available to certain potentially interested parties. You may want to ensure your entitlement to any resulting revenue stream. In first-to-invent states or countries (including the United States and Switzerland), you want to be able to prove your time of invention if patent litigation ensued. You wish to demonstrate to your employer your creative productivity.

Features and functionality available in the process of registering should include:

f

f f f f

An electronic lab notebook option that enhances the benefits of the traditional lab notebook by enabling: —Collaboration —Automated invention disclosure forms —Automatic back-up —Senior management visibility —Ability to attach binary files Allow an enterprise to identify all intangible assets of value. Assign a unique ID to each intangible that is permanently associated with it and its audit trail. Clarify management responsibility if in a corporate setting. Automatic capture of any intangibles protected with USTPO.

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The last theorem of mathematician Pierre de Fermat states that the equation: xn + yn = zn

has no nonzero integer solutions for x, y, and z when n > 2. He scribbled in the margin, “I have discovered a truly remarkable proof which this margin is too small to contain.” He then died without ever telling anyone what this proof was. Mathematicians tried to solve this problem of Fermat’s last theorem for the next 400 years, and the problem was only recently solved by a British mathematician, Andrew Wiles, in 2000.1 Don’t let your idea be lost for another 400 years—write it down! We may forget details of an approach we had taken whether it was a mathematical calculation, a series of notes, or a particular term or phrase. For this reason (as well as the Fermat scenario), it is important to record ideas promptly.

The Lab Notebook Throughout history, the only formal tool to assist in the identification of an idea has been the laboratory notebook. Lab notebooks have been in use for hundreds of years and are modestly effective in providing evidence of the time of discovery— not just because the author puts the date at the top of each entry, but because it is impossible to add pages to a bound book, which gives more credence to the timing of one particular entry. In first-to-invent states or countries, greatest weight in deciding between rival claims for a patent goes to the inventor who was first to invent. Other countries use the first-to-file rule—that is, the first to file an application for a patent. However, this method has been far from foolproof. In the sometimes fiercely

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competitive environment of professional research, researchers can cheat by leaving blank pages and later writing in significant discoveries to give it the appearance of an earlier date of invention. Documents that cannot be copied by hand into a book are now printed and pasted in. This provides another avenue for cheating because scientists can reprint a chart and replace an earlier version. When potentially millions of dollars are at stake, there is no end to the ingenuity that is applied to cheating the system. Other shortcomings of the traditional lab notebook include:

f f f f f f

The inability to add electronic documents without printing them, which often provides only a limited view and does not provide subsequent access to the underlying data. The difficulty of sharing with others. The difficulty in protecting your discoveries from others. Difficulty in backing up copies. Lab notebooks are often destroyed by lab accidents such as acid spills or fires or get lost when a scientist takes work home. Lack of an effective search tool for either the individual or the employer. Details of millions of dollars of research often never viewed again after notebooks are stored in dusty archives.

Despite all these shortcomings, the lab notebook remains the primary method of record keeping in research labs throughout the world. Because of their importance and the inefficiencies of the current system, there has been a significant interest in electronic lab notebooks (ELNs) in recent years. An entire ELN industry has evolved. The Collaborative Electronic Notebook Systems Association (CENSA) is dedicated to setting standards for ELNs. Issues concerning ELNs are discussed next.

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However, recording ideas should not be restricted to the laboratory. Imagine the implications for the airline industry if American Airlines had protected their idea for frequent f lier miles.

Legal Implications There are many legal implications in the act of writing it down. First, anything you write down is immediately copyrighted under common law. Second, if an idea is worthy of patenting, the moment of invention, as previously mentioned, is a critical date if others are claiming the same or similar idea, particularly in countries such as the United States and Switzerland that are first-toinvent countries as opposed to first-to-file countries. Integrity of Record How can the courts be sure that an entry was entered when claimed and that it was in the exact form presented? This assurance comes through the use of digital fingerprinting technology in which an algorithm (typically MD80) is run through the document (in the case of the Ideation ELN, through the essential metadata as well). This digital fingerprint of the document is very small (about 128 bytes), and the document cannot be recreated from the fingerprint so the security of the document is in no way compromised. The digital fingerprint is referred to as a message digest.If, however, the same document is produced in the future, the same algorithm can be run through the new document and the fingerprint compared to the original document filed at a certain date and time. If the two digital fingerprints match, the new document must be in every respect identical to the original to a level of certainty of 2128 or approximately 1⬊3 × 1038. This level is many orders of magnitude more certain than DNA testing, which has a random match probability of only 1⬊7000.

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Evidentiary Trail It is important that we can demonstrate not only that it is the same document but also that the digital fingerprint of the original document has not been changed in any way. This is demonstrated through a variety of processes. The digital fingerprint is maintained on the server that hosts the electronic lab notebook. In addition to keeping that record, Ideation ELN takes three further steps: 1. The same hashing algorithm is used to create a digital fingerprint of all the digital fingerprints on the server. This provides an additional audit trail verification because if any one of the individual digital fingerprints was changed, it would invalidate the entire server and we would be able to trace back to the point of the change. 2. The collection of digital fingerprints is replicated to a server maintained by a trusted third party such as an accounting firm, an insurance company, or a trust company (such as Innovation Trust). Thus, even if a small organization hosting the ELN could be bribed, it would be unlikely for a major accounting firm to be bribed to change its attestation trail. 3. The digital fingerprint of all the digital fingerprints is published in a classified ad in the New York Times each week. There is no way someone could change all million copies of the New York Times.

Access to Data in the Future How can a document be retrieved many years into the future when we are not even sure what applications will be in use? The main contenders for a format that will be readable in many years’ time are .pdf and .xml—the former because it is in broad use and designed to be portable across many platforms and because

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Adobe has agreed to make the source code available. The .xml format is widely used in Web architectures and is a preferred document format. In addition, as an open standard, the .xml code is completely open sourced.

Your Free ELN A sophisticated version of an electronic lab notebook is included in the Register module on the Ideation web site (www .ideation.com). Up to three innovations can be registered at no charge for readers of this book (simply enter the serial number on the back cover when logging on to the site).2 Use this ELN to identify your ideas and, if you wish, make them available to others. You remain in full control and your ideas are completely secure so there is no downside to registering.

Corporate Environment In the corporate environment, there is an even greater challenge. Not only do we have a profusion of innovation, but often that innovation is being kept secret by various people throughout the organization who are worried that someone will steal their ideas if they tell anyone. This natural instinct to protect our ideas is, as we have mentioned, one of the most profound drags on the global economy, and it creates the silos and not-invented-here (NIH) syndrome that we see all over the corporate world. We discuss this issue in detail in Chapter 12, but here we mention some of the issues facing a company that is attempting to identify its innovation. Both the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) and their equivalent organizations throughout the world now mandate that companies identify and value their innovations because the largest part of a company’s value is tied up in its intangible assets. For investors to get a realistic picture of the company they

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are considering investing in, they need to be able to see more information on intangible assets. The FASB has issued Statements 141 and 142 that require companies to identify and value all identifiable intangible assets. The SEC has supported this initiative, and its rule (S-X) mandates that intangible assets that represent more than 5 percent of the aggregate value of intangibles be identified and valued. This is a huge challenge for corporate America because it does not have the processes in place. FASB recognizes this problem: Companies’ inability to identify and inventory intangible assets may be the most significant obstacle to any comprehensive recognition of intangible assets. Managers cannot measure assets that they do not, today, identify and manage as assets.3

Having served on boards of public companies, I can attest to the fact that most senior executives are completely unaware of these requirements. The ELN is the only tool that makes this task possible because the task can be delegated to unit managers who ensure that their staff register any innovation they have generated, know of, or are responsible for. The ELN itself prompts the staff through a series of questions that simplify the task. A flowchart for registering ideas is shown in Figure 5.1. Naturally we registered IPortation. As we already had a document describing it, we simply attached it. Another area that affects certain industries in particular—consulting, investment banking, and legal—is the protection not only of their own intellectual property but also of their clients’ property. Although most of these companies have perimeter security of their networks, few have the document-level security needed to manage the intellectual property of others. Particular issues arise with consulting companies that frequently learn on one client and then use what was learned there with a second client without giving any credit, in terms of recognition or financial, to

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INNOVATE Chapter 4

Does the idea have potential financial value? Yes

Can the idea be expressed in a few lines?

Yes

Click “New Idea” and type brief description.

Do you already have a document describing the idea?

Yes

Click “New Idea” and attach document.

Do you already have an e-mail describing the idea?

Yes

No

Do you want recognition for the idea?

Yes

REGISTER

No Yes Might you want to retrieve the idea at some point in the future?

Copy or blind copy [email protected] .com

No

INNOVATE Chapter 4

Figure 5.1

Flow chart for registering ideas.

the first client. I have always believed that it made better business sense for both the client and the consultant to have a more upfront policy on how to deal with client intellectual property. I put this theory to the test with a project to deregulate the electrical industry by setting up a series of Internet-based markets for surplus electrical capacity. There were 50 power pools that had to comply with the new federal mandate and New England was the first to produce a Request for Proposal that we won. We offered them a substantial discount for each additional power pool we could sell. This issue is discussed in Chapter 12.

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6 Protect: Ensure Recognition and Reward Having registered an idea, we should immediately be concerned with the overall issues related to protecting it:

f f f f

From loss—(computer crashes, etc.) From theft of the data relating to the idea (hackers, colleagues, frivolous litigation, electronic discovery, false claims of authorship, etc.) From legal issues (related to patent, trademark, copyright, or trade secrets) From double taxation on future revenues

You have already completed the first step in the process of protecting your idea by registering it. We discuss each of these forms of intellectual property (IP) protection in some detail in this chapter, but first we explain what happens when you register an idea on the Ideation web site. You can enter an idea by attaching a document, by typing text into a text field (as in an e-mail), simply by copying [email protected] in an e-mail, or any combination of these 91

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Table 6.1 Metadata Field

Essential Metadata

Description

Why Needed

Who

Author(s) or inventor(s)

To give recognition and f inancial credit fairly and enable incentive systems that encourage innovation and collaboration.

What

Innovation identif ier ( IDD)

A unique identif ier is needed to manage anything. Innovation is no exception. The IDD is a four-character ID within a company with a three-character extension to denote the company, thus providing a universal identif ier. This is mapped to the digital f ingerprint.

Where

Geographical location of invention

Intellectual property law varies from one jurisdiction to another and can even impact ownership, as in the case of a corporate employee inventing at home.

When

Date and time of invention

This is important since the f irst to invent often can reap the economic benef its and kudos— so long as they can prove they did invent f irst.

Why

The context of an invention— why it was invented (e.g., as part of a research grant)

This is important since research carried out under a research grant often has various restrictions on how the invention can be disclosed or used. Also, one researcher may be working on several grant-funded projects.

How

How was this entry into the system registered?

Important to clarify confusion about authorship when someone, such as an assistant or researcher, makes the entry on behalf of someone else. The system puts in the owner of the log-on ID as a default.

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methods. We want to make it easy to register as soon as your idea is just “a twinkle in the eye.” Although registering an idea is as simple as using e-mail, a lot is happening in the background. Your entire document is parsed by the message digest algorithm described in the Register module on the Ideation web site. In addition, a message digest algorithm is run through the total record, including all of the initial metadata for the document as well as the digest of the document itself. This essential metadata is all of the information that is absolute and nonchanging for any innovation. This data provides us with the essential who, what, where, when, why, and how of invention. This information never changes unless an entry error is made; in that case, a record is kept of any change along with its own essential metadata so that there is a complete audit trail of every innovation. The complete information about the moment of invention is summarized in Table 6.1 and in Figure 6.1. The six items are represented as a hexagon in both logos and file icons. On the Ideation web site, standard Windows icons are used except for intangible assets, where they are depicted as a hexagon as opposed to a rectangle.

Who?

How?

What? Idea

Why?

When?

Where?

Figure 6.1

The essential metadata of invention.

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In addition, there is important data that can change over time. This includes items such as:

f f

Owner—often by default the author. Manager—In the corporate environment, it is important to designate someone to be responsible for the innovation or intangible asset. Because of its intangible nature, innovation and intellectual property often fall through the cracks during corporate transitions such as employee departures or acquisitions. Being able to track everything by manager makes it much easier to ensure continuity in the event of his or her departure.

If the idea is being registered in a corporate environment, additional issues should be considered, for example:

f f f f f

Store all intangible assets in a secure central repository to ensure access to the enterprise (even after acquisitions or employee departures). Ensure compliance with legal, financial, SEC, FASB, FDA, and other agency regulations. Manage trade secrets to provide full protection of the Economic Espionage Act (1996). Maintain the protection of privileged communication. Facilitate IP tax planning through IP holding companies.

The additional information that is important for managing innovation but which changes over time is described in detail in Chapter 12.

Loss Records are often lost. There are many incidents of loss of lab notebooks (the formal record of research that scientists keep).

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Some are left on the beach; others have nitric acid spilled on them as the scientists watch a year of work dissolve in front of their eyes. There are also tragic examples of companies suffering catastrophic data loss in fires. Morgan Stanley had backed up their data records from their office in the South Tower of the World Trade Center to their office in the North Tower of the World Trade Center and vice versa. With the collapse of both towers on September 11, 2001, their back-ups were gone. Even in companies that have formal back-up procedures, only their recognized formal knowledge is backed up. There is much tacit knowledge (usually much more valuable than their formal knowledge) at risk in any disaster. It is important that all tacit knowledge, especially the ideas of the organization, be recorded centrally in a secure repository that is backed up at a different geographical location. No CEO should be able to sleep soundly at night unless back-up is done in a dependable and regular manner. Software for automating this task is available for both corporations and individuals. Ideas are too precious to treat carelessly.

Theft Inventors are traditionally a paranoid group, often with good reason. As we discussed in Chapter 2, many inventors have had their inventions stolen from them and saw others reap the kudos and financial rewards. I have experienced massive theft of intellectual property myself (a whole book). There must be a special place in hell for those who have to steal the ideas of others. Dante would probably have had them working endlessly on a perpetual motion machine. There are several ways to protect against theft. One is to record your ideas early so that you can establish your earlier time of authorship. There is a genuine possibility that someone else is working on the same or similar idea contemporaneously. History

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is full of stories of simultaneous invention, from the discovery of gunpowder to the idea of television and more recently the cracking of the genome. This is often because, for an invention to be possible, certain precursor inventions are needed. Once these occur, many people simultaneously see the potential for the new invention. Some inventions are so far ahead that the inventor knows some precursor inventions will be required but patents the invention assuming that these discoveries will be made within the lifetime of his patent and at this point the invention will then acquire significant value. Because it is always good to collaborate, brainstorm, and share your ideas with others, particularly within the corporate environment, the sooner you register your idea, the sooner you can get on with it. There are several forms of theft you need to guard against:

f f f f

Misappropriation of ideas you have shared with others Misappropriation by people having access to a common knowledge base that includes your work Electronic discovery Hacker attack (The NetAid site we built to support three simultaneous concerts to raise money for world poverty received thousands of attacks each day.)

Legal Protection As ideas become more developed, there are several forms of legal protection you can take advantage of. Their purpose is to stimulate new innovation, and thus the economy, by incenting innovators by giving them a period of exclusivity to benefit from their innovation. The process of registration, described in the previous chapter, does not replace these forms of legal protection but rather precede the formal legal protection and strengthen

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both their protection and the chances of obtaining that protection. The three major forms are: 1. Copyrights: Afford the authors (or their estate) exclusive rights to their work for a period of up to 50 years after their death. 2. Trademarks and service marks: Provide companies with the opportunity to adopt trade names and trademarks that uniquely identify their business and allow them to build a reputation under that brand. 3. Patents: Provide the inventors (or their assignees) with exclusive rights to use the patent for 20 years (this varies for some particular patents such as pharmaceutical products). The system has in general worked well, but recently problems have started to arise concerning the number of patents being applied for, the breadth of their coverage, and the time it takes for a new patent to be issued in relation to the ever-shortening product life cycles. It is important to understand how these various forms of formal legal protection could apply to your idea and when to act. One of the first steps you have already taken is establishing your initial time of creation. Much of patent litigation revolves around “who thought of what when.” If you already have an incontrovertible record of your innovation and when it occurred, you are already several steps ahead. If there is competition to file a patent in the same area, this aspect is particularly important. Under the law in many parts of the world (including the United States and Switzerland), it is the innovator who was the first to invent who generally prevails. Having incontrovertible evidence of what was invented and when can make the difference between being awarded the patent or seeing it be awarded to someone else.

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If it is a name for a company or line of business, you should seek a trademark, which will prevent anyone else from unfairly competing and deriving the benefit you would build up as your own goodwill. If it is something you have written, such as a screenplay or marketing copy, you should copyright it. There is a common law copyright that applies the moment you write your document, but it is important to be able to prove that you wrote it and when. Again, one of the registration services can be invaluable. Alternatively, several trade associations, such as the Writer’s Guild of America, offer a service in which you can mail them a screenplay that they will store for you as evidence that it was written at least before the postmark. The Ideation web site allows you to register your work electronically for a nominal fee (and initially for readers of this book for free). The Library of Congress also allows you to file a copy of your work with them. If your innovation is an invention (it is an original, useful, and unique idea or extension of an existing idea), it can be protected as a patent. Patenting is an expensive process, costing anywhere from $5,000 to $100,000 initially and then requiring ongoing financial maintenance. The average patent costs $400,000 in legal fees over its lifetime. In a corporate environment, it is important to manage the selection process of what should be patented and to review regularly the list of patents. You do not have to protect with a patent what you can protect as a trade secret. A trade secret is an idea that is protected by revealing the idea to only a limited number of people (typically, people who have signed some form of confidentiality or nondisclosure or license agreement). This may be a preferable form of protection if the product cycle is likely to be short, the budgets are limited, and it is unlikely that anyone else will develop the same idea and be able to market it in that time frame.

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Several of these differing approaches to legal protection may be applied to the same innovation. For instance, it is possible for a software program to be protected with copyright, a patent, and a trademark. An important innovation may be protected with a portfolio of patents that protect not only the central idea but also a series of related and surrounding ideas. Copyrights, trademarks, patents, and trade secrets are discussed in more detail later in this chapter.

Excessive Taxation In addition to protecting your innovation from colleagues, middle management, hackers, and natural disasters, you should protect it from excessive taxation. If your idea is one of the 2 percent that are licensed, you may want to take action to minimize the tax costs on future revenues or at least avoid the possibility of double taxation. Many corporations form IP holding companies to which they transfer their intellectual property. These companies are usually located in tax-neutral regions and often license back the rights to use this IP to the various divisions around the world. Typically, only larger corporations can afford to do this. (One of my former clients, a Fortune 500 computer corporation, paid KPMG $20 million dollars to set up this structure but saved $100 million as a result.) It is now possible for smaller companies (or even individuals) to enjoy this kind of structure. Zurich Reinsurance, for example, offers inexpensive establishment of IP holding companies in Bermuda called e-suites and that can manage your IP holdings for a small percent of the total asset value as an annual charge. This is generally a small fraction of the tax savings. Some members of Congress are complaining about these structures and may try to make them more difficult to establish. Others say countries should be able to compete on the basis of being more efficient and thus having lower tax rates,

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just as companies can compete in offering services at a lower cost if they are more efficient. They would argue that market forces keep companies under control but they may also keep government spending under control.

Copyright Copyright is the oldest form of intellectual property protection. The invention of movable type and the printing press by Johannes Gutenberg around 1440 contributed to the need for a copyright system in the world. The first copyright act was that of England’s Queen Anne in 1709. Plagiarism was a problem even then. The original copyright act is shown in Figure 6.2. Copyright can be applied to all original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architectural plans. There is a body of law that provides common law protection from the moment it is written, “fixed in a tangible form” in the awkward prose of intellectual property law, which means that you own the copyright even if you don’t provide notice, but it is still best to formalize with the copyright notice. The copyright notice simply consists of writing either the word Copyright or the © symbol followed by the year of first publication and your name or corporate name. You should also add “All rights reserved.” For further protection, send two copies of the work to the Library of Congress Copyright Office. Each copyright registration requires the completion of the appropriate form available on the Library of Congress’s web site ( lcweb.loc.gov/copyright) and a check for the appropriate amount (approximately $30). In addition to creative works such as books, articles, music, and lyrics, copyright has more recently has been used to protect

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Figure 6.2 Library.

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Original copyright act. Used by permission of the British

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software. If you are using copyright to protect software and you wish to keep the code confidential, it is acceptable to either send an incomplete portion of the code (such as a printout cut down the middle), or more efficiently, you can register the message digest only. Software can also be protected with a patent. The first software patent was attributed to Martin Goetz in 1968. The legal protection afforded works such as books, paintings, architecture, musical compositions, and computer software permits the development and flourishing of cultural industries, as well as technology-oriented businesses based on computer software and other technologies. In the United States in 2001, the total copyright-based industries contributed an estimated U.S. $791.2 billion to the economy, representing approximately 7.75 percent of GDP—a very significant portion of the national economy.

Trademark To protect a trademark, service mark, or trade name, you must apply for the mark. First, conduct a search of both the trademark database of the U.S. Patent and Trade Office (USPTO) or local equivalent and then search general records such as phone book yellow pages—a common law search based on the fact that trademarks can be recognized by common law even if not registered if they have been in broad and long-term use. Depending on your long-term business plan or future projection of your company, a common law search is a worthwhile investment. The online application is available from a variety of web sites and provides a low-cost alternative to having a lawyer process your application (which is always the best option if cost is not a consideration). The process will take many months, frequently with further questions coming from the trademark office. Be aware that trademarks are not patents or copyrights, and they are not used to prevent individuals from copying services, common words, or goods. It would be advantageous to research

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ways to choose a strong trademark, so you will not risk your investment and choose marks that are considered weak, for example:

f f f

Marks that are similar to ones that are used by other businesses Generic terms Surnames, misspellings, and terms that are deceptive (misleading consumers)

If you exercise your creativity and create a new word or symbol, your investment will pay off and you will have a strong trademark that will ultimately distinguish your services or products from your competitors. Try to think ahead to potential future areas of expansion because you will probably want a trademark that is broad enough to apply to contemplated future business. You may also want to choose a byline and trademark that as well. You should carefully choose the type of registration that fits the scope of the industry involved. Federal registration includes the United States and all its borders, territories, and possessions; state registration is restricted to state borders. If your trademark is federally registered, it extends your rights nationwide and avoids trademark infringement. With state registrations, you risk the possibility of registering an already-owned mark. Carefully research the dos and don’ts of trademark usage or you may risk the possibility of losing your rights to your trademark. Know your rights, duties, and obligations under the trademark laws. If you decide to seek advice, hire a trademark specialist. Information required for application for federal or state registration includes:

f f

Name of applicant Name and address for correspondence

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Depiction of the mark (a drawing) Goods and/or services Filing fee for application Basis for filing Specimen (sometimes this is a problem if you are a start up) Signature

If you are a start-up company, you will need to design your logo and preferably use it in some form of marketing. Steps following filing include:

f f f

Legal and procedural review of application Publication for opposition Certification of registration or notice of allowance

The following items should be considered during the registration process:

f f f f f f

Trademark areas covered (sources of goods or services) Typical items protected (designs, logos, names, Internet domain names, etc.) Protection duration (years covered) Areas of coverage (country/worldwide) Renewable opportunities Cost (average fees incurred and cost of optional search)

Paying particular attention to trademark bylaws and investing in conducting a proper search will help you avoid infringement liabilities. Your initial mark, although unique and original, may cause a threat to another business and “you are legally liable for any trademark infringement that occurs, even if your infringement is not intentional.”1 Conf licting marks include:

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Confusingly similar Similar meaning Identical Phrases and marks that sound similar

Infringement lawsuits may restrict you from using your mark or result in the loss of product and/or services, expensive attorney fees, as well as loss of your trademark. Other Trademark Resources

f f f

U.S. Patent and Trademark Office homepage (http://www .uspto.gov) Patent and Trademark Depository Libraries (PTDL)2 International Schedule of Classes of Goods and Services3

Trademarks help to cement customer loyalty. Studies show that customer retention is as effective in generating revenues as the attraction of new customers: “Reducing defections by just 5 percent generated 85 percent more profit in one bank’s branch system, 50 percent more in an insurance brokerage, and 30 percent more in an auto-service chain.”4 In addition to promotion of product sales and cementing customer loyalty, trademarks help their owners increase profitability, respond to unfair competition, expand and maintain market share, differentiate products, introduce new product lines, gain royalties through licensing programs, support strategic partnerships and marketing alliances, and justify corporate valuation in financial transactions. Trademarks are also one of the most valuable assets of franchising. The International Franchisee Association estimates that franchising accounts for one-third of all retail sales in the United States, including the sales of firms such as McDonald’s, Coca-Cola, General Motors, and Re-Max.5 The strategic use of a trademark with franchising is an effective business model in many countries.

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Patent Early patents were issued in Europe, typically by the rulers of the countries with their royal seal and with the description of the invention open (or “patent”) for all to see. Northern Italy is thought to be the first to develop a patent system, which is appropriate, considering the scientific and artistic innovation originating from this region during the Renaissance. The concept is not a new one. A Venetian law of 1474 made the first systematic attempt to protect inventions by a form of patent, which granted an exclusive right to an individual. Leonardo da Vinci chose not to patent his inventions preferring instead to keep them secret with his “mirror” notes—a forerunner of the system for managing trade secrets on the Ideation site. In the early history of America, all the intellectual property was claimed by the British Crown, and inventors had to appeal to the governing body of the colony to protect their invention. In 1790, the U.S. Patent Office was created with the intention of granting inventors a monopoly on their inventions for a limited time period to provide economic incentives for invention and stimulate the economy in general. Samuel Hopkins, of Pittsford, Vermont, received Patent No. 1 on July 31, 1790. His patent for an improvement “in the making Pot ash and Pearl ash by a new Apparatus and Process” was signed by President George Washington, Attorney General Edmund Randolph, and Secretary of State Thomas Jefferson. It cost him $4 to file the patent.6 Since then, more than 20 million patents have been granted, of which only 2 percent have ever been licensed and less than 1 percent have returned royalty fees greater than the costs of protection. One reason for this poor performance is the lack of f luidity in the market for licensing innovation, which this book addresses as a central thesis as well as providing a potential solution.

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Toward the end of the nineteenth century, inventive new ways of manufacturing helped trigger large-scale industrialization accompanied by phenomena such as rapid city growth, expanding railway networks, the investment of capital, and growing transoceanic trade. New ideals of industrialism, the emergence of stronger centralized governments, and stronger growing nationalism led many countries to establish their first modern IP laws. The international IP system also started to take root at that time with two fundamental intellectual property treaties: the Paris Convention for the Protection of Industrial Property in 1883 and the Berne Convention for the Protection of Literary and Artistic Works in 1886. The premise underlying IP throughout its history has been that the recognition and rewards associated with ownership of inventions and creative works would stimulate further inventive and creative activity that, in turn, would stimulate economic growth. The solution, in the form of improved products and new technologies, continues to be a powerful driver for economic development. The patent system was well suited for 1790, when only four patents were filed. By 1899, Charles Duell, the commissioner of patents was considering retiring because everything useful had already been invented.7 However, somewhat ironically for an agency concerned with innovation, the U.S. Patent Office has not kept up with technology and is burdened with a huge increase in patent applications and the exponential difficulty of checking these applications against the ever-increasing number of prior patents for “prior art”—to see whether prior inventions have in some ways already covered the current application. Currently, the USPTO, one of the few profitable U.S. government agencies, is subsidizing the nonprofitable agencies of the government. As a result, it has been unable to modernize to the extent that it needs, causing an enormous bottleneck in the processing of patents to the point that it now takes many years for

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most patents to be prosecuted and/or awarded. This period is becoming longer than the product life of many products, particularly those in the technology sector. More companies are looking at trade secrets as an alternative way to protect and manage their intellectual property. The patent offices in other countries fare little better and even the Patent Cooperation Treaty (PCT) patents are having difficulty transitioning to the ultimate goal of a “world patent” (see later discussion). Utility Patents Unless otherwise specified, the word patent refers to a utility patent, which is any invention that performs a useful function. Utility patents can be obtained for a product or composition, a method for making something, or a method for using something. Once a utility patent has been granted, the owner of the patent has the right to prevent others from making, using, selling, and importing any product that is covered by the utility patent for a time period of 20 years after the filing date of the patent application. Plant Patent These specialized patents refer specifically to the invention or discovery, in cultivated areas, of a new plant. The specific definition is: Whoever invents or discovers and asexually reproduces any distinct and new variety of plant, including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state, may obtain a patent therefore, subject to the conditions and requirements of title.8

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General patent laws apply where applicable and similar provisions require filing within one year of having distributed or generally announced or made available the species.

Design Patent A design patent is a particularly easy patent to obtain. Designers can use it to protect a particular design. It does, however, tend to be very narrow because it protects only that very specific design. It can be more useful with a large portfolio of designs, which makes it more difficult for someone to “design around” your patents. It also quickly and inexpensively entitles you to add the words “patent pending” or “patent issued” to your marketing literature and is often worth applying for that alone. Because it is so easy to obtain, this patent is popular with some of the unscrupulous firms preying on unsophisticated inventors and discussed in more depth in Chapter 11.

Provisional Patent A provisional patent is one of the most important patents because it allows you quickly and relatively inexpensively to obtain potential patent protection and establish a filing date. A provisional patent provides you with a year in which to determine if your invention is feasible and worth the investment required to file for a full patent and develop it. If you conclude in that year that there is not a market, you can drop the application and you will have incurred smaller expenses than if you had f iled for a nonprovisional patent. This option has been available since June 1995 from the USPTO. It was intended to give U.S. applicants parity with foreign applicants who are entitled to file for a PCT patent and gain a year before having to

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commit to the expense of a full patent under the GATT Uruguay Round Agreements. A provisional patent allows filing without a formal patent claim, oath, or declaration, or any information disclosure (prior art) statement. It provides the means to establish an early effective filing date in a nonprovisional patent application filed and allows the words “patent pending” to be applied. A provisional application for patent has a pendency of 12 months from the date the application is filed and cannot be extended. Therefore, an applicant who files a provisional application must file a corresponding nonprovisional application during the 12-month pendency period of the provisional application to benefit from the earlier filing of the provisional application. The corresponding nonprovisional application must contain or be amended to contain a specific reference to the provisional application. By filing a provisional application first and then filing a corresponding nonprovisional application that references the provisional application within the 12-month provisional application pendency period, a patent term endpoint may be extended by as much as 12 months, which is an important consideration for companies that know there is a high probability they can license their patent and thus derive longer licensing revenues from it. The later-filed nonprovisional application claiming the benefit of the provisional application must include at least one claim particularly pointing out and distinctly claiming the subject matter that the applicant regards as the invention. Although a claim is not required in a provisional application, the written description and any drawing(s) of the provisional application must adequately support the subject matter claimed in the later-filed nonprovisional application to benefit from the provisional application filing date. Therefore, care should be taken to ensure that the disclosure filed as the provisional application adequately

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provides a written description of the full scope of the subject matter regarded as the invention and desired to be claimed in the later-filed nonprovisional application. In addition, the specification should disclose: The manner and process of making and using the invention, in such full, clear, concise and exact terms as to enable any person skilled in the art to which the invention pertains to make and use the invention and set forth the best mode contemplated for carrying out the invention.9

Provisional Patent Filing Requirements The provisional application must be made in the name of all of the inventors. It can be filed up to one year following the date of first sale, offer for sale, public use, or publication of the invention. The application should include:

f f f f f f f f f

Cover sheet: Form PTO/SB/16, available on the printable forms page of the USPTO web site at http://www.uspto .gov/web/forms/sb0016.pdf, may be used as the cover sheet for a provisional application The application as a provisional application for patent The name(s) of all inventors Inventor residence(s) Title of the invention Name and registration number of attorney or agent and docket number (if applicable) Correspondence address Any U.S. government agency that has a property interest in the application Written description of the invention, complying with all requirements of 35 USC § 112 ¶ 1

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Any drawings necessary to understand the invention, complying with 35 USC § 113 Filing fee as set forth in 37 CFR 1.16(k) and a cover sheet

If all of these items are complete, a filing date will be accorded to the provisional application. You may complete this application yourself, but we advise you to seek a competent, experienced intellectual property attorney. The Ideation web site provides references to current lists of qualified U.S. attorneys. If you do complete the application yourself, be aware of the following USPTO cautions:

f f f f

f f

Provisional applications are not examined on their merits. The benefits of the provisional application cannot be claimed if the one-year deadline for filing a nonprovisional application has expired. Provisional applications cannot claim the benefit of a previously filed application, either foreign or domestic. The inventor(s) named in the provisional application must have made a contribution to the invention as described. If multiple inventors are named, each inventor named must have made a contribution individually or jointly to the subject matter disclosed in the application. Adding an inventor as a “courtesy” endangers both provisional and nonprovisional applications. The nonprovisional application must have one inventor in common with the inventor(s) named in the provisional application to claim benefit of the provisional application filing date. A provisional application must be entitled to a filing date and include the basic filing fee for a nonprovisional application to claim benefit of that provisional application.

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There is a surcharge for filing the basic filing fee or the cover sheet on a date later than filing the provisional application. Provisional applications for patent may not be filed for design inventions. Amendments are not permitted in provisional applications after filing, other than those to make the provisional application comply with applicable regulations. No information disclosure statement may be filed in a provisional application. A provisional application cannot result in a U.S. patent unless one of the following two events occurs within 12 months of the provisional application filing date: —A corresponding nonprovisional application for patent entitled to a filing date is filed that claims the benefit of the earlier filed provisional application; or —A grantable petition under 37 CFR 1.53(c)(3) to convert the provisional application into a nonprovisional application is filed.10

World Patent It has long been a goal to simplify the complex and expensive process of getting global patents. The option of PCT filing has gone a long way toward this. Such a system would replace the current situation where each country has its own laws and patent office. A coordinated global patent system has always seemed a distant ideal. The World Intellectual Property Organization (WIPO), a United Nations’ body mandated to promote intellectual property rights, is developing a new system intended to simplify the labyrinthine global patent procedures. The new system will take some time to complete and will revolutionize intellectual

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property systems currently in place. The new system will be based on three building blocks: 1. Uniform patent law. 2. Uniform procedures. 3. International search tool. Uniform Patent Law After the Patent Law Treaty (PLT) was adopted in 2000, the WIPO member states agreed to move on to harmonization of the basic rules of patenting through the Substantive Patent Law Treaty (SPLT). A first attempt to harmonize substantive patent law failed 10 years ago over the first-to-invent or first-to-file issue. The United States favors the first-to-invent principle but has indicated that it is ready to give this up if the rest of the harmonization negotiations go well. The SPLT could supersede the WTO’s Trade-Related Intellectual Property Rights (TRIPS) Agreement. TRIPS establishes the minimum required elements of national patent laws. SPLT is a fixed set of rules on what can be patented and under what conditions and would create the basis of a world patent system. Uniform Procedures In June 2000, WIPO member states adopted the PLT. This treaty harmonizes the formalities that patent offices undertake to administer patent applications. It defines one set of rules on how to prepare, file, and manage patents in all the countries that sign on. The PLT is not yet ratified by the 40 governments that signed it. One of the controversies in the negotiation of the PLT was whether disclosure of the country of origin of genetic material or traditional knowledge, and proof of prior informed consent in their acquisition, would be required. These issues were brought into the discussion by developing countries, concerned about their rights to their own natural resources. They want a

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means to implement the Convention on Biological Diversity (CBD) in the context of patent law. International Search Tool The PCT was originally adopted in 1970, and its reform is essential for a world patent system. It would provide a common resource to conduct international searches of prior art for patent applications. Today, all patents in the world are national documents granted under national rules and procedures. The PCT allows patentees to shortcut some of that process, if they wish to seek protection internationally, by allowing for preliminary examination of the application.

Trade Secrets As mentioned earlier, the U.S. Patent and Trademark Office is one of the few agencies of the federal government that makes a profit. That is why it tends to be plundered by the rest of government often unable to control its spending. There is, however, a significant price in anything that could slow the pace of innovation. Budget cutbacks (due to redistribution of its incomes) are having just this effect. The backlog in processing patents has risen to three years on average ( longer in Europe) even for the simplest patent. At recent congressional hearings to discuss these issues, an interesting new trend was identified by corporate officials who were testifying. Many corporations consider the delay in obtaining a patent far too long given that product cycles have shortened often to periods less than the time it takes to prosecute the underlying patents. Thus, many companies are turning to trade secrets as the way to protect their innovations. There are certain requirements for an innovation to be treated as a trade secret. It must be kept confidential with access limited to those who need to see it. If it is to be shown to anyone outside the company, a nondisclosure agreement (NDA) must be entered into. If the

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company wants to license the idea, it can describe the idea in a way that does not reveal the proprietary information. This information can be made available on the innovation exchange shown in Figure 6.3. This method of protection has several advantages over a patent. Advantages of Trade Secrets Trade secret is the only option when the secret covers something that is not patentable—customer lists, business methods, or sources

INTELLECTUAL CAPITAL EXCHANGE

SELLERS

Quo vadis iga tur juvenes c Quo vadis igatur juvenes

Corporations

3246798234 5 5

BUYERS

“Envelope” nonproprietary description

Corporations

Cogito Ergo Sum

Submit IP

Quo vadis igatur juvenes cum igatur. Document text Laudeamus igatur, cognito ergo sum Quo vadis igatur juvenes cum igatur. Document text

Document

Laudeamus igatur, cognito ergo sum

Government

Laudeamus igatur, cognito ergo sum Quo vadis igatur juvenes cum igatur. Document text

Certificate

3246798234 324679823465985 324679823465985 324679823465985

Government Digital fingerprint

Academia Nondisclosure agreement

NDA Signed NDA

Individual Secure audited data storage

Search Report

License request

License request

License granted

License granted

Figure 6.3

Ideation idea exchange.

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of supply—or when something that would otherwise have been patentable has been for sale, publicly used for more than one year, or when the trade secret involves something that is known. For example, if several different methods are known to make a product and a company uses one particular method to its advantage, the undisclosed use of the method can be a trade secret, although it is clearly not patentable. Time to Market Trade secrets tend to be favored as a means of protection when the advantage due to the ownership of the technology is of very short duration. If the major competitive advantage is by being “first to market” or if the technology will be obsolete in less time than it would take for a patent to issue, a patent is of little or no use. Trade secrets are effective immediately whereas patents take years to be granted. If an innovation is protected as a trade secret, it would often preempt the option of patenting. Conversely, the publication required for a patent automatically contravenes the requirement of keeping the innovation confidential. The choice to patent or to maintain a trade secret involves multiple legal and business considerations. However, it should be viewed as a decision to, at some point, move to patent protection instead of a trade secret. Every valuable innovation should be managed as a trade secret until a decision is made to patent and even then it should be kept as a trade secret during patent prosecution. Preservation of Competitive Advantage Trade secrets can potentially last forever. A classic example is the formula for Coca-Cola, which cannot be reverse engineered. If the formula had been patented when it was first used in 1886, it would have been in the public domain a long time ago and would now be free to be copied by anyone. However, by maintaining the formula as a trade secret for more than 100 years, Coca-Cola

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has continued to dominate the worldwide soft-drink industry. Therefore, trade secrets may be preferred over patents for technologies that preserve their competitive advantage for longer than the term of a patent. Costs A further advantage of trade secrets over patents is that there are no official prosecution costs or maintenance fees to establish a trade secret or to keep it in force. Patenting costs may range from $5,000 to $50,000 or more. These costs are avoided if an invention is maintained as a trade secret. However, this does not mean that trade secrets are cost free. A trade secret can be expensive to maintain as discussed in the following section. Disadvantages of Trade Secrets The costs and difficulties incurred in maintaining something as a trade secret can be considerable. Sometimes, this consideration is enough to swing the balance in favor of patenting, despite the fact that other considerations might favor trade secrets. There is no protection if the secret gets out through a breach of a nondisclosure agreement. If the secret of the invention can be discovered, a trade secret should not be used to protect it. This discovery could occur through reverse engineering, as in using a mass spectrometer to determine the formulation of a soft drink or hair product or simply through someone else making the same invention. In the latter case, the second inventor could generally go ahead and get a patent, particularly if the discovery occurs in a first-to-file jurisdiction. Duration of Protection Trade secrets can be compromised at any time through disclosure whereas patents remain in force until 20 years from the filing date

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of the application. If there is a parent patent, it will remain in force until 20 years from the filing date of the parent application. The duration of a trade secret is uncertain. Trade secret protection can be lost overnight if the secret is publicly disclosed, even if the disclosure was not intentional. Confidentiality Requirements A trade secret can never be openly disclosed, but once a patent application is filed, the information in the application can be freely disclosed without loss of proprietary rights. Obviously, trade secrets cannot be freely disclosed and still maintained as a secret. Perception of Value There is still a perception of value in the patent that has not in general transferred to the trade secret. Flexibility The decision to file a patent application is not irrevocable. The act of filing a patent application does not result in loss of trade secret rights. In the United States, patent applications are kept confidential. It is only upon issuance of the patent that the information contained in the application is publicly disclosed, resulting in loss of trade secret status for any information that the patent contains. Therefore, if a patent is not granted on an application or if the application is abandoned during prosecution, the trade secret disclosed in the application will not be published and the trade secret can be maintained. If the trade secret was disclosed after the patent application was filed, the trade secret is lost regardless of whether a patent ever issues or not. Foreign patent applications are generally published 18 months after the initial filing date of the application. To maintain the secrecy of information contained in a foreign patent application, the application must be withdrawn in time to prevent publication.

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Additional Costs These costs may include physical plant construction to restrict access to the grounds and buildings, checking on repair and service people, restricting information to individuals in the company who need to know, fragmenting information so that no single individual has access to a complete trade secret, and labeling gauges and containers so that process variables and ingredients are not shown. There may also be costs for contracts which clarify the existence of trade secrets and the duty not to disclose. These contracts may have to be signed by suppliers, licensees, customers, consultants, and others with whom the company does business, such as those considering engaging in a joint venture with the company. Staff Turnover An often frustrating and costly part of maintaining a trade secret involves the employees of a company. Generally, when employees leave a company, they have a right to take with them the skill, experience, and ideas they acquired during the period of employment. Many companies have entrance and exit interviews with employees who will be exposed to trade secret information and require the employees to sign nondisclosure and noncompetition agreements. These agreements, however, are often difficult to enforce. The exit report trade secret functions of the Ideation web site solve these problems. Forced Visibility Another difficulty with maintaining a trade secret occurs whenever documents are submitted to the government. Because of the Freedom of Information Act, it can be very difficult to prevent information contained in these documents from being discovered by competitors or litigants. Often litigation is instigated to

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learn of a competitor’s trade secrets during the “discovery” phase rather than to pursue a legitimate grievance. Patent/Trade Secret Decision Whether to seek patent protection or to maintain an invention as a trade secret is a decision that must be considered on an individual case basis by examining the specific facts related to the case. Sometimes, the decision is evident. If an invention can be reverse engineered or independently developed, if there is a need to disseminate information about the invention, or if the invention is a technology for which a licensee will pay only if it is patented, the choice is clearly in favor of a patent. On the other hand, if the secret is not patentable, if it provides an advantage of a shorter duration than the time that it would take to obtain a patent, or if the secret will be valuable for a very long time and it can be maintained as a trade secret during that time, the choice is clearly in favor of a trade secret. Most times, however, the choice is not so clear and various business, commercial, and legal considerations must be balanced before arriving at a decision. In the case of IPortation, our example innovation, the idea is patentable and traffic congestion with our current infrastructure will clearly become a significant problem long before the twenty years of patent protection expires. Besides, it needs to be publicized widely to find someone willing to build it, which of course would not be possible with a trade secret. Overcoming Trade Secret Disadvantages Almost all of the trade secret disadvantages can be eliminated, or at least mitigated, through the use of the infrastructure we are providing to readers of this book on the Ideation web site.

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Any innovation registered on the site can be designated a trade secret. If it is, several things occur:

f f

Every time the innovation is viewed or printed, there will be a clear banner designating it as a trade secret. The default security setting is automatically set to the highest level of security. It can be manually set at lower levels. The trust levels are listed in Table 6.2.

These access levels can be set for the “envelope”—the nonproprietary description of the invention and, always at an equal or more secure level, the innovation itself. There is an option to include in the “envelope” an “automatic envelope” that will allow a keyword search to scan the actual document but not provide access to the document. Thus, someone searching for a solution to a particular problem can find that there is an innovation that seems to address the problem, but to learn more, he or she must go through additional steps such as completing an NDA or even contacting the author. The system provides for requests for access

Table 6.2 Trust Level

Trust Levels Description

Author only

Only the author has access.

Author approved

The author approves each request for access.

Designated recipients only

Access is positively granted.

Project team only

Access is conf ined to described project team.

Company only

Any company employee may have access.

Any signer of NDA (nondisclosure agreement)

Anyone interested in viewing data must execute an NDA in advance using his or her digital signature.

Anyone not on exclusion list Anyone who has not been positively excluded. Anyone

No exclusions (would include freeware).

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to be stored in the system ready for review by the author. Security scenarios are listed in Table 6.3. Every view of the document will be recorded with an audit trail that includes the date, time, and name of person viewing the document. Each innovation is registered with the exchange, the envelope is completed, and the security levels are set. Anyone looking for a solution to a problem that this innovation may solve should find this particular innovation either directly or after first requesting access, depending on the security settings chosen. A user can license an innovation for its particular need. The license is narrowly defined and the first to consider a full-scale Table 6.3 Security Scenarios

Document Access

Security Scenarios Envelope Access

Comment

Most cautious

Author only

Author only

The author can prove his time of invention, but no one else has access.

Market very cautiously

Author approved

Any signer of NDA

Anyone who signs an NDA can search the envelope, but he or she must request access from the author.

Market aggressively

Any signer of NDA

Anyone

Anyone can search the envelope, but he or she must sign an NDA to access the document.

Publish

Anyone

Anyone

Anyone can access the envelope, but now, conversely, no one else can apply for a patent.

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test can negotiate a low license fee. A more mature innovation may have a set fee enabling people to license online without even a pause. Investors may even decide they want to take an “equity” stake in the innovation because, if they are successful, they will greatly increase its value and could then benefit as others license it around the world. This scenario is discussed in more detail in Chapter 16. An excellent resource on this issue is Trade Secrets by James Pooley 11 who worked on the Volkswagen versus General Motors case involving the theft of trade secrets valued in the billions.

Domain Registration The uniform resource locator ( URL) is not normally included as a form of intellectual property protection but has become extremely important. When naming companies, services, or products, it is often the primary hurdle to overcome because registering URLs is relatively inexpensive. This has led to the speculative industry of cyber squatting where people register names that they think someone will want someday in the hope of being able to charge a significant fee for selling the rights to use it. They have not prevailed when there is a preexisting trademark because numerous courts have now found in favor of the holder of the trademark. However, they still occupy many of the potential names that may have been available, especially for the coveted dot-com registrations. If you have an idea for a name and the dot-com domain is available, protect the URL immediately. If it is not available, most of the registration sites suggest alternatives. The popular sites for domain registration include:

f f f

www.register.com www.networksolutions.com www.cheap-domainregistration.com

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If you decide on a name and protect the URL, start immediately on the trade name registration. You cannot feel comfortable that you have a name selected until you have both the URL and the trade name can be secured immediately. If you are having difficulty thinking of names, go to Chapter 4 on facilitating creativity. You can start with mixing keywords associated with the company or product, break these words into phonemes, and then mix them up—if you like the sound of any of them, see if they are available. You can also try appropriate Roman, Greek, and Hindu gods, geographical place names, and acronyms. Most of the two- and three-letter acronyms are taken, but you may still get lucky with a fourletter acronym. A Scrabble dictionary can sometimes help the process as can Idea Fisher, also mentioned in Chapter 4. If there is a URL that you are interested in but it is taken, check to see if there is an actual site for the URL. If not, the Table 6.4 Protection Copyright

Trademark Patent

Trade secret

Overview of IP Protection

Pros Free

Cons

Typical Uses

Instant

Virtually none, always free to waive your copyright

Creative output architecture

Inexpensive

Slow

Company names

Effective

Limited to class

Trade names Scientif ic Inventions

Potential monopoly

Very expensive

Def ined duration

Very slow

Inexpensive

No protection if secret discovered

Instant

Manufacturing processes Formula’s

Domain registration

Inexpensive Instant

Few remaining choices Cyber squatters

URLs

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REGISTER Chapter 5

IDEA!

Creative

Tradename

Idea type? Invention

Plan to publish or sell?

Original?

Yes

Yes

Register cover letter of everyone you show it to.

Viable?

No

Is URL available? Yes

No

Go back to INNOVATE Chapter 4.

Register domain names (page 124).

Yes

MARKET Chapter 9

Marketable?

No

Publish for Kudos and to prevent others patenting.

Yes

Yes

Willing to invest?

Tradename available?

No

Follow trade secret procedures.

MARKET Chapter 9

Yes

Revisit

Apply for provisional patent.

DEVELOP Chapter 7

Figure 6.4

Flow chart for protecting ideas.

Apply for trademark.

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chances are it is a cyber squatter and you could check to see if they are willing to sell it. You can always determine the owner of the URL by looking in the WHOIS database, which is available from all the sites listed previously but also can be accessed directly at http://www.internic.net/whois.html or at www.icann.org. Once you have a likely name, start checking phone mnemonics. MCI and most of the telecom providers have tools to assist you in looking to spell out a name in an 800 number. Securing a good toll-free number is also a valuable part of your intellectual property. Table 6.4 (on page 125) provides an overview of intellectual property protection. Figure 6.4 summarizes the decisions required for someone who is deciding how to protect his or her idea.

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7 Develop: Improve Your Idea Competition brings out the best in products and the worst in people. David Sarnoff

Nearly every man who develops an idea works it up to the point where it looks impossible, and then he gets discouraged. That’s not the place to become discouraged. Just because something doesn’t do what you planned it to do doesn’t mean it’s useless. Thomas A. Edison

The most successful men in the end are those whose success is the result of steady accretion . . . It is the man who carefully advances step by step, with his mind becoming wider and wider—and progressively better able to grasp any theme or situation—persevering in what he knows to be practical, and concentrating his thought upon it, who is bound to succeed in the greatest degree. Alexander Graham Bell

128

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You have now protected your idea, but it is important to be able to continue to develop it. Ideas are not like furniture that can be inventoried and does not change. Ideas are living organic entities that have a life of their own—albeit much of the time in our own minds. For this reason, it is important to continue to change your idea without weakening the protection initially afforded by registering it. It is important to use a registration service that allows ongoing versioning and annotation while keeping an ongoing record of these versions and annotations along with the original. Some of these annotations may even be by others—colleagues or collaborators. Occasionally, you should reorganize your ideas, group them together in various ways, and even combine them with the ideas of others while keeping track of the proportional contribution. If you are in a corporate environment and have protected your ideas, you should not only organize your own ideas but also work with others on your team and possibly division and company. Search for ideas from others that will help you solve various problems in the development of your own ideas. The challenge in being able to develop your ideas lies in enabling a system that allows several important features:

f f f f f f

Provides environment that facilitates creativity Establishes authorship and keeps an audit trail of subsequent contribution Provides metrics that encourage and reward innovation and collaboration Allows intangibles to be combined to form a new intangible (e.g., combining ideas) Breaks down the traditional silos, removes duplicate effort, and eliminates the not-invented-here (NIH) attitude that plagues so many organizations Enables versioning and annotation

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f

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Protects the output of brainstorming sessions with appropriate attribution

Collaboration Having protected your idea, you can feel a little more comfortable about developing it through creating new versions of the idea, others contributing comments, or combining your idea with someone else’s. The plague of every enterprise is the related syndromes of NIH and silos (no communication or cooperation with other business units). The economic cost of this problem that derives from basic human insecurity is incalculable. For example, the vice chairman of a major bank told us that they discovered they had 53 initiatives to explore electronic bill payment, almost all of them blissfully unaware of the other. Every corporation has this problem, but it can be changed dramatically through one simple process: Add an audit trail of everyone’s innovations and the whole psychology changes. Instead of everyone holding back on ideas because of fears that they will be stolen, we move to a situation where they are tripping over themselves to record their ideas before someone else thinks of it and derives the credit for it. We have seen this in action and the change is dramatic. In a brainstorming session, two groups of researchers had been brought together in a conference room because management felt that together they could create a breakthrough in cellular technology—each group had a vital component of the solution. At first, everyone sat around uncomfortably making small talk. Once they were told that the session was being recorded and their contributions were all being noted and archived, they immediately started to talk about their work and ideas. This applies not only to the initial innovation but also subsequent improvements by the original author or even by others suggesting

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modifications. All of these annotations are recorded with an audit trail so that if one of the modifications turns out to be the real breakthrough, the right person will get the credit—recognition or financial reward or both. Without such a system in place, no one is motivated to help improve someone else’s invention. This system also provides an excellent environment for collaboration, not just within the company, but also across multiple companies. We have been involved in projects that required untangling the complex intellectual property issues that have arisen from large, well-intentioned joint ventures of major companies in which at a certain point in the project (often when the project first seems to be commercially viable), someone asks who owns the intellectual property. The resulting tangle is enough to keep whole firms of IP lawyers fully engaged for months. If everything is recorded as entered, the process of allocating ownership is relatively trivial.

Versioning When I have fully decided that a result is worth getting I go ahead of it and make trial after trial until it comes. Thomas A. Edison

As pointed out earlier, we are not inventorying fixed assets like office furniture. Ideas have a life of their own and are continually evolving, yet we need an unchangeable record of every idea. The solution to the paradox is to allow sophisticated versioning that not only keeps a record and audit trail of every idea registered but also allows multiple versions of the same idea and allows others to comment and annotate the idea—but again with an audit trail of third-party contributions so that they can be assured of credit if one of their suggestions turns out to be pivotal for the success of an idea. The Ideation system will allow you to do this

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PROTECT Chapter 6

Need funds?

Yes

Use valuation to raise internal or external funds.

Yes

Invite potential collaborators to ‘Registered’ record.

Yes

Revisit every portion.

Yes

Test

No

Need help?

No

Working model?

No

No

Final version?

VALUE Chapter 8

Figure 7.1

Flow chart for developing ideas.

and keep an audit trail of the whole creative process and even collaborate with others. The IPortation system is described in full on the Ideation web site with a Trust Level of 8 (Anyone) because it has the protection of a provisional patent. Figure 7.1 provides a f lowchart for developing ideas.

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8 Value: What Is Your Idea Worth? The value of an idea lies in the using of it. Thomas A. Edison

Once the idea is developed, you can start to think of its value and, thus, prioritize your ideas. A company can prioritize the allocation of resources to various projects and recognize early on which projects may require further support and possibly further legal protection. Basic features necessary to manage this aspect of intangible assets include the ability to:

f f f f

Determine optimal valuation methodology for each intangible Use internal and external valuers Manage value and “useful life” of intangibles Automatically schedule “impairment testing” 133

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Centrally store baseline data for valuations and make available in aggregated form (with no individual company information) Aggregate the value of these assets and report as required by SEC X-9 and FASB 141/142 Add multiple values

There are several methods for valuing your ideas. One of the simplest is based on cost. Cost valuation is typically used early in the life cycle of an idea because cost information is easily available. This method estimates the cost of having generated the idea so far by looking at the time and costs of the employees who have worked on the idea and adding direct or apportioned expenses. An alternative method is based on future revenues, which typically involves projecting future revenues that the idea will generate and then using discounted cash f low formulas to calculate the present value of the idea. More complex ways of valuing ideas are based on the Black Scholes formula often used for valuing stock options. (This groundbreaking formula won Black and Scholes the Nobel Prize for Economics but was never patented and is in the public domain.) The Black Scholes method is more sophisticated and requires a measure of the volatility of the innovation. The Ideation web site provides calculators for both cost-based and revenuebased methods and provides a pointer to a site that allows Black Scholes valuations. Companies are interested in valuing their ideas because under new regulations issued by the Financial Accounting Standards Board (FASB), they are required to identify and value all intangible assets (including innovation) that can be identified and that have been acquired. The Securities and Exchange Commission (SEC) has issued similar requirements. These regulatory bodies are concerned that, with so much of the value of a corporation

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being represented by its intangible assets, the current system of financial reporting does not give an accurate, or in many cases even approximate, indication of the state of the company. With the new accounting rules in place, it is hoped that shareholders and investors can see a truer picture of the company and have far better visibility into the state of intangible assets, particularly intellectual property resulting from innovation. The kind of valuation used depends on several factors, such as the stage in the life cycle of innovation, whether a low or high price would be optimum, and the amount of data available. In the early stages of the life cycle of an innovation, there is often little information on what the potential market would be or often what the product might be; therefore, a cost-based valuation is often the only viable option. Once the product and its potential market are clearer, often a revenue-based valuation produces a higher valuation. A company or individual, however, may not always want a high valuation. Many of the large companies actively manage their intellectual property on an international basis. KPMG was engaged to review a large multinational’s global intellectual property from a tax perspective. KPMG’s recommendation was to establish a Dutch intellectual property holding company to which much of the company’s intellectual property would be transferred. This company would in turn license the intellectual property back to their various business units around the world. Holland has special tax concessions for revenue derived from intellectual property as does Ireland, Cyprus, Switzerland, and several other jurisdictions that are starting to become aware of the tremendous significance of the value tied up in intellectual property. They are adopting a business model that shows that very small percentage revenues from very large amounts make for very attractive and hassle-free revenue streams. The firm saved more than $100 million from this strategy (even after paying the $20 million consulting fee).

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The opportunity for tax minimization need not be available only for the large multinationals. Through a simple infrastructure and a master agreement, any new registration can be transferred to another (usually, tax-favorable) jurisdiction by simply checking a box. In this situation, tax would be paid on the initial sale, but if the intellectual property is transferred early in its life cycle, the value and, hence, the tax are also very low. For successful ideas, the subsequent increase in value and licensing revenue streams f low into a favorable tax jurisdiction. The consequence of this opportunity is tremendous. Nearly 70 percent of the world’s economy is reduced to a few electrons that can be transferred to anywhere in the world at will with the task of regulatory oversight almost impossible because of the tremendous ambiguities in valuing intangibles. Thinking is one thing no one has ever been able to tax. Charles Kettering

The long-term implications could involve a rapid erosion of the tax base of the high-tax economies (Western and developed). In addition, unprecedented opportunity is provided for a small nation with little bureaucracy (what I call an “agile nation”) to become the Delaware of the world. Although the state of Delaware accounts for 0.05 percent (1,982 square miles/3,787,425) of the land area of America and 0.27 percent (807,385/292,037,961) of the population of America, it is the state of incorporation for 47 percent of Fortune 500 companies (see Table 8.1). Delaware instituted a body of corporate law that was simple, practical, and expedient. Any small country that is in a position to rapidly adopt a body of law that facilitates managing intellectual property and infrastructures for electronic commerce can seize enormous portions of the trade in these intangible assets. We have advised several governments of small countries, but few

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137

Value: What Is Your Idea Worth? Table 8.1

The Delaware Ef fect

Proportions of U.S. Total

Percentage

Land Population Fortune 500 incorporations

0.05 0.27 47.00

have acted decidedly to implement the recommendations. The opportunity is still there. In the meantime, more developed countries will have to find a way to get by with lower tax rates. Lower rates result in smaller government, which would not happen otherwise—these countries have shown no signs of shrinking themselves without some major external force.

Microeconomics If you want to take valuation a step further into microeconomics, you can view each project team as a small virtual company within the company that is both licensing intellectual property from other project teams within the company or outside and to other business units. This scenario becomes a little more complicated because intangible assets are, in general, nondepleting assets. You can use intangible assets as much as you want and not use up the resource. Often, you are enhancing the value because of issues related to critical mass and economies of scale. Each intangible asset can be licensed to many different users, sometimes as an unlimited license, and other times limited by geography, industry, or some other delineator. We, therefore, have a complex network of interconnected intangibles with values dependent on the portfolio of actual and potential licenses. Other intangibles can be made by aggregating

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several intangibles into a “compound” intangible (as opposed to an “atomic” intangible that has only one intangible component within it). The value of these compound intangibles is usually greater than the sum of its parts because of the symbiotic value of bringing them together. Sometimes the combined value is less (a negative symbiotic value) because of overlap of functionality of some of the components. If we follow the value of an intangible as it goes through its life cycle, we see that several values apply to the intangible. First, we have its estimated value derived through using a tool such as the calculator provided on the Ideation web site. Then, if it combines with another intangible, we have its component value and its contribution to both the total combined value and the symbiotic value. At some point, we may have an actual value if the asset is sold or licensed. Once we have an actual value, we can go back Table 8.2

Valuing Innovation

Ve Estimated value

The value estimated using any methodology. Several estimates can exist for any intangible, although only one is selected to use in financial reporting.

Vs Symbiotic value

The additional value an intangible adds in combination with other intangibles.

Va Actual value

The value based on hard data from a sale or license.

Vr Regressed value

The value determined by estimating the value of the precursor intangibles with an actual valuation.

Fo Optimism factor

The moving average of the actual values divided by the estimated values for any unit or individual.

Vc Corrected value

The original estimate adjusted by multiplying by the optimism factor.

Vf Financial value

This is the value selected by the CFO if multiple estimates exist. This may be by standardizing a valuation methodology or may be on a case by case basis for each intangible.

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down the tree and calculate the derived value from the proportional contribution that intangible asset has made to the intangible for which we have an actual value. This derived value can then be compared to the estimated value and the resulting ratio, known as the optimism ratio, provides a measure of the optimism or pessimism with which particular individuals or business units calculate the value of their intangibles. The CFO can use this optimism ratio to true-up the estimates of valuations for each business unit or individual, which gives us the adjusted value. Table 8.2 summarizes the methods of valuation. The process of valuation seems complicated, but it can be shown more simply as a diagram (see Figure 8.1), using an example of two corporate groups—one working on Idea A and the other on Idea B. Group A spent 200 hours on their idea, valued at $20,000, and Group B spent 400 hours, valued at $40,000. Group A licenses their idea to a customer of the company for a f lat fee of

B

A

X Virtual idea of combining A & C.

C

Figure 8.1

Idea C has value greater than A+B due to symbiotic value of Idea X.

Network diagram of Ideas A, B, and C.

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$100,000. Group B, however, realizes that their idea is saleable only if they form a joint project with Group A and invest a further $20,000 in development. They are able to negotiate a joint venture with Group A in which both groups will own 50 percent of a new project called Idea C. They value Idea C at $100,000, ref lecting the additional value of the idea of bringing the two ideas together. Idea C is a success, and after further investment of $10,000 from each group, they are able to sell the idea exclusively to another division of their company for $400,000. Ownership of Value In the previous example, even though Group B spent twice as much on their project, Group A was able to negotiate a better ownership position in the new project—Idea C—because they had already demonstrated their value. Even though they had invested only half as much as Group B, they were able to negotiate a 50 percent ownership in the new project. It is important to allow for ownership of the value of ideas that differs from the investment in those ideas because it ref lects the market reality that some projects do well and others don’t. We need to be able to track the market realities as well as the investment and ref lect it in the ownership proportions. Estimated Value (Ve ) In the early days of an idea, we have little hard market data on which to value the idea, so we have to rely on crude estimates (Ve ), often based on cost. Symbiotic Value (Vs ) When we combine the projects in the previous example, the value of the combined entity is higher than the individual elements by $40,000 because of the additional value brought in through the idea of combining the two ideas. In some cases, the

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idea to combine projects comes from one of the teams working on the project, but often, as in the case of a cell phone project at a major university, it comes from a third party. In the Iowa State project, it came from management. The Technology Transfer Group realized that two different projects within the university could, if combined, provide the basis of a new cell phone technology. They brought the two groups together but had difficulty getting them to freely share their ideas. Some of the services available on the Ideation web site arose from trying to find a solution to this problem. The additional value of the idea of bringing two ideas together to create a more valuable whole is called the symbiotic value (Vs ) and is represented in Figure 8.2 as a third

B

A e ens ve Lic clusi ex ,000 n no 100 $

50% 200 hours $20,000

ow n

ersh

ip i

nC

50

wn %o

er sh

ip i

nC 400 hours $40,000

X Symbiotic value combining A & C $40,000 Further investment $20,000

C

Idea C has value greater than A+B due to symbiotic value of Idea X.

$100,000 Exclusive License $400,000

Figure 8.2

Combination of two ideas through third virtual idea.

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idea (Idea X) with essentially all the properties and metadata (author, owner, time, etc.) of an idea—like a virtual idea. In some ways, the previous analysis is a convenient simplification. The actual analysis requires the inclusion of potential forms of license, exclusive or nonexclusive, exclusions, limitations, and direction, represented by links between ideas (intangible assets). The properties of these licenses are contained in the link. The value of an intangible includes its intrinsic value and its symbiotic value, which includes the idea of bringing them together as well as the details of the licenses that allow them to be brought together. In the previous example, Idea C has no value without the licenses from both Idea A and Idea B. If the license from either A or B is not available, Idea C has no value. This kind of situation can be managed by securing options to one idea so there is not an expensive commitment until you are certain that you can have access to both pieces of intellectual property. A further complication is the terms of the licenses, which can include references to:

f f f f f f

Exclusivity Direction (from A to C or from C to A or both A to C and C to A ) Price by f lat fee, per usage, per time unit, portion of resulting sales Exclusions by geography, time, industry, company, and so on Inclusions by geography, time, industry, company, and so on Term defined by time, number of uses, expiry of patent, and so on

All of these computations can be done by software with the user simply checking the appropriate boxes—similar to the Microsoft Project software where you enter the data and the system

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works out the critical path and limiting resources. Table 8.3 shows how the complicated options of licensing can be simplified and standardized. Regressed Value (Vr ) Later, as we get actual market databased on a license or outright sale, we can go back and regress the values of the predecessor intangible assets. We can also compare these regressed values with the earlier estimates. The average ratio of these regressed values to the earlier estimates for an individual or business unit gives us a true-up factor—the optimism factor (Fo ). Optimism Factor (Fo ) Once we have some actual values for sale of innovation generated by a business unit, we have much more accurate valuations going forward because we can adjust all the estimated values by multiplying by the optimism factor. This optimism factor is continually being refined as further innovation is sold or licensed because it is a moving average. Corrected Value (Vc ) The optimism factor effectively compensates for one of the biggest problems in valuations: Some people are consistently optimistic in their projections and some are consistently pessimistic (if they are not even consistently wrong, they are simply no good at valuing). Financial Value (Vf ) Each intangible asset has metadata fields for multiple values and there can be multiple instances of each (Figure 8.3). For example, in the early stage of an intangible’s life, it may be valued by the researcher on the basis of cost. Later, the researcher’s principal investigator may reestimate its value based on potential revenues.

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Standardized Licensing Terms

Licensor

SQP-DSMF

Begin Date

Licensee

RTE-HTEV

Exclusive Yes

Geography 1

Company 1

Industry 1

Special Terms

Operator


Sale

Users

Exclusions

450,000

Inclusions

Term

Units

Amount

Amount

No

Years

25,000

100

5

S

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DEVELOP Chapter 7

Know cost?

Yes

Use Time and Cost Calculator (on web site or Chapter 8).

Yes

Use Discounted Cash Flow Calculator (on web site or Chapter 8).

No

Can estimate future revenues?

No

Is value high?

Yes

No

Use values already calculated.

Explore other valuation methodologies (Black Scholes) or retain professional valuer.

MARKET Chapter 9

Figure 8.3

Flow chart for valuing ideas.

145

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Both of these valuations remain in the system. At some point, however, the CFO should aggregate all of the values and select one valuation methodology. If a corrected value is already in the system or, better, an actual value, the CFO would naturally use that value; if not, he or she must select the value to use. The value designated as the one to be used in financial reporting is called the financial value. If the value is later corrected or if an actual value is entered, the system automatically redesignates this more accurate value as the one to use for reporting purposes. The IPortation system currently has a low valuation based on cost. As soon as it is adopted anywhere, even on a small scale, there will be a significant jump in value.

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9 Market: Finding Investors and Customers I just invent, then wait until man comes around to needing what I’ve invented. My ideas have undergone a process of emergence by emergency. When they are needed badly enough, they are accepted. Buckminster Fuller

How you get started finding investors and customers depends to a large extent on the nature of the idea. In a corporate setting, you can display your new innovation on a matrix of viability and marketability. Viability is an assessment of how easy it will be to get formal legal protection of any kind, but you should not have any tangible record that directly expresses an opinion on patentability because it could be used against you in any subsequent patent litigation. The matrix gives you a good general indication on how to proceed based on best practices (see Figure 9.1). 147

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License out or Joint venture

Develop in-house.

Donate for tax deduction.

Publish to protect ability to use.

Marketability

Figure 9.1

Viability/marketability matrix.

Develop Internally If your innovation falls into the top-right quadrant of the matrix in Figure 9.1, it is both viable (can be protected) and marketable by your existing marketing operation. It will probably make sense to develop it in-house and market it through your own channels.

License or Joint Venture If the innovation falls into the top-left quadrant, you can protect it, but you do not have the resources to market it. In this case, it probably makes sense to seek a joint venture with a company that does have the appropriate market presence and look forward to the licensing revenues. Whether you develop it in-house, outsource, or look for your partner to develop and market depends on whether you have the R&D resources and financial resources

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or access to financing that would be necessary for the development. As well as basic considerations of return on investment (ROI) on the project itself, you should consider whether it is a core business area and whether related intellectual property that tends to be generated from such projects would be strategically important for the company.

Publish If the innovation falls in the lower-right quadrant, it cannot be easily protected, but it is in your company’s core business and marketing competency. The danger here is that if your innovation is an essential core process for your business, even though you did not think you could protect it, others may succeed in so doing. This was illustrated in the State Street Bank v. Signature case,1 which set a landmark precedent for the ability to patent business processes and led to one of the most rapidly growing areas of patent protection. This decision has allowed some of the more ridiculous, very broad patents that have been granted in recent years; however, many of these patents may be rescinded on reinspection. Compaq found themselves in an embarrassing situation when they responded to Dell’s success in customizing computers according to customer specification. Compaq set up a specialized production line and was about to start production, only to find themselves enjoined by Dell, who had secured a business process patent protecting their process. One approach to avoid this situation is to publish the innovation. Although you will not be able to patent the innovation after a certain time period, neither will anyone else—especially your competitors—so you avoid having to pay an ongoing royalty for the next 20 years to your competition. A convenient way to publish your innovation is the service offered by IP.com. The Ideation web site provides a link to this service.

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Donate If your innovation is unfortunate enough to be sitting in the lower-left quadrant of the matrix (Figure 9.1), you will have tremendous difficulty in either protecting it or marketing it. In this case, the best course of action may be to donate it to a qualified not-for-profit, such as a university, and in return claim a tax deduction for your cost of development so far. Universities are generally eager to accept these kinds of donations. Donation is one way to better utilize intellectual property that is dormant in many organizations. In Section D, we elaborate on progress in this area and describe programs that facilitate this process.

eBay Litigation I (D.G.) received a call recently from a major intellectual property law firm attorney who had been retained to defend eBay in a lawsuit brought by MercExchange, a small Virginia company. They were claiming eBay was infringing their patent for conducting business transactions on the Internet. In researching prior art, the legal term for anything that had been invented earlier that might be relevant, the law firm had found my patent from 1993 that protected “transactions conducted on a network of computers.” I was asked to participate as an expert witness and I watched the result in view of my own interest. The result was a $29.5 million verdict in favor of MercExchange. You can see how valuable patents can be.

Market to Investors/Licensors The ultimate goal of every innovator is to see his or her idea “reduced to practice”—to see the idea working and generating a royalty income. But for this to happen, many things need to

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come together—funds to continue its progress, resources to develop it into a working prototype and then into a viable production version, and ultimately someone who wants to buy it, license it, or use it in some way. When all these things coincide, the result is a great benefit to society and often significant financial benefit for the innovator. We hope this book improves the odds of this happening for you. When marketing your innovation, you have two major audiences—potential users and potential investors. Investors As always, a first step is to register because registering makes you visible to someone actively looking for the solution you are offering in addition to offering protection. However, you should not rely on such passive marketing; you need an active marketing plan. Major sources of funding are:

f f f f f

Yourself Friends and family Venture funding Corporate funding Government grants

Yourself Any investment in a new innovation is a risky one. There are many potential pitfalls along the way, as discussed in Chapter 10. If you are considering investing in your idea, keep two things in mind: 1. Consider what your total investment will be to the point where you feel the idea will become self-sufficient, typically, at the proof-of-concept stage when the idea can be clearly

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demonstrated to an investor. A mistake many inventors make is assuming others will understand the invention. They frequently fail to realize that other people may not have the same clear, abstract conceptual thinking and will need a much more concrete demonstration before they can get excited about it. Many inventors start the process of investing in their idea but do not have the resources to follow through to get other investors involved. 2. Be aware that you may lose your entire investment. With a dearth of early-stage investors, frequently, inventors do invest their own money in the early stages. Friends and Family This is another channel open to you. Make sure your friends and family are fully informed of the risks involved, especially the possibility that they could lose their entire investment. If that is clearly understood and they are willing to invest in your dream, congratulations—you have wealthy friends that are not risk averse. Venture Funding Since the dot-com crash, you could argue that the term venture capital (VC) is a misnomer because most venture capitalists have run for cover and are either not investing in anything (and living off the management fees on the enormous funds they raised) or are investing in late-stage ventures with minimal risks. However, some early-stage investing is starting to occur again. If you want to seek venture funds, follow these simple steps: 1. Your business plan should include a description of the product or service, how you plan to develop and market it, the team that will build the company, financial projections for the first

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three years of business, assumptions you made to get the numbers to work, and how the venture capitalists get their money back. When building your projections, remember that the venture capitalists will require a significant return that should be ref lected in the valuation of the company in three years. Also remember the five M’s of venture capital—marketing, marketing, marketing, marketing, and management. 2. Use online or directory resources to find venture capitalists whose investment criteria match your venture in terms of stage of company, size of investment, industry area, and geography. Start calling them—look for the partners most likely to be interested—and once you get them on the phone, give them your “elevator pitch,” that is, a 40-second summary. Try to call early in the morning or early evening when the gatekeepers have gone home. Every inventor should have an elevator pitch ready for each invention. You never know who you will meet or when, so be ready. Most inventors wrongly assume that everybody is just as fascinated with their invention as they are. Don’t take it personally and don’t count on getting more than four or five minutes of focused attention before others lose interest, so prepare a 40-second summary. 3. The goal of your initial telephone conversation is to get permission to send them your business plan. Once you have sent it, follow up by phone “to make sure they received it.” Make your plan stand out with a bright cover so it can quickly be retrieved from the enormous pile of business plans that they receive every morning. Once they have it in their hands and have promised to read it, follow up after a few days to see if they have any questions. If they are interested, they will agree to a meeting. 4. Prepare for the meeting with a working demo and a short visual presentation summary of the business plan.

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Venture capitalists usually do not sign nondisclosure agreements, so you may have to proceed on trust. Examples of venture capitalists stealing business ideas (other than with low valuations) are relatively rare. One case, however, is the infamous UrbanFetch case when a small group of investors called Integrity Capital Management allegedly liked the idea so much that they ran with the idea themselves.2 Some major intellectual property law firms have small venture funds for investing in inventions of clients that they feel are real opportunities, for example the Founder’s Fund at Pennie and Edmunds. Corporate Funding Corporate funding is probably the most viable route in the current climate and has the advantage that it can provide a marketing channel at the same time. Proceed as with venture capitalists but the business plan can be a little shorter. Customize your plan to emphasize its fit with the company’s existing business, customer base, or identified future strategic direction. The companies you select might fall into several categories:

f f f

Companies with a customer base that would buy your invention Companies with products that could be improved with your invention Companies that your invention would negatively impact.

The last option may seem distasteful to many inventors because those companies often want the patent so they can keep your invention off the market, and they are prepared to pay to do it. Others are willing to risk cannibalizing their own existing

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product sales in order to participate in the next generation technology—these are the companies that tend to survive over time. As the infrastructures comprising specialized software and financial products (as described in Chapter 16) take hold, those systems will provide a much easier channel to the market and give many innovators (who are reluctant to invest the $10,000 plus required to patent an idea) the resources to take care of early expenses that often provide an insurmountable obstacle. Government Grants Government grants are a rare form of funding unless you are already plugged into the military requisitioning process or happen to have something the military or intelligence communities really need. Future Funding Because none of the previous avenues is very efficient, in Section C, The Innovation Industry, we make the case for completely rethinking how we fund innovation.

Market to Customers After you have identified, protected, developed, and valued your idea, you are ready for the final stage of marketing it. Individuals are concerned with finding appropriate partners for marketing and funding unless they have the resources themselves. In the corporate environment, however, you may first have to sell the concept internally to get buy-in and an allocation of resources to take it to the next step. Then you may be involved in the external marketing (rather, you should be involved because you thought of it and understand the need and the solution), or you may leave this to specialized departments within the enterprise.

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How you go about doing the marketing depends to a large extent on the kind of idea and how it was protected legally (if at all). If it was protected with a patent or if a patent has been applied for and counsel thinks there is a good chance it will be granted, you can be open about marketing it. The same applies for intellectual property protected with copyright or trademarks. If the idea is protected as a trade secret instead of a patent, the marketing may be much more circumspect. Disclosing the idea too broadly may jeopardize its status as a trade secret. In these circumstances, you should write an envelope—a nonproprietary description of the idea’s benefits, omitting all the important information that would allow others to deploy that solution themselves. If, after reading the envelope, potential licensors, investors, or purchasers are interested, they can sign a more formal disclosure contract. This contract assures the owner of the intellectual property that, once it is revealed, the interested parties will make their decision as to whether they would like to buy, license, or invest and not attempt to use the innovation outside any license agreement with the owner. In addition, they agree to keep the innovation secret and not disclose it to any third parties without the owner’s express written permission. A standard form of such an agreement is available on the Ideation web site. If you are involved in the process of marketing the idea, you need to think who would benefit from this idea (see Figure 9.2). Start with the problem that the idea solves, identify several companies that could derive competitive advantage over the others by having the invention, and you might end up with a bidding war between them. Alternatively, you can think of companies that would be disadvantaged by the invention and offer it to them. Many companies such as IBM, Texas Instruments, and Hewlett Packard derive significant portions of their earnings

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VALUE Chapter 8

Creative

Trade name

Idea Type ?

Invention

Do you want a representative? No

Compile list of publishers or producers or galleries.

Yes

Compile list of industry representatives.

Yes

Is it your company’s invention?

Contact company TTO, PI, or supervisor.

No

Do you want to launch immediately?

No Yes

No

Build web site, add metatags, and propogate URL.

Build provisional web site and propogate URL.

Compile list of companies that would benefit from invention.

Register all similar or future URLs.

Start nominal marketing (test mailing) and mail interstate.

Compile list of companies threatened by invention.

Market launch.

Do you want to market it yourself? Yes

‘Register’ each cover letter in original record.

Compile list of industry representatives.

Locate reputable TTO company.

IMPROVE or START NEW PROJECT.

Figure 9.2

PROTECT file TM, SM. Chapter 6

Flow chart for marketing and funding ideas.

from aggressive patent litigation and the licensing of their intellectual property. Once you have an interested party (or preferably several), you are in a position to execute a license agreement. If the amounts involved are small or you already have some experience with commercial contracts, you can use the License Wizard on the Ideation web site to generate a license. However, if the

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amounts could be significant, I strongly recommend using a lawyer with experience in intellectual property, or if you are in a corporate environment, consult with your general counsel.

Start Again Having successfully marketed your first innovation, sit back, relax, congratulate yourself, wait for the royalty revenues to start coming in, and then—start again. This can be either an improvement on your last innovation or a completely new idea. There are no limits to what your mind can conceive!

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10 The Death of an Idea Nearly every man who develops an idea works it up to the point where it looks impossible, and then he gets discouraged. That’s not the place to become discouraged. Many of life ’s failures are people who did not realize how close they were to success when they gave up. Just because something doesn’t do what you planned it to do doesn’t mean it’s useless. Thomas A. Edison

Daring ideas are like chessmen moved forward; they may be beaten, but they may start a winning game. Johann Wolfgang von Goethe (1749–1832), author

Less than 2 percent of the millions of ideas created every year are ever licensed. However, despite the enormous hurdles every idea must overcome, enough ideas make it through so that we appear to be progressing as a society. This chapter explores the hurdles and discusses what we can do to remove or at least minimize them. 159

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The reasons ideas never become realized are legion including:

f f f f f f

Concern that the idea will be stolen. Lack of legal expertise so the ideas are not protected in any way. Lack of the resources or engineering know-how. Lack of marketing expertise ideas. Lack of financial resources to cover the expenses of the previous reasons, resulting from a lack of an established marketplace or exchange for licensing or selling ideas. Drowning in the morass of middle management in a large corporation. Ideas from junior employees are often misappropriated, misunderstood, and misattributed by middle management, who often kill not only the idea but also the prospect of future ideas from the same source.

As seen in the Ideation Street Survey (see page 41), many of us have had ideas that we felt were commercially viable. We can see the reasons these ideas are never developed. Many of us have sat on the idea and done nothing and then a year or so later see the very same innovation become public. I (D.G.) had the same experience with the gadget that helps you find your keys. I have always had a problem with finding keys (especially when I was a retained fireman and needed to find my keys in a hurry). I realized that it would be easy to engineer a key ring that would respond to a hand clap or whistle. I even got so far as to hire a part-time engineer to design it, but I had a full-time job and did not allocate much time to the task. While I was still thinking about patenting it, a device just like the one I was working on came out. Another example is a chiropractor who designed a system that would eliminate eye and back strain by making a small stand under the monitor of a computer that would slowly adjust the position of the screen so that we subconsciously would change

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our position and thus prevent much of the strain and repetitive injuries that people who work at a computer all day are exposed to. In this case, he invested $10,000 in filing a patent, only to have it rejected because someone else had a prior application granted. Unfortunately, the individual who had the patent never developed the system, so yet another contribution to society is not available to us. As the innovator passes along the steps of developing an idea, there are many hurdles to be overcome with attrition at every step. If it misses one of the hurdles, the idea is dead. It is tragic that so much creativity is doomed. As discussed in Chapter 2, typical inventors are poorly equipped for the business of developing their own inventions, which explains why so many brilliant inventors have died in poverty and why so few inventions succeed, or, if they do, why the process of getting the invention to market takes so many years. Today, the typical process of getting an idea to market involves many steps, including:

f f f f f f f

The idea creation Its protection Its development Its adoption into a corporation The funding of that company Development of the product and company An initial public offering (IPO) of the company

At this latter stage of an idea’s life, the investing public for the first time has an opportunity to invest in the idea. In the next section of the book, we will see that it is possible to greatly shorten this lag time and allow the general public to invest, or support in other ways, new ideas as soon as they are created. The benefits would be enormous.

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SECTION C f f f f f f

THE INNOVATION INDUSTRY: A CALL TO ACTION Man knows so much and does so little. Buckminster Fuller

W hat the human mind can conceive and believe it can accomplish. David Sarnoff

There is no official standard industry classification (SIC) category for ideation. There ought to be. In fact, we have been cautious about SIC codes in general since noticing a few years back that guided missiles were a subcategory of air transportation. The issue of managing innovation is the single most important issue we are facing, but there has been very little coordinated effort to address it. We can improve our own level of innovation, as well as exploring how we can improve innovation in those who work with us. In addition to promoting innovation, we explore what we can do as individuals, organizations, and nations to nurture these 163

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f ledgling ideas and improve the chances of any one idea actually becoming realized. We will also provide the reader an opportunity to register ideas and use the innovation tools on the Ideation web site. Regardless of which segment of the innovation industry we work in, we need to act. The steps are simple and the rewards profound.

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11 The Individual Innovation Imperative When I have an idea, I turn down the f lame, as if it were a little alcohol stove, as low as it will go. Then it explodes and that is my idea. Ernest Hemingway (1899–1961), author

One of the main themes of this book is that everyone has ideas. You often notice a problem and then realize the solution. Other people would benefit from this insight and might even pay for it. Have the courage of your convictions and go forward with your idea—at least explore its feasibility. Your idea has to be novel, unique, and nonobvious, so check in the U.S. Patent and Trade Office (USPTO) as described in Chapter 6 to see if anyone has thought of it before you. If there is no obvious prior art, go a step further and see if there might be a market for it. However, be cautious about whom you ask—you do not want your idea stolen. Registering your idea before you talk to anyone can prevent that problem. If your idea looks novel, unique, nonobvious, and—although not a patent office requirement, it is a 165

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commercial requirement—marketable, you might want to take the plunge and invest in having a law firm file a patent on your behalf. If you have a limited budget but are convinced the idea is good, you may want to prosecute your own patent rather than drop the idea. A corporation or individual with financial resources, however, should use a lawyer because the process is very complicated, and there is an art to wording patent applications to make the claims as broad as possible while still ensuring that the patent will be granted. Whatever your idea, simply follow the f lowcharts provided in this book. They take a very complex set of procedures and decisions and simplify them to a manageable level. If your innovation is related to your work, you may want to find out if your employer is interested in paying for the patent prosecution. Be sure to discuss whether you would be entitled to a share of any royalty revenues or a bonus if the idea becomes a commercial success. If, however, your innovation was invented during the course of your business or if you have signed an inventions agreement that assigns any inventions during your employment automatically to your employer, the invention will be theirs to decide whether to patent. Some state laws (e.g., California) provide that any inventions invented outside working hours are the property of the inventor, which supersedes an existing written contract. It becomes extremely difficult to determine when something was invented, making an electronic lab notebook something that companies, particularly in these states, should think urgently about implementing. Until they do, however, individuals can avail themselves of the Electronic Lab Notebook (ELN) provided by this book at the Ideation web site. If the invention is something that is difficult to reverse engineer and the cost of obtaining a patent is prohibitive, think about licensing your idea as a trade secret (discussed in more detail in Chapter 6). You can also do this on the Ideation web site.

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For those of you in the creative industries, also known as the copyright industries, your first simple step is to register your work, and each successive version of the work, so that there can never be any doubt as to the original author, artist, or composer as you start the difficult process of finding interested publishers, labels, galleries, producers, or directors. There is also a slight chance that interested parties will find you if you have registered. If you live in a developing country, it is all the more important to take action and encourage your colleagues to do so. World patents are no more difficult to obtain through the CPT system of the World Intellectual Property Association than domestic patents, and they are valid in 112 countries throughout the world. For many regions, intellectual property is one of the most valuable potential exports they have. It is a natural extension of the economic policies of the Peruvian economist Hernando De Soto,1 who emphasizes the importance of entitlement to property to stimulate the development of nations because it brings much of the underground economy into the mainstream economy.

Financial Health Warning One last word of warning for all individuals. Avoid at all cost the kinds of companies that were exposed by the Federal Trade Commission (FTC) in their Operation Mousetrap investigation. These companies prey on the hopes and aspirations of inventors who are very poorly served by our commercial infrastructure and, to some extent, by our government services. Although the companies targeted are no longer in business, several successor companies sprang up, often with the same management, but they can be recognized by their late-night infomercials and excited voiceovers. The scam involves asking for anyone who has thought of any invention to respond to an 800 number or web site. Shortly after an individual responds, they send a letter that “analyzes your commercial

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prospects” in glowing terms using an automated report that tells you that you can earn millions with your invention but first you have to send a payment varying from a few hundred to thousands of dollars in exchange for “introductions to leading industry buyers.” Unfortunately, nothing ever happens of value nor do these inventors get their money back unless they are fortunate to have a friend like Marghretta McBean, who marched into the scam artists’ offices with the victim and loudly demanded a refund. One of their techniques is to execute a design patent instead of a full patent. A design patent is very easy and inexpensive to obtain, and the victims think they have the protection afforded by a full patent but, in reality, have very little protection—particularly if their invention ends up in any way different from the one pictured, which is almost always the case. The size of the payments the FTC forced these scammers to return emphasizes the huge creative potential in our population but also shows how difficult it is for inventors to find a legitimate outlet. The basic rule is: Pay only a very nominal fee ( less than $100) unless it is to an established law firm; even then, make sure you get objective advice on the invention’s prospects because the law firm will be paid regardless of the ultimate success of the invention. Any firm that asks for sums in the thousands should be investigated thoroughly. The Ideation web site keeps a registry of legitimate firms offering valuable services for innovators and lists any of the exploitive firms as soon as we hear of any charges. Unfortunately, we can only name those companies whose malfeasance is proven, but their identity should be fairly apparent from their overenthusiastic pitches. One of the goals of the Ideation Registry is to provide alternative service at a nominal fee so that the exploitive firms will be out of business. If any reader has had any negative experience with such a firm, the Ideation web site provides a place to report it. This information will, if you allow, be made available to the FTC and other law enforcement agencies.

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Individual Action Plan This book provides a practical first step, not just by understanding innovators through the ages. By using Your Innovation Key (on the back cover), you can access an online system to register and protect your ideas and introduce you to interested partners or investors. Don’t let that idea hide away in the dark recesses of your mind any more—let it see daylight! Be sure to:

f f f f f f f

Register all past ideas (note actual invention date). Register immediately all new ideas and frequently update. If Internet access is not available, write down or record on a local disk. List all target areas for innovation. Keep files (preferably electronic) by each target area of potential relevance. Select ideas for formal protection. Follow the f lowcharts provided in Chapters 4 through 9.

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12 The Corporate Innovation Imperative An established company which in an age demanding innovation, is not capable of innovation, is doomed to decline and extinction. Peter Drucker ( b. 1909), economist and management consultant

If you want to kill any idea in the world, get a committee working on it. Charles F. Kettering

Some would say the term corporate innovation is an oxymoron. But it need not be, although many issues need to be addressed:

f f f f f 170

Hoarding of ideas within silos Providing visibility to new ideas Ensuring recognition is correctly attributed Protecting against loss of company’s intellectual property Protecting against the loss of client’s intellectual property

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f f f

171

Effective management of trade secrets Greater efficiency and accountability for internal and external R&D Watching the “patent clock” on innovations that have been published or announced

We at least must do better than the situation shown in Figure 12.1. By addressing these basic issues, it is possible to greatly increase the level of innovation and collaboration within any company. We also shift the emphasis to those who contribute value as opposed to the layers and layers of middle managers who write memos about meetings and have meetings about memos—the curse of middle management and their often stultifying mediocrity. Several major corporations have seized on the importance of innovation and have included it in their corporate bylines (see Table 12.1). Few of these companies, however, have implemented a systemwide infrastructure to manage and incent innovation.

Managing Innovation An infrastructure is needed that provides several important but simple features. It needs to provide visibility to the rest of the organization so that people can recognize the importance or

Figure 12.1 Dilbert on innovation. DILBERT reprinted by permission of United Feature Syndicate, Inc.

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Corporations Ref lecting Support for Innovation

Company

Byline/Slogan

Accenture Hewlett-Packard IBM GE

Innovation Delivered Invent Think Imagination at Work

usefulness in a particular context, learn of its existence, and provide the resources necessary to develop the idea. There is also a need for limiting those who can view the idea so it is protected from theft or leakage to a competitor. These apparently conf licting needs of visibility and privacy can be managed through a few basic features such as the ability to record nonproprietary descriptive information about the idea in an area separate from the one that describes the idea itself (as described earlier). In addition, a powerful search engine is needed that allows managers or people trying to solve a particular problem to find a particular idea. Combine this with carefully managed security protocols, and a simple, yet elegant, system starts to emerge. Add into this an easy way to f lag those ideas that need to be protected more formally such as with a patent or trademark or as a trade secret, and you have the beginnings of a system that encourages both the submission of ideas and their subsequent development. Another feature that would help this system is a way to keep innovating by developing new versions of these ideas and having others annotate the ideas with their thoughts (with others’ contributions also being tracked so they will get the credit for their

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contributions). Add a way to combine ideas in a virtual project because many ideas do not solve the problem alone but often need one or more other ideas to complete the solution. Companies need to develop a formal mechanism for dealing with every idea. Many lie fallow and ideas that are badly needed are being lost because no one is aware of their existence. A better system would actively make a decision on every idea. Does the organization put resources behind it to continue developing it or license it to another company because the idea is “noncore,” that is, not directly relevant to the company’s goals? Or, in some cases, the company may be able to donate the idea to both help another organization (typically a not-for-profit) and, at the same time, gain a tax deduction. This system is being made available in a “lite” version at no charge to the readers of this book on the Ideation web site. We have software tools for managing most kinds of assets in our corporations, such as:

f f f

Financial assets: Accounting programs such as Oracle Financials Physical assets: Inventory programs such as SAP Human assets: HR software such as PeopleSoft

For the most valuable of our corporate assets—intangible assets—however, all we had until now was the lab notebook. We discussed the electronic upgrade of the lab notebook in detail in Chapter 5 and clearly, given the enormous investment in tools for managing our other assets, it is time that corporations adopt Electronic Lab Notebooks (ELNs) not just for their R&D work but also for recording any kind of innovation by anyone within the enterprise. However, we need to go further than just record the essential data that is related to the moment

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of invention and then never changes. We need to, in addition, record the additional metadata that does change on an ongoing basis. We can show this by updating the diagram we used in Chapter 6 as shown in Figure 12.2. Through managing their innovation enterprisewide, corporations can radically cut their R&D costs, increase their royalty income, and build areas in which they have an “intellectual monopoly.” A report issued by PricewaterhouseCoopers mentioned in Chapter 1 titled “Intellectual Property—A Power Tool for Economic Growth in 1999” found that the global intellectual property licensing market totaled more than U.S. $100 billion, giving an idea of how economically important intellectual property assets are today.1 It has been reported that 67 percent of U.S. companies own technology assets that they fail to exploit (assessed at between U.S. $115 billion and U.S. $1 trillion). Nearly U.S. $100 billion is tied up in such idle innovation within the intellectual property portfolios of big companies.2 Rather than let the

Owner

Who?

Marketability How?

Value What?

Idea Why? Manager

When? Where?

Type of protection

Protectability

Figure 12.2

The variable metadata of invention.

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invention accumulate the expense of its maintenance, the company may put it up for sale or license. Once you have the essential data on your idea captured, you can use this data along with best practices to decide what to do with it. Look at how the idea has been used, who has contributed, who is looking at it, what other ideas might depend on it, what other ideas (yours or others) it depends on, and who might be interested in licensing it. This is achieved through a series of reports tailored for the specific needs of various functional roles within the corporation.

Financial Accounting Standards Board and Securities and Exchange Commission The CFO’s concern when it comes to intangibles (as they call intellectual property) is that companies are now required to identify and count them. Intangibles have always been something of an anathema for accountants, who prefer things that are easily identifiable and countable. Intangibles are neither; therefore, in the past, they have been lumped together and called goodwill, which was fine in the early years of accounting when intangibles tended to be a small percentage of the total value of the company. However, over the years intangibles have become the largest contributor to value and can no longer be considered as “just the difference between book value and market value.” Recently, there has been a sea change in accounting, driven by the Financial Accounting Standards Board (FASB) with their FASB 141 and 142 Statements as well as the Securities and Exchange Commission (SEC) with their S-X ruling. The former requires companies that have acquired other companies to identify and value all the intangible assets in the acquired company. Soon this rule will extend to all intangibles, whether acquired or developed in-house. There is, after all, no logical reason that

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one should be treated any differently from the other from an accounting perspective. The SEC’s S-X ruling requires public companies to identify and value all intangibles that account for more than 5 percent of the value of all the intangibles. These are not mere arcane accounting rules. The regulatory bodies are recognizing that the world has changed and most of the value of companies is tied up in their intangibles. As Alan Greenspan put it, “We are entering the era of ‘Ideanomics.’”3 The FASB is the first to admit that the CFO is ill equipped to handle these new requirements: Companies’ inability to identify and inventory intangible assets may be the most significant obstacle to any comprehensive recognition of intangible assets. Managers cannot measure assets that they do not, today, identify and manage as assets.4

Research and Development A totally new approach to corporate R&D has been to tap into the reservoir of innovation outside the company. Innovation Bounties In 1714, the British government offered a prize of up to £20,000 for anyone who could discover a way of determining longitude. John Harrison succeeded with the invention of the chronometer. Almost 300 years later, Alph Bingham, a former vice president for R&D at Eli Lilly, was frustrated that the company was spending billions of dollars (an average of 14 percent per year), yet the rate at which it was developing new drugs had not changed. In 1999, he re-invented the innovation bounty: Instead of relying on the company’s researchers, he would use freelancers

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who would be available to him over the Internet. He compared it to talk radio: The host asks a question and within a matter of minutes, all sorts of people are calling with solutions. Bingham says, “There’s a mind out there that can answer any obtuse question.” He suggested that Lilly should offer a bounty for an answer. In 2001, Lilly decided to test the idea through a startup company called InnoCentive. The idea was to bring together freelance researchers and companies that were interested in outsourcing R&D projects. The company was very successful. It already has 25,000 freelance researchers in 125 countries. InnoCentive has other clients besides Lilly, for example, Procter & Gamble, Dow Chemical, and BASF. InnoCentive has saved Lilly millions of dollars. One researcher in North Carolina helped Eli Lilly push a cardiovascular drug through early development. He earned $25,000, which was a huge bargain for Lilly. He might have assigned this project to five different company-funded labs and in six months they might have come back and said it was unsolvable. InnoCentive charges clients about $2,000 to post a query online and awards range from $5,000 to $100,000. Freelancers submit confidential reports or ship out their solutions to InnoCentive. The privately held company employs about 30 people and won’t disclose its revenue. The company makes its money by charging a percentage of 60 percent to 100 percent of the award. What makes the company so successful? Researchers for InnoCentive must agree to work on spec. A few researchers have admitted that they are drawn by intellectual curiosity. Others who were between jobs, with the recent downside of the economy, thought that the projects would boost their resumes. For example, Rashmi Nunn, a former research manager at the Scripps Institute, had been working as a systems administrator after leaving Scripps. She received $5,000 for doing her InnoCentive project, and the solution aided her in getting an interview with a biotech company.

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Fifty-three percent of InnoCentive’s best researchers are in China and India, and most of these are attracted by the cash. Companies overseas have created divisions just to work on InnoCentive projects. Eli Lilly competitors such as Procter & Gamble also admit that InnoCentive has cut down their R&D expenditures. Bingham cautions that InnoCentive’s approach works best for “well-defined fragment” problems such as creating the right chemical for an intermediate step in a deodorant formula.5 Other companies such as the Dial Corporation advertise directly offering cash prizes for inventions that improve their product line.

Corporate Metrics and Reports The same innovation is currently being viewed from many different angles just as in the blind men and the elephant analogy in which several blind men are trying to describe an elephant but each identify only a part so that no one recognizes the whole.6 As discussed in Chapter 1, there are many different terms for innovation. If we are to solve a problem, all the differing functional and department heads who deal with an innovation need to be deriving their information from one central information source. The IDDEX Ideation system does this well and provides a useful example of the kind of information each functional unit is interested in.

Individual Innovators Individual inventors are interested in searching their own material to find earlier writings on certain topics. In addition, they are very interested in who is looking at their idea, particularly if they are interested in trying to license the idea (see Figures 12.3 and 12.4).

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Figure 12.3

179

Directory tree of personal innovation.

Researchers Professional researchers have several concerns. They want to be able to ensure the privacy of their own work, collaborate with other researchers, ensure that they get credit for their work, and minimize the bureaucracy they have to deal with. Vice President of Research and Development The vice president of research or the research project lead known as the principal investigator (PI) wants to be able to track research budgets and see at a glance who is working on what. General Counsel General counsel (GC) often complain that they don’t have any preview of what may soon be needing formal protection of some kind and whether some of these innovations have already been announced at a symposium or in an article, thus starting the

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Figure 12.4

Access reports illustrating the format to use.

“patent clock.” Patents have to be filed within one year of public disclosure. Disclosure could be something as simple as a mention in a speech given at a symposium or an article written for a peer-reviewed publication. Counsel also complain that they end up investing their time and legal budgets on protecting patents for the researchers who have the most political clout in the organization as opposed to the ones most likely to generate licensing income. One frustrated general counsel said that he had prosecuted more than 50 patents for one scientist, and not one had ever been licensed. Counsel need reports on what innovation is in the pipeline, whether it has been published in any way, and its chances of being licensed (which can often be

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inferred from other innovations from the same researcher or the number of accesses recorded for one particular innovation). An even more telling metric that is available once there is more activity on the system is the number of repeat visits. Someone could generate a great deal of traffic to a particular innovation by giving it a sexy title. However, only if the content lives up to the promise of the title will it be really useful. These metrics are very important because as you build systems to capture innovation, you are faced with the prospect that you will be collecting a great deal of data on innovations that will have only a few gems buried among them. Although storage is not a problem because it is continually getting cheaper, finding relevant innovation among the mass of data that is being continually collected is a problem. Sophisticated use of the metadata described previously, such as number of repeat visits from the same source, excluding the author, allows the user to sift through the millions of innovations to find not only ones that are relevant but also ones likely to be useful. If none are found that meet both criteria, the search can be automatically broadened by looking for innovation that, although not yet frequently accessed, is from an inventor whose other inventions have been frequently accessed. The system can also be used to auto-archive the database, keeping it to a manageable size. At the very least, the digital fingerprint and essential unchanging metadata is kept for all innovation because the total file size is less than 500 bytes—small enough to store millions of innovations on a typical home computer disk. Another major problem faced by general counsel is the potential loss of intellectual property when employees leave. If your company is like most, the information on the hard drive of your notebook computer is erased when you leave. All of your intellectual output from your time with the company is

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systematically erased, and any chance the company had of harvesting some of it is gone. Worse, if the employee has intentions of taking intellectual property with him or her, there is very little the company can do about it. Most companies have perimeter-level security; that is, the employee is challenged on attempting to enter the corporate network and that entry is often logged, but once inside, there is usually no track of where the employee goes within the network. What is needed, at least for anything designated as an intangible asset and especially if it is designated as a trade secret, is document-level security. Document-level security tracks access to each document and keeps an audit trail of this access. Typical activity for employees about to leave a company is to back up their own files to some form of removable media and to download from the central knowledge repositories. It is ironic that usually the only record of an employee’s intellectual output is in the possession of the employee, who often is not entitled to possession. A system can be designed to time-out if there is a sudden unusual increase in downloads, and a notification is then sent to the system administrator. This may be the first indication that the employee is unhappy. Thus, valuable intellectual property can be protected or a valuable employee retained. Very useful tools in the struggle to protect the ideas of an organization are two reports that are generated whenever an employee leaves. The first is a report on any intellectual property that the employee created at the company. The employee is asked to sign an acknowledgment that the work was conducted while employed at the company and is the property of the company. If reluctant to sign, the employee can usually be induced to sign by severance pay (if being terminated) and assurance of good references. If he or she refuses to sign the acknowledgment, you know you have a problem and can move to assert the company’s rights.

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This procedure saves innumerable problems later, often when some of the intellectual property has become valuable and the exemployee contends that he or she thought of the idea somewhere else at some other time. The second report for protecting intellectual property at exit interviews is a list of all the innovation that is designated as a trade secret that the employee accessed. Employees are asked to acknowledge that they did have access to the information, they were aware that it was a trade secret, and that confidentiality must be maintained. These two simple reports would have saved General Motors (GM) the fortune they spent in legal fees and the immeasurable loss of competitive advantage that resulted from the Lopez incident. Ignacio Lopez was a rising star at GM largely because of his ability to wring maximum concessions from suppliers and for his work on a futuristic new plant. However, a few minutes before a press conference called by GM to announce his appointment as president of GM North America, he disappeared. He showed up a day later on the other side of the Atlantic for a press conference with Volkswagen in which they announced his appointment as chief purchasing executive. Although this is the normal fierce competition for top talent, what they did not announce at that press conference was that Lopez had left GM with thousands of documents detailing pricing information from their suppliers as well as plans for the new futuristic plant. It was estimated that the value of the misappropriated intellectual property (GM would say, stolen) was in the billions of dollars. The litigation dragged on for years, but ultimately GM got a settlement of $100 million from Volkswagen as well as commitments that Volkswagen would purchase billions of dollars worth of parts. These expensive problems (the legal bills alone were $27 million) can be avoided by managing your intellectual property and,

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in particular, the trade secrets from the start. Trade secrets have to be identified as such whenever they are viewed and an audit trail kept of everyone who views them and when. Apart from protecting your intellectual property, you gain valuable metadata about innovations generating the most interest, which provides another metric with which to reward those who are really contributing value to the firm. Often, just the knowledge by employees that the company is monitoring data is enough to prevent a large portion of theft. Chief Financial Off icer If the difficult task of identifying intangibles is handled at their inception and then updated as they progress, that task is much easier. The chief financial officer (CFO) simply needs to generate a report that aggregates the value of intangibles by reporting unit and adds that to the financials under intangible assets. He or she can drill down deeper and see the value of intangibles for smaller business units and even individuals and, by factoring in associated costs, even derive the return on investment for individual projects, business units, or individuals. Chief Executive Off icer The chief executive officer (CEO) is continually looking to increase the levels of innovation and collaboration in an organization. CEOs frequently ask consultants:

f f

How can I increase our innovation? How can we keep our innovators here in the company?

The answer: You have the innovation here within your organization; the problem is finding it.

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CEOs have to find innovation through the morass of their middle management. They also want to know how to get their people to work together instead of in silos. The answer: Incent the behavior you want. To be able to incent the behavior, however, you must have a metric with which to measure it. The metric for the CEO is the innovation index and the collaboration index. The innovation index measures how much innovative value an employee is adding to the system. It is measured through several factors:

f f f f

The least-weighted factor—how many new innovations an employee has entered into the system How often one of these innovations has been accessed by someone else in the company How often someone has reaccessed one of these innovations The most weighted factor—the total present value of any revenue generated, or anticipated to be generated by the innovations

The earlier factors may be the only ones available early in the life cycle of an innovation, but as more data becomes available, more and more reliable factors play an increasingly important role. The collaboration index is based on how often an employee’s innovation is linked to another employee’s innovation, either as a parent or as a component, and how often the employee has annotated someone else’s innovation and how often these annotations are accessed. Using these two metrics, a CEO can incent the kind of behavior he or she is seeking, which will be far more effective than pleading or slogans such as “The Power of One” or “Going Forward as a Team” that companies are so fond of.

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In addition, the CEO can identify leading innovations in various business units or product lines for special recognition and prizes in an annual awards ceremony. This gives hope throughout the enterprise to employees worried that their voice is never heard and provides an avenue for the lower level employee to be noticed by senior management. Now that we have identified, developed, protected, and analyzed the innovation, we must convert it into revenue. We can apply best practices to determine how to dispose of any particular intellectual asset. One simple way to look at an asset is to consider two basic questions: 1. Can it be legally protected? 2. Is it marketable by us? By considering the answers on a simple matrix, we gain an excellent initial consideration of how best to manage the asset. The analysis of this matrix was discussed in Chapter 9. In the first two scenarios, developing in-house or licensing to another company, you may wish to consider the option mentioned in Chapter 8 of transferring the intellectual property to a holding company—often established in a favorable jurisdiction from the point of view of taxes on intellectual property royalties. (Ireland, Holland, Cyprus, and Switzerland are examples of such jurisdictions.) For other intellectual property types, a similar matrix can be constructed. Armed with this level of information and reporting, it is possible to contemplate another level of corporate economics. In business management history, there has long been a debate as to whether economies of scale can ever be realized. These early theories were supported by Schumacher in his book Small Is Beautiful, 7 and in the past decade, we have seen plenty of evidence of

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how competitive small entrepreneurial business units can be. We would argue that it is possible to have your cake and eat it, too. Clients used to ask how they could encourage entrepreneurism without completely losing their staff when they have good ideas with potential. We suggest establishing an infrastructure that allows entrepreneurs to develop their ideas within the corporation while giving the employees a significant financial share of the upside should the project become successful. This is appealing to entrepreneurs because they are not forced to make the decision between the comfort and security of their company and the risk but potential riches of the start-up. The company benefits and keeps the innovators in the company whether a particular idea succeeds or not. Because the innovation is typically linked to the company’s business, the company often ends up with a complementary business unit without the expense of having to acquire a company. This kind of infrastructure can always be present in the background and does not have to be specifically invoked when someone is considering a new entrepreneurial venture. For this background infrastructure to be in place, we need to look a little more in detail at the infrastructure we have already discussed. In addition to identifying all the significant intangible assets in the organization, we also need to identify the links between them. These links represent the licensing arrangement. Often within the company, it is assumed that this license is a complete, open, and free license for any intangible asset of the company to any business unit of the company. And that is why it does not work. One business unit has no incentive to share its intellectual property with another. For example, in one case, the partners in a Big Five consulting firm acted like Afghan warlords protecting their turf jealously. Not only was there no collaborating, but also they would actively exclude competent resources from

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a client if he or she happened to be from another group. Why should they? Each is incented solely on his or her sales. When the only thing partners have in common is the logo on their business cards, it is outright competition. In an ideal environment, each time a business unit shares an intangible asset with another, it is noted as an internal license on a simple software program. Click on the link and check a couple of boxes to denote the approximate nature of the license—for example, no restrictions and at no charge—the typical arrangement in a corporation when internal cooperation does occur. Alternatively, it could be limited to a specific project and considered to be contributing 50 percent of the value of the new project. Such a circumstance would occur when it is agreed that two pieces of intellectual property will be combined for a new project that develops synergies between the two. We can refer to our example invention from Section B: If the intellectual property for Internet protocol and monorail transportation happened to be owned by the same company (it isn’t), the two business units would agree to collaborate and each would contribute its intellectual property on an agreed-on ratio ( let’s say 50 percent). This crude estimate is determined at inception, which is much easier to estimate in the earlier stage than later when the new project might have turned out to be very valuable. Should a city decide it wants to try the IPortation system and pay for a license, the revenues would f low down through the intangible network, through the multiple links, and be divided equally between the two contributing business units. Some companies may prefer to use a system of “company points” and simply link these to incentive compensation. A large company may have many such links, creating a network of intellectual property that is linked throughout the company. There is no reason for not extending this link outside the company. Thus, a company can maintain a far better understanding of

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A

B C

D

E

F 1 2

3

G Value of G = 4 –(1+2+3) + Intrinsic value

4

H

A

Figure 12.5

Intangible asset

2

License or sale

Network of intangibles and links in a corporation.

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its returns on its research and intellectual property as well as the costs of intellectual property it licenses from outside. It is through regression through this network that we are able to determine the regression value (Vr). Figure 12.5 illustrates how this might work.

Corporate Action Plan

f f f f f f f f f

Implement at least a basic innovation management system or Use an ASP-based system (application service provider)— such as the one provided to you as a reader of this book. Identify all corporate innovation and intangibles. Delegate to divisional heads. Cross-check with functional expertise (GC and CFO). Track innovation index, collaboration index, and other important metrics. Change incentive compensation to include (preferably a significant) innovation component. Enjoy the resulting overview of innovation and manage the results. License everything you can.

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13 Academic Innovation Imperative I have learned to have more faith in the scientist than he does in himself. David Sarnoff

On a recent visit to a major bioscience research facility, I (D.G.) was speaking to both the management and their top researchers about the electronic lab notebook (discussed in detail in Chapter 5). Although most of the scientists agreed the ELN was much more efficient and they wanted to use it, they said that they want to keep their work confidential, including from management. Management did not say anything at the time but after the meeting, pulled me into a separate conference room and said: Good they liked it. However, one thing—we pay their salaries, we pay all their research expenses, and we own the IP. We want to know what they are doing.

This incident illustrates one of the central issues of managing intellectual property in an academic environment. Key scientists 191

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can act like prima donnas, and members of management are frustrated with their lack of visibility into what is being produced from their vast expenditures on research. Management was eager to improve their visibility at this particular facility, so they were planning to incent their scientists to use ELNs by paying for new laptops for them to run the ELNs on as well as to provide a share of all licensing revenues. The solution in this case is to provide the scientists with control over the security levels of their entries, both for the main document and for the envelope that describes in nonproprietary terms what is contained in the document. After one or two scientists start to successfully license their inventions, there will be a steady loosening of the security levels by other scientists, at least for the envelopes, on a voluntary basis. The incentives just need to be in place and, in this case, demonstrated. The cost of maintaining academic research facilities is enormous, and less than 2 percent of this cost is offset from licensing fees because of several reasons:

f f f

The lack of an efficient market for licensing intellectual property or for generating revenues by securitizing the organization’s intellectual property. Inefficiencies in the selection of patents to pursue by the patent committee. Academic researchers rarely think in commercial terms.

This last point was illustrated on a recent tour of one of the nation’s premier research labs. In the lab was a sample of the second hardest substance known to man (after diamond) but with two major differences—it can be extruded and molded. The commercial potential is enormous but went unrealized because it had been licensed very casually to one of the first companies that had

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expressed interest—no competitive bidding or attempt to maximize the value to be derived from it. In general, academic institutions are interested in establishing joint ventures with industry to develop products and in doing contract research. They also want to be the recipient of any intellectual property that industry has decided it cannot use but wants to at least derive the tax benefit of donating it to a not-for-profit organization such as a university. There is much to be gained from an efficient collaboration between industry and academia. As academic institutions come under increasing pressure to reduce their budgets, they are looking to see if they can derive more revenues from the massive amount of intellectual property that they are creating. Columbia University in New York City is one institution leading the way. During 2002, Columbia managed to generate $200 million through its commercial licensing agreements.1 Columbia’s high revenues are no accident. A combination of commerce-friendly legislation, a progressive academic leadership, and a tradition of partnerships with business has put Columbia at the forefront. In 1980, the Bayh Dole Act was passed to facilitate the patenting and licensing of research at universities. The act gave universities ownership of any patents developed using federal funds. This was an important achievement because the majority of U.S. university research is government funded—approximately $20 billion of the total $32 billion was spent by universities on research and development in 2002.2 The U.S. government, however, retained certain rights to the intellectual property. The government has the right to take away a university’s patent rights and end any licensing for intellectual property that is not being fully commercialized. The consequence of this act has been a wave of tech transfer that has become a cornerstone of American commerce. Just consider the different companies that have been started as

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spin-offs from university R&D activities. A burgeoning such example is the Vandalia Project, a class project that could turn into a business venture and a breakthrough in technology as Marshall University students and faculty develop a new method of copying DNA. The new technology would enable us to amplify DNA eight times faster, or more efficiently, than machines do now. A spokesman said, “We’re taking a small piece of DNA and making millions of copies of that segment. We’re using the device to make copies of a product that could be sold.” To realize this project, Marshall received $18,586 from the National Collegiate Inventors & Innovators Alliance for the prototyping and development of a new DNA amplification method. (The National Collegiate Inventors & Innovators Alliance is a review committee that evaluates each proposal and chooses certain ones for funding. The alliance will award more than $2 million to colleges and universities by 2004.) How did Marshall do this? The current policy at Marshall says that the profits from an invention would be divided among the founders or inventors, the school or department, and the university as a whole. Although this was an ingenious way of solving the problem, an effective intangible asset-tracking system would facilitate keeping a record so everybody could agree on how to divide the profits. The previous example shows us that collaboration between business and academia is profitable for business, academia, and the communities in which the academic institutions lie. Statistics released by the Association of University Technology Manager’s Licensing Survey 2001 show how much business partnerships have contributed to the local and national economies. During 2001, 494 companies based on academic discoveries were formed. Of these, 84 percent were formed in the state of the institution that spawned the invention. In 1999, academic tech transfer alone contributed $40 billion to the national economy.3

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Other countries and academic institutions are following in the footsteps of the United States. The United Kingdom is an obvious example with its burgeoning tech transfer collaborations between Edinburgh and Stanford Universities and the £108.5 million in government funding that fueled this collaboration. Experts agree, however, that the whole of Europe is lagging behind in facilitating academic start-up companies and providing capital from government and venture capital firms. According to a PriceWaterhouseCooper report, Europe’s capital investment was around five times lower than that of America in 2002. Europe invested $4.24 billion and America $22.05 billion.4 A reason for Europe’s cautious approach may be the ethics associated with communication of intellectual property. A good example of a nation that is trying to balance the search for profits with the concern over ethical dilemmas is Sweden. The Swedish Council of Science (Vetenskapsrådet) is in charge of giving out government grants to Swedish R&D institutions. Sweden is at the forefront of stem cell research, particularly the University Karolinska Institutet. The Council of Science is amending some of the rules concerning government grants to safeguard against the unwanted effect of commercialization. A researcher must declare all commercial interest groups that are partially funding or otherwise inf luencing this research. The Council must know if the results of the research have to be given to the commercial business partner before they are made public. The Council demands a full disclosure of all research, especially those results that show that the innovation may not have the desired qualities or effects. All this is done to ensure that technology that can be harmful to an end consumer is carefully monitored and prevented from getting to the market. Sweden is thriving in terms of tech transfer despite this tough legislation. Pharmacia Upjohn has been funding the Karolinska Institute with $5 million a year. The agreement between the company

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and the Institute is such that Pharmacia has 60 days to apply for a patent for any technology they think is useful. If for some reason Pharmacia fails to file, the Institute retains the full rights to the invention. A result was Biovitrum, a spin-off company that specializes in metabolic diseases such as obesity and diabetes. The company has been a huge success as this quote shows: PRNewswire-FirstCall—Amgen Inc. (Nasdaq: AMGN— News) and Biovitrum AB today announced that they have signed a multifaceted agreement under which Amgen receives exclusive rights to develop and commercialize Biovitrum’s small molecule 11betaHSD1 enzyme inhibitors for the treatment of metabolic diseases and certain other medical disorders. Furthermore Amgen will make an upfront payment of $86.5 million and will fund and conduct all further development. Once a product has been approved, Biovitrum will also receive tiered royalties on future sales of all products arising from the agreement. In addition, Amgen will fund a threeyear research program conducted by Biovitrum to develop additional 11betaHSD1 enzyme inhibitor compounds.5

Reports In addition to the reports mentioned in Chapter 12, some reports deal with the specific needs of the academic environment. There are special reports for the patent committee so that they can see real information about projects that need to have patents applied for. This report includes information on the previous success of innovations from the same author or team, the success of similar innovations, and how well it could support some of the other intellectual property that the institution owns. Also of interest is information on the grant under which the work is being done and when it was announced publicly. Much of this information

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can be used to generate the invention disclosure form—a piece of bureaucracy that academics hate to complete, especially when most of the information already exists in various parts of the enterprise.

Academic Action Plan

f f f f f

Introduce lab notebook Incent its use Incent collaboration Incent external licensing Seek free intellectual property

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14 Creative Innovation Imperative An idea can turn to dust or magic, depending on the talent that rubs against it. William Bernbach (1911–1982), advertising executive

This imperative covers a vast gamut of endeavor, both individual and corporate. The individual is difficult to quantify because it covers every aspect of human endeavor. The tips for improving our creative output are invaluable for all, and we have to realize how essential our ideas are to whom we become and whether we live a life of quiet, dull mediocrity or strive to realize our full potential. Much of that potential is tied up in our ideas. This potential may be a talent we have not developed or an idea that we have had and never acted on. As an early mentor said, “Once begun, half done already.” Those first initial steps always make the issue become much clearer. Maybe we find that we do not have the talent we thought we had, or maybe the idea that we thought was so great has already been thought of; but we will never know unless we start. 198

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On the corporate side, it is much easier to determine the value of the creative assets of society. The major creative industries are:

f f f f f f

Film Art Publishing Music Television Advertising

Creativity is an essential part of all industries, and we dealt with that in detail in Chapter 12. In some industries, however, creativity is not always considered a positive value—for example, accounting and banking. In this chapter, we focus on industries in which a significant portion of the value comes from artistic creativity. We also examine the portion of the revenues that go to the creator as opposed to the multiple intermediaries along the road. Some of the intellectual property issues facing the creative industries have been highlighted by Stanford University professor Lawrence Lessing in his book The Future of Ideas. 1 Others such as Siva Vaidhyanathan have argued that copyright law has evolved into a labyrinth of ineffective laws.2

Film Industry The movie industry, with its huge budgets, is not immune to issues related to who owns the rights. Two recent examples are the controversies over the true authorship of two major movies— Amistad and Beloved. The simple tool provided on the Ideation web site would have easily avoided both of these problems. A screenwriter, before

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showing his or her screenplay to any producer, should take the simple step of registering the screenplay on the Ideation web site. The screenwriter can then show it widely to the agents, studios, producers, directors, and actors that make up the industry, secure in the knowledge that none of these people would steal an idea if it could be clearly established that they had indeed stolen it. Intellectual property is playing an ever-increasing role in animated movies because the considerable work involved in building sophisticated three-dimensional objects can be reused continually. These models are, in turn, used for building larger, more complex objects or variations of the original object. The reuse of these objects significantly reduces the overall production budget; therefore, you will see sequels for any major production that includes three-dimensional animation such as Jurassic Park, Toy Story, and Shrek. Screenwriters typically get a f lat fee and, if they have a good agent, points. However, these points typically do not represent more than 10 percent of profits.

Art Industry The art world is almost entirely intellectual property but with no infrastructure for managing it. It is a huge industry of approximately $50 billion per annum but is highly fragmented with the two major auction houses and three gallery chains between them still representing less than 5 percent of the industry. One way to understand this secretive and elitist industry is to think of what the financial services industry would be like if there were no Securities and Exchange Commission to keep it under control. One of the reasons for the secrecy is that the intermediaries (galleries, dealers, and experts) are not adding much value to the value chain. In a study we conducted in preparation for creating an exchange

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for the art world (resulting in the broad patent referred to earlier in Chapter 9), panels consisting of experts and lay people were asked to rate various works by very talented but still unknown artists. The study compared the correlations of the ratings between the two groups. Contrary to most people’s expectations, the lay group had a higher correlation for how they ranked each artist than did the expert group. Once the benefit of industry knowledge was taken away (unknown artists), the experts were no longer experts. They had simply relied on their knowledge of which artists the industry had decided was a “name.” The lay group, however, was voting their conscience—they gave higher ratings to the images that they found to be aesthetically pleasing or evoked a certain emotional response. The informal conclusion was that, once again, the creators of the intellectual property in the art industry are poorly served by the industry. Only a few artists are selected, often for reasons unrelated to their talent, such as their public relations potential and likelihood of meeting a premature death (raises values), which are shamelessly promoted to the art-buying public, who are generally told what they should like by people who are no more qualified than they are. The result is that the gallery system exerts a stranglehold on the industry that lets only a few new artists through, often at greatly inf lated prices, while the vast majority of artists continue to starve in their garrets. On the buy side, less than 1 percent of the population buy original art. However, in a survey we conducted, more than 30 percent of the general public said they would like to buy original art but felt they did not understand art or could not afford it, and many cited bad experiences they had had on visiting galleries where they were demeaned (“I am not sure I could allow this work to go to anyone who did not already have a significant collection”) or made to feel ignorant when they were not familiar with the

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particular artist who was being tauted as part of the gallery’s “stable.” Even the term stable tends to imply that the attitude toward their artists is not one of reverence. For their efforts, visual artists typically get approximately 20 percent of the sales price.

Publishing Industry Publishing is one of the last reserves for gentlemanly behavior and it is an industry where agreements can still be sealed with a handshake (although invariably followed with a lengthy contract). Here’s a cautionary tale, however, derived from personal experience. While employed by a consulting firm, I (D.G.) was asked by a corporate communications staffer to write a book. I did so and wrote about 85 percent of the book myself. Unbeknownst to me, however, the staffer had told the publisher that he should be the first-named author. The book went through most of the production cycle with the staffer being the primary contact person. By the time I saw the cover with him named as the primary author, it was too late to change it. In addition, I found out that the company was to get all of the royalties, so I did not receive one cent for months of extracurricular effort. His relationship with the company was concluded shortly thereafter, but this experience represented a f lagrant theft of intellectual property and an example to all of us to make sure we get both the recognition and the financial rewards that we deserve. Typically, an author earns approximately 10 percent royalty on a book although someone with a little more negotiating leverage (such as Hillary Clinton) might be able to negotiate an advance that represents more than the publisher ever can earn back.

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Music Industry The music industry is another industry in which the artist is, in general, poorly served. The artist’s contractual percentage usually does not look too bad at about 30 percent of CD sales, but musicians are invariably surprised when they learn the meaning of net royalty. Everything is deducted from their royalties—the limos, publicity, parties, after parties—all the apparent generosity showered on them by industry executives is being paid for by the musicians. This problem is compounded by the proclivity of inefficient or often downright dishonest managers in the industry, which explains the frequency of bankruptcy for major stars once they fall from favor with either their audiences, or just as often, their label executives. M. C. Hammer, Johnny Cash, Toni Braxton, all of TLC, and Mary J. Blige are examples. We recently received a call from one of the major labels asking for help with the issue of peer-to-peer networks through which music fans are downloading their favorite music. The job description included the phrase “peer-to-peer warfare.” They feel the very existence of their industry is at risk, and one industry insider told me he projects that two of the five major labels will be gone by the end of 2004. One issue is that they have treated poorly not only their artists but also their consumers, as illustrated by the recent finding that several of the major labels had been fixing prices on CDs. In addition, they continued to spend as always but forgot that their success for the last few years had been driven, not by any particular richness of new products, but by the conversion of vinyl to CDs.

Television Industry The entire television industry consists of extensive intellectual property that is continually being used, reused, sold, and resold.

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The difficulty is that frequently the intellectual property consists of video that translates to very large data files. NBC news bit the bullet and built a very sophisticated digital asset management system that allows them to retrieve clips from any previous shows in time for the next news broadcast.

Advertising Industry The advertising industry depends heavily on its creativity and is one of the few industries where you will usually find the title “creative director.” This industry needs to manage its creative output so that staff collaborate better. In addition, because many of the agencies have merged into conglomerates consisting of many individual agencies, little has been achieved in capitalizing on the intellectual property of the other agencies.

Creative Action Plan

f f f

Establish a central repository for creative output and track contributions so that components that end up in winning campaigns can be rewarded. More effectively manage the intellectual property of your clients. They are entrusting you with their most valuable asset—their brand. Don’t assume all “creative directors” are creative. Establish metrics—you may be surprised with the results. Just because they have a beard and smoke a pipe doesn’t mean they are any more creative than you.

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15 The Global Innovation Imperative The world hates change, yet it is the only thing that has brought progress. Charles F. Kettering

Pollution is nothing but the resources we are not harvesting. We allow them to disperse because we ’ve been ignorant of their value. Buckminster Fuller

We have discussed how we can be more innovative as individuals and corporations. This chapter discusses the need for new ideas at the global level. Modern economies grow as a result of increased investment in research and development as well as intellectual property. An even more dramatic development took place in Brazil with spectacular growth in foreign direct investment (FDI) following the 205

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introduction of a new industrial property law in 1996 (U.S. $4.4 billion in 1995 to U.S. $32.8 billion in 2000). The tendency of firms to patent their inventions has similarly increased worldwide and is particularly noticeable in Japan, the United States, and Europe. In Japan, it took 95 years to grant the first million patents, whereas it took only 15 years to grant the next million. Applications for patents are also increasing in developing countries (see Table 15.1). For many years, economists have tried to provide an explanation as to why some economies grow fast while others do not— why some countries are rich and others are not. It is generally agreed that knowledge and innovation have played an important role in recent economic growth. The renowned economist Paul Romer suggests that the accumulation of knowledge is the driving force behind economic growth. For countries to promote growth, his theory goes, their economic policies should encourage investment in new research and development (R&D) and subsidize programs that develop human capital.1 This idea can be seen in the economic growth achieved by some countries in the 1990s. Rapid knowledge creation, including the emergence of new technologies, resulted in policy changes Table 15.1

Patent Applications in Selected Emerging Economies

Country

Increase in Patent Applications 1994 to 2000 (%)

China Colombia Iran Republic of Korea Thailand Uruguay

45 300 50 250 200 150

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concerning intellectual property and the adoption of new knowledge asset management practices. One of the consequences of the emerging importance of intellectual property and the new pattern of global trade that started at the beginning of the 1990s was the forging of a deliberate connection between the two. Some developed countries began to use trade measures to curb piracy of intellectual property abroad. Among other things, this led to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), one of the World Trade Organization (WTO) agreements resulting from the multilateral trade negotiations under the Uruguay Round. In the 1990s, an increasing number of policymakers in emerging economic powers recognized the important role of the intellectual property system in encouraging private investment in R&D, especially in the industrial and scientific fields. Many studies suggest a healthy intellectual property system is a key element in encouraging foreign direct investment. We are already seeing intellectual property becoming the major factor in globalization. Massive developing countries such as India and China are creating shudders throughout the Western economy as they seek to export their most valuable and plentiful commodity—the intellectual property within the minds of their vast populations. This is happening in several areas—through the export of software and software development services and through the sophisticated call centers. The former was predicted by Ed Yourdan in his book The Rise and Fall of the American Programmer published in 1992 and now finally coming true.2 The second is possibly because of the low international telephone and data communication costs. Indian call center operators offering technical support sit with screens that provide American sports results and U.S. weather so they can intersperse their advice with small talk as though they were in the United States. China has ingested a huge gulp of intellectual

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property from the West in the form of complete suites of software for tens of millions of personal computers and are now starting to ramp up their adherence to international intellectual property laws as they prepare for massive export of software and software services. Israel has long had a sophisticated high-tech industry that caters to a global market. Russia was supposed to benefit from a SALT II provision that, in return for decommissioning its weapons of mass destruction, we would help them to commercialize for peaceful uses the intellectual property that resulted from these programs. Little has been done under this provision because of the difficulties in matching intellectual property with buyers, as described in this book. The initiative we describe in the next chapter would give us an infrastructure that would enable us to finally comply with our obligation. In addition, a group within the American defense community is working to find better ways to exploit intellectual property derived from the defense sector for commercial application. We believe in this obligation, the importance of intellectual property as a major driver of global development, to such an extent that we have offered to make the resources of the Ideation web site and its associated innovation capture and management tools available at no charge to any civic or national leader who genuinely wants to improve innovation within his or her jurisdiction and tap into the vast intellectual wealth of the people. You can be the first part of this program. As mentioned in the chapter on individual innovation, readers of this book have the opportunity to register their best ideas. One area on the Ideation web site allows readers to enter their ideas directed to any civic leader. We will ensure that world leaders have free access to this area of the site, called Ideation’s Global Solutions, and will be able to use the tools to find any suggestions that may solve current

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problems or be specifically addressed to them. Some of these ideas (with the contributor’s permission) will be part of a subsequent book dealing with applying innovation to global problems. The authors are involved in a joint venture with Harvard University that will deploy a system similar to the one provided to readers of this book throughout China. Innovation Trust is establishing the Harvard Veritas of China Fund that will invest in new opportunities deriving from intellectual property in China. This ultimately will provide a better model of international aid than the large government grants that often end up being wasted with corrupt government officials. Another model for international aid that works well is the microgrant program pioneered by Mohammed Yunus who modestly points out that if a fraction of the funds dispensed through the World Bank were dispensed as microgrants the results would be many times more effective. An excellent reference on the topic of aid for the developing world is The Lords of Poverty by Graham Hancock.3 The author was involved in a major project intended to help alleviate global poverty in conjunction with the United Nations and many celebrities. The resulting simultaneous concert held at Wembley Stadium, Giants Stadium, and the U.N. General Assembly in Geneva was a success but the program linking all the needs of not-for-profits with the corporate grant programs of corporations never came to fruition in the way it could have.

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A VISION FOR THE FUTURE

Intellectual property is the natural resource of the future. T. Buchmann (1946–

), f inancier

We previously stated that one of the largest drags on the global economy is our reluctance to share our ideas both as individuals and as members of corporate or even academic organizations. This means, more broadly, that the biggest single economic challenge is the difficulty of bringing together two fundamental resources— ideas and money. Ideas are not fungible; they are not liquid. We have discussed several reasons that ideas are so difficult to match with money:

f f f

Secrecy: We are afraid others will steal our ideas, so we are reluctant to discuss them in any forum that is not secure because of financial reward and recognition issues. Uniqueness: The unique nature of ideas means there is little commonality; thus, they cannot be traded as a commodity such as coal or pork bellies. Complexity: Many ideas are difficult to describe and require diagrams, tables, and extensive text. 211

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Contextual importance: Each idea has a host of metadata associated with it, such as the inventor, time of invention, location of invention, and context of the invention. Critical mass: Any attempts at “exchanges” have never been able to build sufficient critical mass that people searching will typically find something relevant. Liquidity: There is often insufficient demand for any one idea at any one time to be able to produce a liquid market.

The last concern can be addressed in the same way it is addressed in financial markets—by creating market makers. In fact, the entire equity markets can be recreated—not at the level of addressing corporations but at the level of addressing intellectual property. In the equity markets when there is a surplus of buyers or sellers for particular stocks, the market makers for those stocks step in and take a speculative position for themselves. For example, if there is a surplus of sellers, they will buy the stock and hold it until there is more of a buyers’ market, which provides the market with much more liquidity—particularly for a thinly traded stock. It also has the effect of providing some stability for a particularly volatile stock. These market makers have a specialized knowledge of the stock in question and typically have an analyst for the stock on staff. The same mechanism can be put in place for an intellectual property marketplace. We have seen a few early experiments with products such as Bowie Bonds created by David Pullman in 1997. These bonds securitized the future revenues that David Bowie expected from his “catalog” of songs. However, we are contemplating a much broader marketplace through which almost any intellectual property can become securitized and investors can participate in an entire portfolio of intellectual property-based products. Few such exchanges exist at this point. The few that do are typically just a bulletin board where sellers post their intellectual property hoping for a buyer. They have had virtually no transactions because they have not included a market maker. One early pioneer in this

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area is a company both authors are associated with, Innovation Trust Company (ITC), which provides a useful example of how such an exchange would exist and operate (Figure D.1).

Innovation Trust A trust company is a special kind of bank that holds assets in trust on behalf of their clients, often, helping to manage those assets. Trusts are regulated by federal or state authorities to ensure that the assets they are holding and managing are appropriately protected. Despite an occasional scandal, the system works extremely well and the vast proportion of the trillions of dollars held are protected from unexpected risks. However, these services have been primarily for financial assets. Until now, no such service existed for intangible assets. Changing that, Innovation Trust Company has over $8 billion in assets under administration and close to $1 billion under active

ITC Corporate Edition

ITC Academic Edition

ITC EXCHANGE

MARKET MAKERS

IP USERS

Register

IP Portfolios

New Products

Publish

IP Mutual Funds IP Sector Funds

Product Extension

Collaterize ITC Government Edition

ITC Individual Edition

IP Value Funds Sell

Strategic Repositioning

IP Futures License

IP Income Funds

Securitize

IP Growth Funds

Figure D.1

An infrastructure for ideas.

Defensive IP

Offensive IP

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management. It is regulated by the state banking commissioner and has offices in New York, Connecticut, and Vermont. Because the majority of value lies in intangible assets, there needed to be similar services available to provide custody and management services for these assets. It does this by:

f f f f

Sponsoring the Ideation web site that allows someone to register and protect any idea he or she feels is valuable. Working with academic institutions to establish funds that focus on developing their intellectual property. Establishing an intellectual property fund that allows small investors to invest in intellectual property in the same way that large companies do. Allowing large companies to securitize their intellectual property portfolios and derive additional income streams and investment.

Initially, the value of the intangible assets they are managing will only be a fraction of the financial assets but, as people realize how important it is to protect and actively manage their intangible assets, this proportion will change significantly. Such a marketplace needs:

f f f f f f f f

Tools to help clients manage their intellectual property Critical mass International scope An international currency for trading in intellectual property Tax-neutral jurisdiction Market makers Distribution for the intellectual property-based instruments Intellectual property analysts equivalent to stock analysts ( but less compromised!)

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16 The Providers, Merchants, and Consumers of Innovation

Let us not paralyze our capacity for good by brooding over man’s capacity for evil. David Sarnoff

The sectors that are creating innovation in society can be fairly easily classified into five main groups: 1. 2. 3. 4. 5.

Corporate Academic Government Creative Individual 215

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We discuss each of these sources of innovation in some detail throughout the book and summarize them here.

Corporate Corporations generate innovation formally and informally. The formal generation of innovation comes through a structured R&D group that is researching areas targeted by the company. Informal innovation comes from the ideas that are generated throughout the business whether by senior executives or by someone on the factory f loor who can see a better way of doing something. Their ability to continually generate new ideas determines their ability to compete and survive in the marketplace. Those that do not innovate (or buy into innovation) will fail. Because much of their innovation turns out to be of no use to their core business, potentially corporations could be a major provider of intellectual property.

Academic The universities have traditionally been the creators of ideas since the middle ages and that has not changed. What has changed has been increasing financial pressure to generate revenues from these ideas. This in turn makes them potential powerhouses of intellectual property that can be used as a resource once we are able to overcome the traditional academic reluctance to deal with the commercial world. Current fiscal pressure is pushing them in that direction but it still should be possible to protect the cherished academic traditions of freedom to pursue areas of interest, to exchange ideas with colleagues and free speech.

Government It is sad that so little of the massive expenditure of tax dollars on military and intelligence related research ever finds its way back to commercial sectors. It is possible to license much of this

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technology for commercial applications without the military losing its competitive edge. When this is done, it is generally through a Cooperative Research and Development Agreement (CRADA) instituted in the Federal Technology Transfer Act of 1986.1

Creative The creative industries, also known as the copyright or cultural industries, have always made significant contributions to the economy (U.S. $0.8 trillion for 2001 in the United States)2 in addition to our quality of lives. However it is an industry in disarray as it grapples with the significance of Internet-based global communication and the ease of copying of digital recordings. A new infrastructure will emerge that will provide artists with the ability to electronically publish and distribute their work according to whatever pricing algorithm they choose and then buy in promotion as needed as a service.

Individuals Individuals have always been the true source of any innovation and a surprisingly large proportion innovate outside of the formal structure of any organization. A system needs to exist that can tap into this ongoing font of creativity. Additional issues arise even for those individuals who work within an organization because of the issue addressed earlier in Chapter 6 with many jurisdictions considering anything invented outside of work hours to be the property of the individual. More organizations are starting to incent their innovators by allowing them to share in the revenues from their innovation. This makes the prior concern of when the invention was conceived less critical. There is an abundant supply of intellectual property from each of these sources. The challenge is how to provide liquidity and critical mass to the market.

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The Merchants of Innovation Be courageous! Have faith! Go forward! Thomas A. Edison

Critical Mass Organizations need the tools to manage their own intellectual property but the system can be established in such a way that there is no reason for them not to make their intellectual property available for a broader market. This is achieved by allowing many levels of security for both the intellectual property itself and an “envelope” that describes the innovation in a nonproprietary manner (i.e., does not reveal the secret). Depending on the situation, the company can set these “trust” controls as they wish. For instance, if it is an established patent they can be completely open about the intellectual property and its description but if it is still a trade secret they can set a very high trust requirement for the document and a medium level security for the envelope. If they do not wish to disclose to potential competitors the direction of their interest, the identity of the seller (and buyer to if wished) can be cloaked. In this way, a large critical mass can be quickly assembled as listing fees will be nominal.

International Scope Ideas know no boundaries. By their very nature, an idea can instantly ripple throughout the world and find many different applications in each part. An intellectual property market needs to be global. But any global market needs some kind of terrestrial base. In this example, Switzerland has been chosen because it is the host of the World Intellectual Property Organization (WIPO) and has a long tradition of being an international host as well as having tax laws that treat revenues from intellectual property very favorably. It also has a very developed and trusted

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banking infrastructure and, unlike some of its island counterparts, strong terrestrial communication liners. An International Currency for Trading in Intellectual Property This problem has been solved in an ingenious way by creating a company with stock that can be used as the currency. This is only required for the last phase of the project when individual intellectual property will be able to be securitized. Tax Neutral Jurisdiction It is always advisable to have any major exchange in a tax neutral or low tax jurisdiction. Then each participant can continue to deal with the tax authorities of their own jurisdiction avoiding the additional complications due to the favorable treatment of intellectual property royalty revenue streams if the intellectual property is held by the exchange as well as the numerous tax treaties that a jurisdiction such as Switzerland has. This is done to ensure that there is no double taxation.

Market Makers Market makers are essential to establish liquidity for the markets. ITC, as well as establishing their own market maker (Intellectual Property Portfolios), is making the tools available to other companies so that they can establish other market makers.

Distribution for the Intellectual Property-Based Instruments As these intellectual property-based products are developed, they need to be distributed. The same channels can be used as are used

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for traditional equity-based products. One such fund is already being offered to 401k plans and private bankers by a bank in Connecticut.

Intellectual Property Analysts Intellectual property analysts are found in relatively obscure organizations such as the Licensing Executives Association. These analysts specialize in working with companies to identify value and license intellectual property for their clients. We already discussed the principle sources for intellectual property.

The Consumers of Innovation The consumers of innovation are twofold: corporate and individual. Corporations seek intellectual property to:

f f f f f f

Build a new product Enhance an existing product To increase their revenues through acquiring intellectual property that will generate license fees To position themselves defensively by acquiring intellectual property that will further protect their existing patents To position offensively by acquiring intellectual property that limits their competition To reposition strategically by acquiring intellectual property that will help move the company to a different strategic focus

Corporations are recognizing that intellectual property is essential to their business and stepping up to actively manage it. As they do so, they will be much more active in shedding intellectual

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property that is noncore and by licensing their core intellectual property. In addition, they are actively seeking to acquire strategically important intellectual property. They will also be using their intellectual property as the basis for new financial instruments, thus allowing them to use intellectual property as a way to manage their financial picture. In the future, as you move ahead with a project, you will quickly be able to determine if solutions to problems involve an existing patent or a trade secret. You can then make a decision as to whether you want to license (or microlicense) the solution or develop your own solution. Access to external R&D will be much simpler as will be the amortization of internal R&D costs through licensing. Companies will be able to change their strategic direction much more quickly by simply changing the composition of their R&D portfolios. The individual is the ultimate consumer of innovation. Technology has brought us convenience, increased productivity, and provided entertainment even in such low-tech areas as drinking a can of soda (97 percent intangibles in the form of brand) or taking a f light (planes value consist of approximately 87 percent intangibles). As the markets for innovation become more fluid, the consumer will be the ultimate beneficiary as our choices expand and the time for new products to get to market shrinks. The surge of innovative new products experienced at the turn of the century was accelerated through the introduction of the patent system. If we can improve that system or find a more efficient supplemental system, there is no limit to what we can achieve. In fact, with such an infrastructure in place, we can envisage a situation in which organizational vehicles come into being other than the company, partnership, and those we are familiar with. It could be that an individual or group of individuals can

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have an account on a global intellectual capital network in which each account is both a consumer and provider of innovation. These accounts will transcend corporate and national boundaries and will be effectively self-regulating adopting a Global Commercial Code (GCC). The Uniform Commercial Code (UCC) dates from Napoleon and visionary though he was he could not have anticipated the Internet and its profound impact on how we do business. A replacement is needed and the GCC could be that replacement. It would be fair, pragmatic, evolutionary, and object-oriented in that additional rules can be built on existing rules thus minimizing the total rules base. Additional rules can be added as needed through a process that works well with the evolution of the Internet where suggestions for improvements are posted on the Internet as an Request for Comment (RFC). The comments are then reviewed until a consensus is developed and adopted by the Internet Society and its Internet Engineering Task Force (IETF). This has proved to be a model for effective administration and governance. This procedure would provide the basic infrastructure for developing a community of trust where people are able to share their ideas and collaborate secure in the knowledge that their ideas will not be stolen. If infringement occurs, there is a quick, effective series of remedies. Each participant in the community would have a level of trust that is based on signature of a common Non Disclosure Agreement that would bind everyone in the community. The trust level can be increased either through their historical record (as on eBay) or through the posting of a bond. The trust level would be visible to any other participant in the community they are working with. The problem with any contractually based community is that they can always be appealed to the body of law that prevails. For instance, if the community rules refer to binding arbitration in some jurisdictions, this can be appealed under the local law. This provides a further

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opportunity for an agile nation (as discussed in Chapter 8) to adopt a body of law that would support such an electronic community so that even if a member appeals to the terrestrial jurisdiction, they would find that law would fully support the rules of the community. The trade secret infrastructure discussed in Chapter 6 could be an initial subset of such a community. In the arts arena, such a community could provide the opportunity for artists to self-publish with access rights set as they wish and then the services of promotion and distribution would simply be something they buy (possibly on a royalty basis) thus reversing their normal relationship with a record label or publisher. In other words, the artist pays the intermediary the royalty rather than the intermediary paying the artist a royalty. This mechanism would also provide developing countries with an excellent marketplace in which to offer and yet protect their ideas. It also provides companies with a way to outsource much of their research by posting bounties for problems (or prior art) for anyone who can come up with an answer. Such a Global Innovation Exchange would also host the various market makers that we have discussed that increase the liquidity of this global marketplace for ideas. The impact on the global economy would be huge and would go a long way toward the ultimate ideal of the frictionless economy. How far away is this goal of an efficient marketplace for ideas—it could be months, it could be decades—it is up to you!

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Notes Chapter 1 1. PricewaterhouseCoopers, “Intellectual Assets Account for 78% of Total Value,” Business Wire Online (April, 2000), p. 1. 2. Sloan Digital Sky Survey (SDSS) a study with 200 astronomers from 13 institutions (2003). 3. Baruch Lev, Intangibles (Washington, DC: Brooks Institution Press, 2001). Chapter 2 1. Ben Johnston (ed.), My Inventions: An Autobiography of Nikola Tesla (Hart Brothers Publishing, 1982). 2. Leland Anderson—quoted in “Tesla’s Legacy Continues to Electrify Engineers” by Larry Lange, EE Times Online ( July 9, 1998). 3. Aptitudes Research Project. 4. Robert Sternberg, Successful Intelligence: How Practical and Creative Intelligence Determine Success in Life (New York: Plume, 1997). 5. Thomas Stanley, The Millionaire Mind (Kansas City, MO: Andrews McMeel Publishing, 2000). 6. Simon Baron-Cohen, Helen Tager Flusberg, and Donald J. Cohen (eds.), Understanding Other Minds: Perspectives 225

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from Developmental Cognitive Neuroscience, 2nd ed. (New York: Oxford University Press, 2000). 7. Aldous Huxley, The Doors of Perception (Great Britain: Chatto & Windus Ltd., 1954); R. D. Laing, The Bird of Paradise (London: Penguin Books Ltd., 1990); R. D. Laing, The Divided Self (London: Penguin Books Ltd., 1990); R. D. Laing, The Gilded Cage; and Satz, The Myth of Madness. 8. Lee De Forest, inventor of the triode electron tube, to National Association of Broadcasters, as recalled on his death ( July 7, 1961). 9. S. Coren, “Differences in Divergent Thinking as a Function of Handedness and Sex,” American Journal of Psychology, vol. 108 (Fall 1995): 311–325. Chapter 3 1. Robert Hausman, University of Pittsburgh Learning Research and Development Center. 2. Alexander Fleming, “On the Antibacterial Action of Cultures of a Penicillium, with Special Reference to Their Use in the Isolation of B. Inf luenzae,” British Journal of Experimental Pathology, vol. 10 (1929): 26–236. 3. The URL for the SETI Institute is www.seti.org and [email protected] is http://setiathome.ssl.berkeley.edu. 4. V. A. Trapkov, A. P. Boudunova, O. A. Burova, D. A. Filimonov, and V. V. Poroikov, “Discovery of New Antiulcer Agents by Computer Aided Prediction of Biological Activity,” Problems in Medical Chemistr y, vol. 43, no. 1 (Moscow, 1997), pp. 41–57. Chapter 4 1. International Journal of Neuroscience, vol. 13 (1981): 211–217; and International Journal of Neuroscience, vol. 15 (1981): 151–157.

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2. John Fleischman, Phineas Gage: A Gruesome but True Story about Brain Science (Boston, MA: Houghton Mifflin Co., 2002). 3. H. D. Abraham, A. M. Aldridge, and P. Gogia, “The Psychopharmacology of Hallucinogens,” Neuropsychopharmacology, vol. 14 (April 1996): 285–298. 4. Alan Sillitoe, The Loneliness of the Long Distance Runner (New York: Duttany Plume, 1992). 5. J. Allison, “Respiratory Changes During the Practice of the Technique of Transcendental Meditation,” Lancet, no. 7651 (April 1970): 883; and Robert K. Wallace and Herbert Benson, “The Physiology of Meditation,” Scientific American (February 1972), pp. 84–90. 6. “Blood Flow and TM,”American Journal of Physiology, vol. 13, no. 1 (1978): R89–R92; Psychophysiology, vol. 13 (1976): 168; and The Physiologist, vol. 21 (1978): 6. 7. Visit www.bic.mni.mcgill.ca. 8. “The Effects of Transcendental Meditation on Auditory Thresholds,” in Scientific Research on Transcendental Meditation: Collected Papers, eds. David W. Orme-Johnson, Lawrence H. Domash, and John T. Farrow, vol. 1 (New York: MIU Press, 1975). 9. Catherine Rae, “Creatine and Mental Performance,” Proceedings of the Royal Society B, vol. 270 (Sydney University), p. 1529. 10. “Scientists Uncover the Key to Memory and Are Working on Developing a ‘Smart Pill.’ ” ACF Newsource quoting The Osgood File (CBS Radio Network on May 16, 2000). 11. ACF Newsource, loc.cit. 12. “Targeting the CREB Pathway for Memory Enhancers,” Nature Reviews Drug Discovery, vol. 1, no. 4 (April 2003). 13. Jerome A. Yesavage et al., “Donepezil and Flight Simulator Performance: Effects on Retention of Complex Skills,” Neurology, 59 ( July 9, 2002).

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14. For more information on this important and overlooked topic refer to Jerry Mander, Four Arguments against Television (New York: Quill Press, 1978). 15. Elizabeth Irvin Ross, How to Write W hile You Sleep (Writers Digest Books, November 1985). Chapter 5 1. Simon Singh, Fermat’s Enigma (New York: Anchor Books, 1997). 2. www.ideation.com. 3. Wayne S. Upton Jr., “Business and Financial Reporting Challenges,” New Economy, no. 219A; Financial Accounting Standards Board (April 2001), p. 141; and Financial Accounting Standards Board ( June 2001), p. 142. Chapter 6 1. www.registeringatrademark.com/trademark-services.html. 2. Patent and Trademark Depository Libraries (PTDL). (Amended September 3, 1954, 68 Stat. 1190). 3. www.uspto.gov/web/offices/tac/doc/basic/international .htm. 4. See note 2. 5. www.franchise.org/resourcectr/faq/q4.asp. 6. Samuel Hopkins awarded first patent USPTO. 7. Charles Duell, commissioner of patents, 1899. 8. Plant Patents Title 35, United States Code, Part II, Chapter 15, §§ 161–164 (Amended September 3, 1954, 68 Stat. 1190). 9. 35 USC 112 ¶ 1. 10. Conversion 37 CFR 1.53 (c)(3). 11. James Pooley, Trade Secrets (New York: Law Journal SeminarsPress, 1997–1999); and Trade Secrets: A Guide to Protecting Proprietary Business Information (New York: Amacon, 1989).

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Chapter 9 1. State Street vs. Signature case in the D.C. Circuit Federal Court of Appeals, Judge Giles S. Rich presiding CAFC961327 (Decided July 23, 1998), then (98-657 Supreme Court of the United States: 525 U.S. 1093; 119 S. Ct. 851; 142 L. Ed. 2d 704; 1999 U.S. LEXIS 493; 67 U.S.L.W. 3436: January 11, 1999, Decided). 2. Litigation between UrbanFitch and Kozmo was settled under seal in November 1999. Ironically, the two companies then dismissed a merger that failed, “On Again/Off Again Appear on Again,” Internet News ( January 6, 2000); and Jon Birger, “What Happens When Venture Capitalists Decide Your Business Is Better Than Theirs?” Investment News (Crain Communications: November 1, 1999), p. 36. Chapter 11 1. Hernando de Soto, The Mystery of Capital—Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books, 2000). Chapter 12 1. World Intellectual Property Organization Study, Intellectual Property—Power Tool for Economic Growth (2003). 2. BTG study on technology usage. 3. FASB Statement 141 and 142 (2001), available from Financial Accounting Standards Board. 4. Financial Accounting Standards Board Report (April 2000). 5. www.innocentive.com. 6. “The Blind Man and the Elephant,” a poem by nineteenth century poet John Godfrey Saxe. 7. E. F. Schumacher, Small Is Beautiful, Economics as if People Mattered (New York: Hartley & Marks, November 1999).

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Chapter 13 1. Intellectual Asset Management ( July/August 2003), p. 19. 2. See note 1, p. 20. 3. See note 1, p. 21. 4. www.pwcglobal.com—Global Private Equity 2002 report. 5. PR Newswire (September 8, 2003). Chapter 14 1. Lawrence Lessig, The Future of Ideas: The Fate of the Commons in a Connected World (New York: Vintage Books, 2002). 2. Siva Vaidhyanathan, Copyrights and Copywrongs: The Rise of Intellectual Property and How It Threatens Creativity (New York: New York University Press, 2002). Chapter 15 1. Paul Romer, “Ideas and Things,” The Economist (September 11, 1993), p. 33. 2. Ed Yourdan, The Decline and Fall of the American Programmer (Upper Saddle River, NJ: Prentice Hall, 2003). 3. Graham Hancock, The Lords of Poverty: The Power, Prestige, and Cor ruption of the International Aid Business (New York: MacMillan, 1989). Chapter 16 1. The Federal Technology Transfer Act of 1986 (P.L. 99-502). 2. Kamil Idris, Intellectual Property: A Power Tool for Growth (Geneva, Switzerland: World Intellectual Property Organization, 2003).

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Index Academic innovation, 191–197, 216 action plan, 197 budget pressures, 192, 193 joint ventures with industry, 193–196 management vs. scientists, 191–192 reports, 196–197 vision for the future, 216 Access: to data in the future, 87–88 reports, 180 security levels, 122, 218 Action plans, innovation imperative: academic, 197 corporate, 190 creative industries, 204 individual, 169 Actual value, 138 Adjusted/corrected value, 138, 139, 143 Adobe/.pdf f iles, 87–88 Advertising industry, 204 Agile nation, 223 Alienation (innovative personality prof ile), 28–29 Altbach, Ron, 23–25 Altshuller, Genrich, 35, 76–77 Alzheimer’s disease (race for cure), 72–73 Amgen Inc., 196 Anderson, Leland, 18 Anesthesia, development of, 19–20 Aptitudes Research Project (ARP), 26–27 Archimedes, 29, 42–43 ARPANET, 22 Art industry, 50, 200 –201, 217, 223. See also Creative industries Artistic innovation, 49–50, 51 Art Machine, 52 Atomic vs. compound intangibles, 138

Attention Def icit Disorder, misdiagnosed, 28 Axonyx, 73 Bar-El, Zion, 77 Barnes and Noble author campaign, 40 Baron-Cohen, Simon, 29 Bell, Alexander Graham, 78, 82–83, 128 Bernbach, William, 198 Bingham, Alph, 176–177 Biovitrum, 196 Black Scholes formula, 134 Blake, William, 30 Bounties, innovation, 176–178 Bowie, David ( Bowie Bonds), 43, 212 Brainstorming, 75 Brand, in art world (“name”), 50 Brown, Rachel Fuller, 37 Buchmann, T., 211 Bunel, Luis, 32–33 Business innovators: Altbach, 23–25 Iacocca, 21–22 Business plan, 152–153 Bylines: ref lecting support for innovation, 172 trademarking, 103 Call centers, export of, 207 Chain, Ernst Boris, 48 Chief executive off icer (CEO), 5, 184 –190 Chief f inancial off icer (CFO), 5, 184 China, 35, 206, 207–208 Christo, Javacheff, 49 Coca-Cola, trade secret, 117–118 Cognitive enhancers, 71–74

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Collaboration, 46, 130 –131 Collaboration index, 185 Collaborative Electronic Notebook Systems Association (CENSA), 85 Columbia University, 193 Common law copyright, 98 Communicating ideas, 75 Compaq/Dell, 149 Competitive advantage, preservation of, 117–118 Compound vs. atomic intangibles, 138 Computer-assisted discovery, 50 –52 Consumers/customers: marketing to, 155–158 vision of future, 220 –223 Copyright(s): common law, 98 creative industries and, 167 def ined/described, 97, 98, 100 –102 pros/cons/typical uses, 125 Corporate funding: academic research institutions, 193–196 f inding, 154 –155 Corporate innovation imperative, 170 –190 access reports, 180 action plan, 190 bounties for innovation, 176–178 chief executive off icer (CEO), 184 –190 chief f inancial off icer (CFO), 184 collaboration, 130 –131 collaboration index, 185 directory tree of personal innovation, 179 FASB and SEC, 175–176 general counsel, 179–184 individual innovators, 178 innovation index, 185 issues to be addressed, 170 –171 managing innovation, 171–175 matrix, viability/marketability, 148, 186 metrics/reports, 178–190 network of intangibles and links, 189 recognition ceremonies, 186 registering ideation, 88–90, 94 research and development ( R&D), 176–178 researchers, 179 vice president of R&D, 179 Corporations: with bylines/slogans ref lecting support for innovation, 172

as consumers of innovation, 220 –221 as providers of innovation, 216 unexploited assets, 174 Corrected value, 138, 143 Cortex Pharmaceuticals, 72–73 Cost, valuing ideas based on, 134 Countries producing disproportionate number of inventors, 35–36 Creatine, 71 Creative industries, 198–204, 217, 223 action plan, 204 advertising industry, 204 art, 50, 200 –201 f ilm, 199–200 innovation imperative, 198–204 music, 203 publishing industry, 202 television, 203–204 vision for the future, 217, 223 Creative intelligence (CQ), 25–26, 28, 64, 66 Creativity, optimizing, 63–81 assessing/take stock, 64 – 66, 80 evaluating, 79 expressing, 79–81 incubating, 74 –79, 80 brainstorming, 75 communicating, 75 multiple approaches, 79 prior art, 77 scanning multiple sources, 74 –75 sensory deprivation, 78 thesis/antithesis/synthesis, 77–78 TRIZ, 75–77 visualizing, 75 writer’s block, 78–79 innovation factor radar chart, 66 preparing, 66–74, 80 cognitive enhancers, 71–74 diet, 70 –71 mental exercise, 67– 68 physical exercise, 67 reading, 66– 67 rest, 68–70 watching television, 74 steps/f low chart, 64, 80 Curie, Madame, 37 Customers. See Consumers/customers DARPA ( Defense Advanced Research Projects Agency), 22–23 Darwin, Charles, 43, 45 Da Vinci, Leonardo, 12–15, 38, 43, 67

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Index Davy, Humphrey, 19 Death (stage in life cycle of ideas), 159–161 De Forest, Lee, 31 Delaware Effect, 136–137 Dell/Compaq, 149 Derived value, 139 Design patent, 109 Developing (stage in life cycle of ideas), 128–132 collaboration, 130 –131 facilitating system, 129–130 f low chart, 132 versioning, 131–132 Developing countries, 167, 206, 223 Dial Corporation, 178 Diet, and creativity, 70 –71 Digital f ingerprinting technology, 86–87 Dilettante, 74 –75 Divergent vs. convergent thinking, 25, 26, 28, 64 DNA amplif ication method, 194 Domain registration, 124 –127 Donating innovation, 150 Drucker, Peter, 170 Drugs: computer-assisted discovery, 51–52 to enhance creativity, 71–74 Duell, Charles, 107 eBay litigation, 150 Edison, Thomas A. alienation, 29 immortality index, 43 observations on: ethics, 36 failure/trials, 34, 131 idea development/improvement, 45, 128, 159, 218 inventing/thinking, 62, 63, 68 value of ideas, 32, 133 school problems, 30 –31 Tesla and, 17–18 Eff icient marketplace for ideas. See Marketplace for intellectualproperty-based instruments Einstein, Albert: Asperger’s syndrome, 29 on experiment conf irming Theory of General Relativity, 33 immortality index, 43 left-handed, 38 on repeated failures prior to success, 34

233

school, problems in, 31 solitude/alienation, 28, 29 Tesla and, 18 Elaboration, divergent thinking and, 26 Electronic lab notebooks ( ELNs). See Laboratory notebooks, electronic ( ELNs) Eli Lilly, 176–177 Elion, Gertrude Belle, 37 Employee turnover, 120, 181–184 Envelope, 122, 156, 218 Equity markets. See Marketplace for intellectual-property-based instruments Estimated value, 138, 140 Ethics (innovative personality prof ile), 36–37 Evaluating (optimizing creativity), 79. See also Valuing (stage in life cycle of ideas) Evolutionary ideas, 45, 51 Export of development/services, 207–208 Expressing (optimizing creativity), 79–81 False positives, 62 Family, funding from, 152 Farago advertising agency, 40 Farnsworth, Philo T., 67 Federal vs. state registrations, 103 Fermat’s last theorem, 84 Fields, Craig, 22–23 Film industry, 199–200 Financial Accounting Standards Board ( FASB), 88–89, 134 –135, 175–176 Financial assets, 173 Financial value, 138, 143, 146. See also Valuing (stage in life cycle of ideas) First-to-invent vs. f irst-to-f ile, 84, 97 Fleming, Alexander, 47–48 Flexibility, divergent thinking and, 26 Florey, Howard, 48 Fluency, divergent thinking and, 26 Foreign countries. See International issues Franklin, Benjamin, 31, 42, 43 Freedom of Information Act, 120 –121 Friends, funding from, 152 Fuller, Buckminster, 37, 56, 147, 163, 205 Funding, 150 –155 corporate, 154 –155 friends/family, 152 future methods, 155 government grants, 155

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INDEX

Funding (Continued) self, 151–152 venture capital, 152–155 Future: access to data in, 87–88 innovation consumers, 220 –223 innovation merchants (market makers), 218–220 innovation providers, 215–217 vision for, 211–214, 215–223 Gage, Phineas, 61 Galileo, 34 –35 General Motors ( Lopez incident), 183–184 Global poverty initiative, 209 Global scope. See International issues Goethe, Johann Wolfgang von, 159 Goetz, Martin, 102 Goodwill, accounting for, 175 Google, 74 –75, 77 Government: grants, 155 innovation example, 22–23 as provider of innovation, 216–217 Gray, Elisha, 82–83 Guilford, P. J., 26 Hall, Stephen S., 72 Hallucinogens, 62 Hancock, Graham, The Lords of Poverty, 209 Harrison, John, 176 Harvard Veritas of China Fund, 209 Hazen, Elizabeth Lee, 37 Helicon, 71–72, 73 Hemingway, Ernest, 30, 165 Hollywood/f ilm industry, 199–200 Hopkins, Samuel, 106 Human assets, software for managing, 173 Hume, 60 Iacocca, Lee, 21–22 IDDEX Ideation system, 178 Idea Fisher, 77, 125 Ideation/ideas: holding companies for, 99–100, 135, 186 importance/signif icance of, 3–10 corporate value of intangibles, 6–9 economic perspective, 8 overview, 4 –5 realizing potential, 10

as industry, 163 infrastructure for (diagram), 213 innovation imperatives, 163–164 academic, 191–197 corporate, 170 –190 creative, 198–204 global, 205–209 individual, 165–169 life cycle (see Life cycle of ideas) marketplace for intellectual-propertybased instruments: analysts, 220 compared to equity markets, 124, 212 distribution, 219–220 liquidity, 219 market makers, 219, 223 portfolios, 219 reasons ideas not realized, 160, 211–212 taxonomy, 44 –52 terminology, 4 –9 Venn diagram of ideation terms, 5 vision for the future, 211–214, 215–223 consumers of innovation, 220 –223 market makers (merchants of innovation), 218–220 providers of innovation, 215–217 Ideation International, 77 Ideation web site, xiv ELN, 86–87 Global Solutions, 208–209 License Wizard, 157 questionnaires/tests, 25 Street Survey, 41, 160 Immigration (innovative personality prof ile), 35–36 Immortality index, 42–43 Incubating ideas, 74 –79, 80 brainstorming, 75 communicating, 75 multiple approaches, 79 prior art, 77 scanning multiple sources, 74 –75 sensory deprivation, 78 thesis/antithesis/synthesis, 77–78 TRIZ, 75–77 visualizing, 75 writer’s block, 78–79 Index: collaboration, 185 immortality, 42–43 innovation, 185

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Index India, call centers in, 207 Individual(s): as consumers of innovation, 221–222 as providers of innovation, 165–169, 217 Infrastructure, 171–173, 187, 213, 221, 222 InnoCentive, 177–178 Innovating (stage in life cycle of ideas), 59–81 genesis of ideas, 59– 63 optimizing creativity, 63–81 assessing/take stock, 64 – 66, 80 basic steps/f low chart, 64, 80 evaluating, 79 expressing, 79–81 incubating, 74 –79, 80 preparing, 66–74, 80 Innovation (vision of the future), 211–214, 215–223 consumers of, 220 –223 corporations, 220 –221 individuals, 221–222 global intellectual capital network, 222–223 merchants of, 218–220 analysts, intellectual property, 220 critical mass, 218 distribution, instruments based on, 219–220 instruments, intellectual propertybased, 219–220 international scope, 218 liquidity, 219 market makers, 219 portfolios, intellectual property, 219 providers of: academic, 216 corporate, 216 creative industry, 217 government, 216–217 individuals, 217 Innovation factor radar chart, 66 Innovation imperatives, 163–164 academic, 191–197 corporate, 170 –190 creative, 198–204 global, 205–209 individual, 165–169 Innovation index, 185 Innovation taxonomy, 44 –52 artistic innovation, 49–50, 51 computer-assisted discovery, 50 –52

235

evolutionary idea, 45, 51 philosophical idea, 50, 51 problem solution, 44 –45 revolutionary idea, 46–47, 51 serendipitous discovery, 47–48, 51 symbiotic idea, 46, 51 targeted innovation, 48, 51 Innovation Trust Company ( ITC), 209, 213–214 Innovator syndrome, 20 Instruments. See Marketplace for intellectual-property-based instruments Intangibles. See also Ideation/ideas CFO-preferred term for ideation, 5 compound vs. atomic, 138 corporate value of, 6–9 and links in a corporation, 187–188, 189 measuring investment in, 8–9 nondepleting nature of, 7–8 vs. tangibles, 7–8 Integrity Capital Management, 154 Intellectual monopoly, 174 Intellectual property. See Ideation/ideas Intellectual-property-based instruments. See Marketplace for intellectualproperty-based instruments Intellectual Property Owners ( IPO) annual awards, 40 Intelligence (creative/traditional), 25–26, 28, 64, 66 Interhemispheric synchronicity, 61 Internal development, 148 Internal license, 188 International Franchisee Association, 105 International issues, 205–209 academic innovation imperative, 195–196 currency for trading in intellectual property, 219 emerging/developing countries, 167, 206, 223 Global Commercial Code (GCC), 222 Global Innovation Exchange, 222–223 global innovation imperative, 205–209 global intellectual capital network, 222–223 historical treaties, 107 intellectual property as factor in globalization, 207 International Franchisee Association, 105

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International issues (Continued) International Schedule of Classes of Goods and Services, 105 merchants of innovation, global scope, 218–219 patents, 113–115, 167, 206 taxation, 99–100, 135–136, 186, 219 International Schedule of Classes of Goods and Services, 105 Internet: IP ( Internet protocol) networks, 55 Request for Comment ( RFC), 222 search engines, 74 Internet Engineering Task Force ( IETF), 222 Invention Machines, 77 Inventors/innovators, 11–43 contemporary innovators, 21–25 Altbach (music and business), 23–25 Fields (government), 22–23 Iacocca ( business), 21–22 countries producing disproportionate number, 35–36 as heroes, 40 historical innovators: anesthesia, 19–20 da Vinci, 12–15 Mozart, 15–16 Newton, 16 Renaissance, 38 Tesla, 17–18 immortality index of selected, 43 left-handed, 38 personality prof ile: alienation, 28–29 divergent/convergent thinking, 25–26 ethics, 36–37 immigration, 35–36 intelligence, 28 persistence, 33–35 poverty, 32–33 psychopathology, 29–31 sinistrality, 37–39 Renaissance, 38 women, 37 Investment in intangibles, measuring, 8–9 Investors, marketing to, 150 –155 corporate funding, 154 –155 friends/family, 152 government grants, 155 venture funding, 152–155

IP (intellectual property). See Ideation/ ideas IP.com, 149 IPO (initial public offering), 161 IPortation: benef its, 56–57 licensing links, 188 life cycle of ideas, 54 –57 patent vs. trade secret decision, 121 taxonomy of ideas, 45 trust level, 132 Israel, high-tech industry, 208 Jackson, Crawford, 19–20 Japan, 206 Jobs, Stephen, immortality index, 43 Joint ventures, 148–149, 193–196, 209 Judson, Whitcomb L., 45 Kandel, Eric R., 73 Karolinska Institute, 195–196 Kekule, 68 Kendrick, John, 6–7 Kennedy, John F., 48 Kettering, Charles F., 34, 59, 136, 170, 205 Kilby, Jack, 46 KPMG, 99, 135 Kroc, Ray, 29 Kwolek, Stephanie Louise, 37 Laboratory notebooks, 84 –85 electronic ( ELNs), 85 conf identiality and, 191 corporate innovation imperative, 173 management/scientists on use of, 191–192 provided on Ideation web site, 88, 166 registering requirements and, 89 f irst-to-invent vs. f irst-to-f ile, 84 shortcomings of traditional, 85 Lamarck, Jean-Baptiste, 45 Land, Edwin H., 25 Left-handedness, 37–39 Legal implications, laboratory notebooks: evidentiary trail, 87 integrity of record, 86 Legal protection, 96–99. See also Copyright(s); Patent(s); Trademark(s) Lennon, John, 46 Lev, Baruch, 9

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Index Library of Congress, 98 Licensing: Ideation web site, License Wizard, 157 internal, 188 linkages, identifying, 187–188 marketing, 148–149, 150 –155 percentage of ideas licensed, 159 standardized terms, 144 value ownership and, 142, 144 Life cycle of ideas, 53–57 IPortation as illustration of it, 54 –57 stages, 53–57 (see also specif ic stage) death, 159–161 developing (improving idea), 128–132 innovating (idea creation), 59–81 marketing (f inding investors/ customers), 147–158 protecting (ensuring recognition/reward ), 91–127 registering (signing up with an ideation service), 82–90 valuing (determining what idea is worth), 133–146 Lifestyle, and creativity, 66–74, 80 diet, 70 –71 drugs, 71–74 mental exercise, 67– 68 physical exercise, 67 reading, 66– 67 rest, 68–70 watching television, 74 Liquidity, 212, 219 Long, Crawford, 19 Lopez, Ignacio, 183–184 Loss, protection from, 94 –95 Managing innovation, 171–175 Marketing (stage in life cycle of ideas), 147–158 basic steps/f low chart, 157 to customers, 155–158 donating innovation, 150 eBay litigation, 150 future funding, 155 internal development, 148 to investors/licensors, 150 –155 licensing/joint venture, 148–149 publishing innovation, 149 viability/marketability assessment, 147, 148

237

Marketplace for intellectual-propertybased instruments: analysts, 220 compared to equity markets, 124, 212 distribution, 219–220 liquidity, 219 market makers, 219, 223 portfolios, 219 Marshall University ( Vandalia Project), 194 Marxism, 47, 77–78 McBean, Marghretta, 168 McCartney, Paul, 46 Meditation, 70 Mednick, S. A., 27 Memory Pharmaceuticals, 73 MENSA, 28 Mental exercise, 67– 68 MercExchange (eBay lawsuit), 150 Metadata, 92, 174, 181 Metrics/reports, 178–190 collaboration index, 185 innovation index, 185 patents, 9 Michelangelo, 38, 60 Microeconomics, 137–146 Mind mapping, 75 Minerals/vitamins, 70 Modigliani, 30, 32 Morgan Stanley, 95 Morse, Samuel F., 46 Morton, William, 19–20 Movies/f ilm industry, 199–200 Mozart, Amadeus, 15–16, 29, 43, 49 Music industry: example of innovator in, 23–25 innovation imperative, 203 Nakamura, Leonard I., 8–9 Nash, John Forbes, Jr., 30 National Collegiate Inventors & Innovators Alliance, 194 National Inventors Hall of Fame, 40 NBC news, 204 NetAId site, 96 Network diagrams, 139, 189 Newton, Isaac, 16, 29–30, 43 Nietzsche, Friedrich, 53, 59 Nobel, Alfred, 36 Not-invented-here (NIH) syndrome, 88, 129 Noyce, Robert, 46 Nunn, Rashmi, 177–178

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Object recognition training, 72 OldenBurg, Claus, 49 Operation Mousetrap investigation, Federal Trade Commission ( FTC), 167–168 Oppenheimer, Robert, 36 Optimism factor/ratio, 138, 139, 143 Originality, divergent thinking and, 26 Ownership of value, 140 –146 Patent(s), 97, 106–115 cost of, 98 def ined/described, 97, 106–115 design patent, 109 history of, 106–107 international search tool, 115 metrics for (for analyzing company intangibles), 9 plant patent, 108–109 pros/cons/typical uses of, 125 provisional patent, 109–113 cautions, 112–113 f iling requirements, 111–112 timing/deadlines, 171, 180 –181 vs. trade secrets, decision, 121 uniform patent law, 114 uniform procedures, 114 –115 utility patent, 108 world patent, 113–115 Patent clock, 171, 180 –181 Patent Cooperation Treaty (PCT), 108 Patent and Trademark Depository Libraries (PTDL), 105 Patricoff, Alan, 35 PDF f iles (access to data in the future), 87 Penicillin, 47–48 Persistence (innovative personality prof ile), 33–35 Personality. See Inventors/innovators, personality prof ile Pharmaceutical industry, 51–52, 71–74 Pharmacia Upjohn, 195–196 Philosophical idea, 50, 51 Philosophy, 59– 60 Physical assets software for managing, 173 Physical exercise, 67 Picasso, Pablo, immortality index, 43 Pierson, Thomas, 50 Plant patent, 108–109 Pooley, James, Trade Secrets, 124 Popeil, Ron, 45

Poverty: global initiative, 209 innovative personality prof ile, 32–33 Preparing (step in ideation life cycle), 66–74 diet, 70 –71 drugs, 71–74 mental exercise, 67– 68 physical exercise, 67 reading, 66– 67 rest, 68–70 watching television, 74 PriceWaterhouseCooper report, 4, 174, 195 Prior art, 55, 77 Problem solution, 44 –45, 51, 56 Protecting (stage in life cycle of ideas), 91–127 corporate innovation imperative, 172 from double taxation on future revenues, 91 from excessive taxation, 91, 99–100 from legal issues, 91, 96–99 legal protection, 91, 96–99 copyright, 100 –102, 125 domain registration, 124 –127 overview table, 125 patent, 106–115, 125 trademark, 102–105, 125 trade secret, 115–124, 125 from loss, 91, 94 –95 registration ( Ideation web site), 82–90, 91–94 staff turnover and, 181–184 from theft, 91, 95–96 Provisional patent, 109–113 cautions, 112–113 f iling requirements, 111–112 Psychopathology (innovative personality prof ile), 29–31 Publishing ideas/innovation, 149 Publishing industry, 202 Pullman, David, 212 Radar chart, innovation factor, 66 Rae, Catherine, 71 Rapid eye movement ( REM) sleep, 68 Reading, 66– 67 Recognition ceremonies, 186 Registering (stage in life cycle of ideas), 82–90 access to data in the future, 87–88 basic steps/f low chart, 90

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Index corporate environment, 88–90 evidentiary trail, 87 features/functionality available in process, 83 integrity of record, 86 laboratory notebooks, 84 –85 electronic ( ELNs), 85, 87 f irst-to-invent vs. f irst-to-f ile, 84 shortcomings of traditional, 85 legal implications, 86–87 reasons for, 82–83 Registration, domain, 124 –127 Regressed value, 138, 143 Remote Associates Test ( RAT), 27 Renaissance, innovators of the, 38 Research and development ( R&D), 5, 176–179 Rest, 68–70 Revolutionary idea, 46–47, 51 Rice genome, decoding, 48 Ross, Elizabeth Irvin, Write Now, 79 Russia, SALT II provision, 208 Sarnoff, David, 33, 59, 128, 163, 190, 215 Scams, 109, 167–168 Schizophrenia, 30 Secrecy, 211 Securities and Exchange Commission (SEC), 88–89, 134 –135, 175–176, 200 Security levels: scenarios, 123 trust levels, 122, 218 Self-appraisal (CQ/IQ tests on Ideation web site), 64, 65 Self funding, 151–152 Sensory deprivation, 78 Serendipitous discovery, 47–48, 51 Services, idea registration, 82 SETI (Search for Extraterrestial Intelligence) Institute, 50 –51 Shakespeare, immortality index, 43 Sherman, Patsy, 37 Sinistrality (innovative personality prof ile), 37–39 Society for Creative Intelligence, 28 Software: copyrights/patents, 102 export of development/services, 207–208 license, 188 tools for managing f inancial/human/ physical assets, 173 Solipsism, 50

239

Space program (targeted innovation), 48 Staff turnover, 120, 181–184 Standard industry classif ication (SIC), lack of for ideation, 163 Stanley, Thomas, The Millionaire Mind, 27 State vs. federal registrations, 103 State Street Bank v. Signature case, 149 Stephenson, George, 19 Sternberg, Robert, Successful Intelligence, 27 Stimulants, and creativity, 62 Surveys, 39–42 Swedish Council of Science, 195 Switzerland, 218–219 Symbiotic idea, 46, 51, 56 Symbiotic value, 138, 140 –143 Syndrome, innovator, 20 Targeted innovation, 48, 51 Tarter, Jill, 50 Taxation, 99–100, 135–136, 186, 219 Taxonomy. See Innovation taxonomy Technology transfer collaborations, academic/corporate, 194 –195 Television, watching, 74 Television industry, 203–204 Tesla, Nikola, 17–18, 29, 31, 33 Theft, protection from, 95–96 Thesis/antithesis/synthesis, 77–78 Thinking, divergent vs. convergent, 25–26 Time to market (trade secrets vs. patents), 117 Trade associations, 98 Trademark(s), 97, 102–105, 125 Trade-Related Intellectual Property Rights (TRIPS), 114, 207 Trade secrets, 98, 115–124, 125 advantages, 116–118, 125 costs, 118 preservation of competitive advantage, 117–118 time to market, 117 disadvantages, 118–121, 125 additional costs, 120 conf identiality requirements, 119 duration of protection, 118–119 f lexibility, 119 forced visibility, 120 –121 perception of value, 119 staff turnover, 120 exiting employees, protecting from, 183

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Trade secrets (Continued) innovation exchange (diagram), 116 overcoming disadvantages, 121–124 security scenarios, 123 security setting, trust levels, 122 vs. patents, 98, 121 TRIZ, 35, 75–77, 80 Trust: assets in, 213 controls, 218 levels (security setting), 122, 132 venture capital and, 154 Tsien, Joe Z., 73 Tully, Tim, 71–72 Turnover, staff, 120, 181–184 Tyson, Keith, 52 Uniform Commercial Code ( UCC), 222 Uniform resource locator ( URL), 124 –127 United Kingdom, 195 UrbanFetch case, 154 Uruguay Round, 207 U.S. Patent and Trademark Off ice ( USPTO), 77, 102, 105, 107, 165 Utility patents, 108 Value of intellectual capital in corporate America, 4, 6, 7 Valuing (stage in life cycle of ideas), 133–146 actual value, 138 adjusted/corrected value, 138, 139, 143 basic steps/f low chart, 145 Black Scholes formula, 134 compound vs. atomic intangibles, 138 cost valuation, 134 derived value, 139 estimated value, 138, 140 f inancial value, 138, 143, 146 licenses and, 142, 144 life cycle and, 135 methods/terms, 134, 138 microeconomics, 137–146 network diagram of ideas, 139 optimism factor, 138, 139, 143

ownership of value, 140 –146 regressed value, 138, 143 regulations ( FASB/SEC), 134 –135 symbiotic value, 138, 140 –143 tax perspective, global intellectual property, 135–136 Vandalia Project, 194 Van Gogh, Vincent, 29, 30, 32, 49–50 Vedic philosophers, 59– 60 Venture funding, 152–155 f inding, 153 f ive M’s, 153 joint ventures with industry, 193–196 trust and, 154 Versioning, 131–132 Viability assessment, 147, 148 Virtual idea, 141–142 Visualization, 75 Vitamins, 70 –71 Volkswagen/GM, 183–184 Wallace, Alfred Russel, 45 Water, drinking, 70 Wells, Horace, 19–20 Women inventors, 39 World/global issues. See International issues World Intellectual Property Association, 167 World Intellectual Property Organization ( WIPO), 113–115, 218 World patents, 113–115, 167 World Trade Center, 95 World Trade Organization ( WTO), 207 Writer’s block, 78–79 Writer’s Guild of America, 98 XML (access to data in the future), 87 Yourdan, Ed, The Rise and Fall of the American Programmer, 207 Ysevage, Jerome A., 74 Yunus, Mohammed, 209 Zlotin, Boris, 77 Zurich Reinsurance, 99