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February 20, 2009

Cartoon Comprehension

Management consulting firms are inherently oxymoronic, because any manager that needs consulting from an outside firm is a moron. As in, you run a business, but don't know how to run your business, so you hire consultants?

What does this have to do with patents? Well, I agreed to participate in a survey about the patent business, being conducted by a... you guessed it.

The management consulting firm surveyors were asking about a map of the territory. The topic was "IP Secondary Markets Evolution Study."

Their focus was on computer technology, which they called "high tech." That told me who their paymaster is. I reminded the interviewer that the epitome of inventive technology now was in the biological sciences, that computer technology was pretty low tech at this point, not that patenting wasn't still happening, by any means. A holistic historical perspective that was like whistling in the dark to this guy.

The first talking point slide was on current trends in patent litigation. There was a seamy interest in "NPEs," non-practicing entities, as if patent holders that didn't practice their invention were some form of disembodied bogeyman. At least the pejorative "patent troll" didn't come up.

I reminded the interviewer that computer tech companies, like Microsoft and Intel, as well as many companies in every industry, throw their patent weight around in litigation and licensing deals as NPEs, in other words, over patents they themselves don't practice, so NPE is a rather ridiculous euphemism that has no basis in reality, but is merely a propaganda prop for those not in the patent business, a group to which the interviewer belonged. Another patent groupie, like all those IP academics/religious monks, e.g. Mark Lemley, that study patents, but don't really understand how the business functions.

In fact, I said, only really dumb companies don't try to monetize their patents when the opportunity arises, irrespective of whether the company itself markets the technology in their products. So I blew the slide away with the fact that litigation filings are way down because we're swirling the rim of the Second Great Depression, and companies right now are hurting their heads thinking about the costs & risks of litigation vis-à-vis the payout, and there's your trend in the can, with NPEs having nothing to do with anything.

The next slide was on the "how the growth or contraction of the secondary market will impact litigation." The hot tamale for the interviewer was what correlation I saw between number of lawsuits and expected settlements. "No correlation whatsoever" was my reply. Each patent assertion is unique in its characteristics. Aggregate numbers only tell an aggregate story, and a poor one at that. The slide prompted discussion about how the market as a whole might impact patent holder behavior. These people clearly didn't understand patents in the least. I told him that patent holders decide what to do based on the resources available to them, their appetite for risk, and patience to sit through litigation, or not, as the case may be. What the aggregate market does has nothing to do with what an individual patent holder is going to do. Only the shifting tides of enforceability as influenced by case law alters patent holder behavior.

The third slide sought "to understand the relationship between the key players in the secondary market ecosystem." Between inventors of various stripes (individual inventors, academia, and companies), intermediaries (brokers, auctions, and "direct," whatever that means), and buyers (NPEs, again, contingency law firms (which aren't buyers, I explained), and product companies). The slide pondered the "transaction economics" of variously selling to "assertion focused" buyers (e.g. Acacia), a licensing-focused firm (e.g. Intellectual Ventures (IV)), a defensive patent pool (e.g. RPX) or a contingency law firm. As I explained, patent enforcers like Acacia and contingency law firms don't buy patents. They enforce them for a cut of the action. Companies that do buy patents, such as IV, do so on the cheap, for much less than the patent is worth, unless IV is buying a pig in the poke, which they probably do on at least a semi-regular basis.

I explained that the "transaction economics" boiled down to the patent business being like the movie business. For all the duds bought and pitched, you hope to get in on a blockbuster. A blockbuster like suing Microsoft for something they're putting in Office and Windows. Not to mention all those other companies adopting the new hotcakes user interface Microsoft is pushing. When it comes down to it, just like the movie business selling tickets, the patent business is about selling tickets, in the form of licenses.

The next slide was on the evolution of the secondary IP market. I reminded the interviewer that the secondary market for patents developed in the early 1800s, and hasn't changed much since. Not having any sense of history, I may as well have been having a conversation with a simian.

The final slide was back to the management consulting company firmly standing on terra incognita - "How specific moves by different players may alter the landscape and impact your decisions." I explained that Patent Hawk plays in all aspects of the patent business: helping inventors get patents; helping inventors, including companies, enforce their patents, by acting as a conduit to an enforcement firm; and, the real Patent Hawk bread-and-butter business, helping companies defend against patents, by invalidating patents. Which we do very well, in case you're wondering.

Once you take the religion out of patents, I explained, take out the academic and open-source anti-patent bias, and the corporate kool-aid about NPEs and damages apportionment, you're left with a business that's rationally run, that's pretty much the same as it has been for 200 years, with the flavor changing because of the macro-economic situation, and the status of the law, especially the case law environ. In the past few years, the courts have been heavy tipplers of the anti-patent corporate kool-aid. While other rulings have had their effect, KSR has been the real game changer. That's what's really altering the patent landscape.

The bit about management consulting firms being oxymoronic is something of a put-on. There is, of course, legitimate utility offered by such firms. Upon occasion. What this particular firm is up to with this project, however, is scary.

Posted by Patent Hawk at February 20, 2009 9:25 PM | Patents In Business


Did they offer any kool-aid with their questions?

Posted by: breadcrumbs at February 21, 2009 6:53 AM

"When it comes down to it, just like the movie business selling tickets, the patent business is about selling tickets, in the form of licenses."

And that is why patent reform will happen.

"Which we do very well, in case you're wondering."

Because it is ez sauce. /golfclap

Posted by: 6000 at February 21, 2009 4:06 PM

Yes, management consultants are a mixed breed. No different from any other flavor of consultant. (I'm allowed to say that; I is one. So is Hawk, for that matter.)

In my experience, management consultants are hired for one of three reasons. (Generally it is not because the hiring manager feels incompetent and wants help. Incompetent managers don't recognize incompetence in themselves.)

Reason 1: The manager is smart, has figured out what needs to be done, but his/her management chain doesn't believe it. But if the manager pays a consultant lots of cash to get the same advice, everyone seems to fall quickly into line. Maybe that's because there's an external scapegoat in case of failure.

Reason 2: The question on the table is complex and the manager doesn't have time or staff to do the homework in-house. In this case, the manager hires a consultant with demonstrated experience (and perhaps ready-at-hand data) in the subject area. The risk here is that the manager doesn't know enough to even frame the question properly.

Hawk's interviewer may have been hired for Reason 1 (in which case they were just looking for their preconceived answers) or for Reason 2 (in which case they were not prepped properly by their client).

I suspect that it was Reason 2, and that the client didn't give the consultant good enough direction and did not frame the research question well. That probably also means that the client didn't know enough to choose a qualified consultant. So we have the blind leading the blind.

I've been in Hawk's position as interviewee, fielding nonsense questions from consultants who had no idea what actual issues they were trying to research. Like Hawk, I desperately tried to educate the interviewer on the rudiments of the topic so they could understand my answers. The interviewer, on the other hand, tried vainly to find a place on his questionnaire to record my answers. Stupid.

I have also been a manager hiring a consultant (for Reason 2, I assure you). Orienting a consultant and directing the framing of effective interview questions is very hard work. It is especially hard to frame objective questions that do not "lead the witness". And it is hard to give an interview some structure (essential if you want a large interview sample) without losing important information volunteered by interviewees.

Bottom line: Hawk's interview is a great example of how not to use a consultant. But that doesn't mean that all consultants are useless!

Posted by: Carl Strathmeyer at February 25, 2009 7:52 AM

Errata: Make that "one of two reasons" in paragraph 2.

Posted by: Carl Strathmeyer at February 25, 2009 7:53 AM