Finding the hidden Intellectual Property (IP) value in procurement contracts (Future Path Profile)

Posted on August 7, 2008


Looking beyond what Future Path President and CEO Greg Waite referred to as the “casual conversation” surrounding the issue of Intellectual Property (IP) rights within the majority of procurement contracts, I thought of my own work as a consultant.

I am often retained by both public and private sector organizations to prepare studies or reports on a variety of topics ranging from the viability of digital signatures within the contract routing process to assessing the changing technological landscape and its impact on current as well as contemplated e-procurement strategies.

Employing a patented research methodology, I have been told that my papers provide a unique insight and perspective that in many cases have resulted in a competitive advantage for the client.  In this context, the question of ownership relative to the findings and corresponding conclusions has rarely if ever been broached.

As the author of the paper, and combined with a significantly lower consulting fee as a result of the time savings associated with the methodology (which is centered on Web 4.0), I am of course not inclined to surrender these rights – at least not at the present price point.

But the real issue is that I have never even been approached about the IP value of the work.  And this is precisely the point that Greg Waite was making when he used the term “casual conversation.”

Knowledge is Power

When Sir Francis Bacon coined the phrase “knowledge is power,” I am certain that he hadn’t contemplated it’s meaning in terms of IP value.

Nonetheless, it is indeed an accurate reflection of what has become an overlooked enterprise “asset.”  This is due in large part to the fact that as an adjunct of finance, purchasing imperatives have traditionally been centered around lowest or “best value” pricing, thereby reducing the negotiation for IP value to one of indifference in which its unrecognized value is bantied around as a “lost leader.”

This while you were sleeping mindset is best illustrated in the following Future Path case example.

A firm is looking for an ERP system.  The RFP goes out with the typical feature list, training, consulting, customization etc.  The ERP system is forecast to cost $50M.  A proprietary piece, covering consignment sales and inventory to the company’s 500 retail unit partners is in the RFP.  Also the development of an e-learning system will also be jointly put together.  The typical contract would certainly have all the proper IP rights in there.  But there is no doubt that the ERP vendor will take some or all of the IP arising from the e-learning system and the consignment inventory system to future customers.  With an IP perspective the procurement team would work to identify all unique value add coming from the requirements and would identify the consignment inventory system and e-learning system to be proprietary and a source of innovative advantage over the competition.  At the very least, it is a major source of negotiation.  It might actually be more beneficial to let the vendor create a commercial and therefore portable consignment and e-learning system with royalty sharing.  Or the vendor may wish to be unencumbered and therefore have to reduce his (or her) cost to have 100% IP ownership and business flexibility.

The above example certainly raises the question, how much value from both a monetary and competitive advantage standpoint has your organization “unknowingly” surrendered over the years?  Like high blood pressure, it could be the silent killer – at least for your balance sheet.

More than plug and play legalese

What is interesting is that most organizations have likely spent considerable dollars implementing an application in which a buffet of plug and play legal terminology is made available to the purchasing department for incorporation into a contract.

While these solutions may satisfy the technical elements of the law, to what degree (if at all) do they take into account the IP value associated with the transaction?    

While the vast majority of contracts seek to protect the interests of individual stakeholders – some have reffered to it as the “belt with suspenders” clauses, in most cases it is unlikely that a value has actually been assigned to the contract’s IP component.  Enter Future Path’s Nucleus intellectual asset/intellectual property management system.

Why Nucleus?

As is always the case, these profile articles are designed to inform and where necessary facilitate an introduction between the Procurement Insights readership and its sponsors.  Therefore, the viability of any sponsor solution for your organization will be up to you, and you alone to determine.  In this regard, I will direct you to the Link To Our Sponsors section of the PI Blog to invistigate the Future Path value proposition in greater detail, and at your own convenience.

That said the purpose of this post is to provide you with a point of contextual reference.  And as I tell my seminar audiences, my sole purpose is to stimulate you to think outside of the framework of that with which you are most familiar and most comfortable.  In essence, help you to see through a new or different lens of greater understanding.

This of course leads to the question, why Future Path (and in particular their Nucleus product)?

Beside the previously referenced case study, a second example of the perils of expeditiously surrendering IP value in favor of “up-front” savings sounded an alarm that is worthy of consideration.  Specifically, it demonstrated that the development of a vendor’s asset is often financed 100% by the client.  This may mean that your company might actually be paying the lion’s share of the development costs to ultimately provide your competition with a solution that will give them a competitive edge.  A kind of self-inflicted wound.  Here are the specifics:

A company is looking at a web-based content management system.  It has operations in the US and France.  The vendor of choice does not have a language localization dictionary in French, though it has many other languages.  The client and or the procurement group request a quote for the French translation services, knowing that this is best left in the hands of the software company.  The software company quotes $25,000.  The total price is competitive with other vendors and this is the vendor of choice for a variety of reasons.  So the delivery of the French dictionary is built to the contract.  Though a small opportunity, the procurement department had the chance to look at the translation as intellectual property, in this case Copyright.  The client was paying full value including a profit.  The procurement department could have, and should have asked for a royalty of 20% to 50% for each sale of the dictionary to the software company’s clients.  This would open up an entire dialogue from which meaningful insights would surface such as, a) confirmation of the software company’s pricing model for subsequent customers, b) the level of interest on the part of the software company in terms of future market development, and c) the software company’s intentions relative to making the product available to competitors to name just a few.  The change in perspective is powerful, because the procurement group starts to treat the dictionary as an intellectual asset or property from which the vendor derives an ongoing value.

While Future Path can undoubtedly provide a variety of similar case references, the real question is simply this . . . what is the current IP value that is presently available to your organization, and what is the cost of not knowing this answer? 

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