How Much Should You Invest in Patents?

Transcription

1 How Much Should You Invest in Patents? Kelce S. Wilson PhD EE, MBA, Registered Patent Attorney All views expressed herein are those of the author and do not represent the views of the author s employer

2 Overview Background Publication in Les Nouvelles Insurance Problem History & Application to IP Supply and Demand Graph from Basic Economic Theory Constructing a PVT Constructing a Value Curve Constructing an Effectiveness Curve Overlaying the Curves Using the PVT Finding an Optimum Budgeting Point Region of Triviality The No Market Condition Over-funding & Under-funding

3 Protection Cost, $ Protection Value, $ Protection Valuation Tool ( PVT ) Risk Reduction Target, % Effectiveness High Value Moderate Value Low Value 0 Actual Risk Reduction, %

4 Background Publication in Les Nouvelles March 2010, with co-author Claudia Tapia Garcia The Insurance Problem Given that you have spent $X to possess an asset, how much $Y should you spend to reduce the risk of a loss, in which the risk can be valued at $Z? Examples: Car, Invention, Sellable Product

5 Background History Software security problem: DoD military weapons systems with a large software component were at risk for foreign exploitation, including IP Theft: Our own capability used against us by adversary Disruptive Attack: Hackers disable critical systems Program Managers demanded: Show me the requirement for security How much of a budget was enough? Application to IP Commercial environment similar; use courts not bullets

6 Basic Economic Theory Supply and Demand Graph example: An intersection point between 2 curves explains a market price point. Source:

7 Adaption to Construct a Tool Motivation If an intersection point between 2 curves can explain a price point, then perhaps an intersection point between 2 curves can be used to set a price point Leverage the reliability of the supply and demand graph theory, but reverse it Use what it is theory, to define what it should be tool Problems / Challenges No Clear Equivalents for Supply and Demand Curves

8 Constructing a PVT 4 Steps Construct at least one Value Curve Construct at least one Effectiveness Curve Overlay the Curves Use the PVT for multiple tasks: Set a budget Analyze a possible lack of spending ( no market ) Analyze over-funding scenarios Analyze under-funding scenarios Predict impacts of changing protection effectiveness Predict impacts of changes to risk of loss

9 Constructing a Value Curve Value Curve traces the set of points representing the actual value achieved by reducing the risk of IPR loss by various target percentages. The value assigned to a risk reduction target is not the cost that the IP owner expects to pay to achieve that target, but instead what the IP owner would be willing to pay. This amount is the owner s perceived value, based on expected increases in profits and other intangible benefits.

10 Protection Value, $ Constructing a Value Curve High Value Moderate Value Low Value Value Increase Value Decrease 0 Risk Reduction Target, %

11 Comments on the Value Curve Starts at $0 for 0% risk reduction. There is no value, if there is no benefit for effort expended. Limited maximum value for the theoretical, but impossible, case of 100% risk reduction. Likely tapers off to nearly flat, as risk reduction approaches 100%. Monotonically non-decreasing, although they maybe not monotonically increasing. Higher IP value, longer term reliance, and greater criticality raises the protection value for a given risk reduction target.

12 Constructing an Effectiveness Curve The Effectiveness Curve represents the actual costs that are necessary to obtain threat reductions at various levels. Must be at the same scope as corresponding Value Curves Risk reduction for Effectiveness Curve is the actual risk reduction, whereas for a Value curve, the risk reduction is a target amount Actual risk reduction values can be determined empirically, using historical data for similar activities.

13 Actual Risk Reduction, % Constructing an Effectiveness Curve 100 Ineffective Highly Effective Protection Cost, $

14 Protection Cost, $ Constructing an Effectiveness Curve Ineffective Highly Effective Protection Methods Lose Effectiveness Protection Methods Improve 0 Actual Risk Reduction, %

15 Comments on the Effectiveness Curve The Effectiveness Curve starts at $0 for 0% reduction. There is no benefit, if there is no effort expended. Never reaches 100% risk reduction. Cost rapidly escalates as reduction approaches 100%. Monotonically non-decreasing, although they maybe not monotonically increasing. Changes in the legal environment affect shape and maximum cost endpoint.

16 Protection Cost, $ Protection Value, $ Overlaying the Curves Risk Reduction Target, % Optimum Budget Operating Points: Cost = Value Target = Actual 0 Actual Risk Reduction, %

17 Overlaying the Curves 2 different curves, 2 different sets of axes Parallel axes have same units, but different meaning At intersection points of curves, we have: Cost = Value Target = Actual Intersection points define unique relationship between Value Curve and Effectiveness Curve: What the owner wanted is available at those points

18 PVT vs Supply and Demand Graph Supply and Demand Graph Supply has a positive slope, and monotonic non-decreasing Demand has a negative slope, is monotonic non-increasing One point typically exists To explain a market price To predict variations in price Curves PVT Value has a positive slope, and is monotonic non-decreasing Effectiveness has a positive slope, is monotonic non-decreasing Intersection Points One trivial point will exist at zero. No non-zero points are certain Multiple non-zero points? Uses To set an optimum budget Other secondary uses

19 Using the PVT At least 7 uses are available Finding an Optimum Budgeting Point Explaining the No Market Condition A Protection Services Provider can then identify how to remedy a lack of customers: Increase IP Owner perception of protection value Increase effectiveness per unit cost Analyzing Over-funding Analyzing Under-funding Predict effects of changes in IP value Predict effects of changes in effectiveness of solutions

20 Protection Cost, $ Protection Value, $ Region of Triviality Likely several intersection points near (0%, $0) Ignore all intersection points below some threshold of significance Risk Reduction Target, % Region of Triviality Optimum Budget Operating Points: Cost = Value Target = Actual 0 Actual Risk Reduction, %

21 Protection Cost, $ Protection Value, $ The No Market Condition Market only exists if an Effectiveness Curve touches a Value Curve Risk Reduction Target, % Effectiveness Value Otherwise, no available solutions have sufficient value Create market by increasing perception of value or reducing costs of protection solutions 0 No Protection Market Actual Risk Reduction, %

22 Protection Cost, $ Protection Value, $ Over-funding A portion of excess funding is unneeded protection A portion of excess funding is waste Risk Reduction Target, % Effectiveness Value Over-funding Unnecessary Expense Wast e 0 Excess Protecti on Actual Risk Reduction, %

23 Protection Cost, $ Protection Value, $ Under-funding Some portion is savings But it comes at a cost of excessive risk that had been valued as desirable to have mitigated Risk Reduction Target, % Effectiveness Value Under-funding Risk Discount 0 Excessive Risk Actual Risk Reduction, %

24 Protection Cost, $ Protection Value, $ Protection Valuation Tool ( PVT ) Risk Reduction Target, % Effectiveness High Value Moderate Value Low Value 0 Actual Risk Reduction, %

25 Conclusions The PVT is a valuable tool for budgeting Applicable outside just the IP world Based upon a reversal of a widely-adopted economic theory It explains the results of imperfect decisions, and changes in the environment; when it is sensible to forego protection; and how protection service providers can create demand