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Driven by knowledge advances and the importance of a more collaborative commercial model, intellectual property (IP) has morphed from an arcane, specialized function dominated by technicians to a showcase strategic priority of the “c-suite.” This trend is hardly restricted to the life sciences. In fact, some of the most creative work in using IP tools to extract more value from knowledge assets is taking place among businesses that operate across multiple sectors.
Driven by knowledge advances and the importance of a more collaborative commercial model, intellectual property (IP) has morphed from an arcane, specialized function dominated by technicians to a showcase strategic priority of the “c-suite.” This trend is hardly restricted to the life sciences. In fact, some of the most creative work in using IP tools to extract more value from knowledge assets is taking place among businesses that operate across multiple sectors. IP provides the organizing premise to bring diverse lines of products and services together in the cross-fertilization of ideas that can spawn entirely new businesses.
This mindset is reflected in the decision of many big companies to start assessing how extra value can be extracted from assets that until recently were perceived as carrying no value at all. A case in point is the discovery of how vast backlogs of data can be inventoried and then sold to customers as part of an upgraded service package. The name for this new business is predictive analytics, and IP makes it all happen.
To help biopharma companies make sense of the new IP landscape, Pharm Exec turns to a top adjacent industry player in the life sciences, General Electric Co (GE). Still thriving after 130 years in business, and as one of the only founding members of the New York Stock Exchange still listed today, GE holds title to some 40,000 patents and owns trademarks with a cumulative value of more than $45 billion.
Simply put, IP is GE’s tracking guide to market relevance. IP tools are applied creatively to drive the acquisition of new technologies in their most innovative phase, where it makes most sense for GE to concentrate its capital outlays. When IP exclusivity starts to fade, the management reviews gear up-it’s the evidence that signals the move toward a mature, commoditized commercial environment less likely to play to the company’s strengths long-term. IP is GE’s equivalent to the big bank stress test, one that, despite its size and multiple lines of business, keeps it nimble and responsive.
The key point person for GE’s always-evolving strategic orientation on IP policy is Thaddeus Burns, who serves as the company’s senior counsel for IP and trade. In this role, he leads an inter-divisional team of professionals supporting the eight business units and GE Global Research in pursuit of a global funding, regulatory, and policy environment supportive of innovation and free trade. Pharm Exec recently sat down with Burns to examine GE’s unique approach to safeguarding its knowledge assets across a complex, highly differentiated array of technologies, products, and services.
Among other things, Burns highlights the growing emphasis for GE in protecting trade secrets (see sidebar); the arrival of the “industrial Internet” and the mounting business consequences of cyber piracy; IP policy and enforcement spillovers, from materials science to health to environment to agriculture and foods; and the continued importance of finding common cause in upholding IP rights across industries. Biopharma, despite its considerable lobbying heft, is finding it harder to prevail against well-meaning but misguided patent skeptics that are effective in international agencies.
PE: Product and process innovation is a key driver of corporate strategy today. A pertinent example is GE’s effort to reduce cycle times in bringing medical devices and other new products to market. That’s a performance measure that continues to elude most biopharmaceutical companies today. What is it about the GE culture that has enabled the company to achieve this success?
Burns: Fundamentally, GE operates for the long haul. Management is always looking forward. We recognized some time ago that GE had to change from a narrow, hermetic approach to product development. That consisted of performing R&D in-house and moving the product pipeline separately through each of our businesses in carefully defined, sequential stages.
That era is over. In its place, GE has embraced an “open innovation” model, imbued with a sense of humility on what we can do alone, as a single company or, more precisely, as a family of companies, because that is what we are today. There is no alternative but to collaborate with external partners in business as well as government and academia. In part, this is driven by technological complexity and convergence. Consider how many advanced materials must be developed to build a new gas turbine and operate it at ever-higher levels of efficiency. So we complement our own R&D with in-licensing programs to identify promising technologies, which come increasingly from smaller start-ups and academic labs. We bring this technology into GE and save on the time and money that we once spent trying to do it ourselves.
An internal commitment to collaboration spans GE’s eight business divisions. This is one of our key competitive advantages. While each business-from Aviation to Power and Water to Healthcare and Life Sciences-has a distinct strategic focus, all of them draw from a set of core
technologies that carry applications across the board. We stretch these core technologies to identify new and different ways they can be deployed to enhance our ROI on R&D within a particular product area.
This underscores a point I already made about how GE’s size and scale gives us more options to shape the business, beyond holding a patent. A few months ago, we signed a $250 million contract with the government of Kenya to help upgrade their healthcare technology infrastructure. The big differentiator in the deal is the know-how: we are adding an education curriculum designed to train thousands of workers in wresting maximum productivity from the diagnostics equipment and devices once these are deployed in the clinical setting. We’ve promised that a familiar phenomenon in African healthcare-valuable equipment that sits idle because there is no trained staff to operate them-will not occur under our watch. In a larger sense, because our IP is protected, GE is adding to the store of local human capital, in addition to being a technology vendor.
PE: How is this commitment applied to the business from an organizational standpoint? Does GE have a separate unit with overarching responsibility for seeding internal innovation? Many biopharmaceutical companies are currently testing this approach.
Burns: GE Global Research remains a significant source for product and service innovation. It has been part of the GE organization for more than 100 years. Global Research has its own budget and works largely on projects initiated by the businesses as they seek to tap different areas of expertise beyond their own core competences. Hence, like everything else at GE, it functions with a high degree of autonomy and decentralization. The original Global Research hub was in Niskayuna, in upstate New York, but now we have additional R&D centers in Shanghai, Bangalore, and Rio de Janeiro, among others.
Global Research today is very much a “nose-to-the-ground” operation, with a mandate to track unmet market needs and help us better understand what our customers throughout the world really want, arguably, before they even realize it. You cannot do this well if everything is viewed through the lens that exists in Niskayuna. Stronger international standards for IP have also made the emerging markets a more fertile environment for the “frugal innovation” that results in lower-cost products with universal, worldwide appeal.
Beyond R&D, GE has launched a specific process-driven initiative to reduce time to market for new products and technologies. Called Fastworks, it consists of a set of business tools to cut red tape, create synergies, and save money throughout the product development cycle. This is an imperative because all of our businesses are being challenged by new competitors from developing countries, where costs are lower. We must upgrade our operational efficiency by taking out costs wherever we can and deliver solutions that respond to customer needs.
PE: Is there a company culture at GE that highlights and rewards innovation?
Burns: Our culture centers on attracting and keeping people who are collaborative. GE is a matrixed organization. All managers are instructed in the art of “boundaryless leadership.” Functional expertise is recognized but more often than not it is shared with others in the various businesses. People like me seek to exercise a “moral” authority because your direct span of control does not extend to colleagues that might be performing a similar function, in another GE business. I try to set an example and persuade colleagues through a commitment to publicize and share best practices. It’s very rare to see an order from management that states “this is the way you are going to do it.” Each of the company’s profit and loss (P&L) centers I consider to be my customer. Once a year, I sit down with the IP leaders in each P&L and identify with them the policy issues that are the biggest priority for their businesses. That is how I set my own agenda.
PE: Protecting GE’s knowledge assets through improvements in the legislative and policy infrastructure for IP is a key part of your job. What is your response to the argument that “open innovation” and the widespread sharing of ideas lowers the ultimate cost of innovation. Doesn’t this undermine the case for strong IP rights?
Burns: The opposite is true. If collaborative R&D helps lower the cost of product development, it is an investment requiring protection because how well you perform on that score will determine your advantage against competitors, particularly those who compete from a lower cost base. IP is important in fairly distributing the impact of these external strategic intangibles.
Another argument is the increasing importance of what stands behind the IP-where a patent is really just the tip of the iceberg in terms of what GE actually provides to the customer. Much GE business today is conducted through outcome contracts, where, in addition to the product itself, we guarantee fulfillment of certain performance metrics or offer supplementary services, such as training and education, to extract the most benefit out of using our highly complex products. Providing such know-how requires considerable investment by GE. Patent rights ensure GE’s up-front investment in innovation is protected, while the spin-off from the “secret sauce” of this know-how-on our customers and for society in general-is incalculable. IP protection is the great mediating force that generates added value for each party in the transaction.
PE: A key dividing line around a culture that supports innovation, and a culture that does not, is the attitude of management to risk and failure. Where does GE stand on this dividing line?
Burns: Our CEO, Jeff Immelt, talks about taking big swings-which requires a tolerance for risk. Without risk, GE cedes much of the upside opportunity that comes from building a business in a very competitive global marketplace. Even the most senior executives here are open to discussing ideas that you believe should be put forward, regardless of perceived risks. But, in the legal department, our focus is to manage that risk, rather than simply approaching it ad hoc. Utmost care is taken to avoid any situation that poses a compliance risk, but we always look for compliant approaches that are friendly to growth.
A lawyer at GE does not see his or her mission as saying “No” to new ideas. Instead, the goal is to align the needs of the businesses with an approach that conforms to applicable laws, precedents, and principle. I return again to the basic DNA of the GE culture, which is collaboration. Colleagues learn quickly to check their egos at the door. Humility is a virtue. These are the characteristics of the people who stay at GE.
PE: Can you outline your current role at GE-how does it compare to your previous experiences in the US federal government and in private law practice?
Burns: I serve as GE’s IP policy leader. I work with the businesses to identify the legislative and regulatory policies on IP that we want to promote at the multilateral and national level, with the ultimate aim of creating a market infrastructure that is conducive to innovation. That means minimizing the regulatory burden on companies willing to risk capital in creating technologies that may-or may not-thrive in the real world. In contrast to my previous roles, it’s a lean function. I have one direct report, a patent attorney, and dotted line relationships with different IP and regulatory specialists in the regions where GE has operations. Here in the US, I spend a great deal of my time talking to Congress on patent litigation and trade secret reform, objectives of signal importance to GE. GE is an active sponsor of the 21st Century Coalition, which includes BMS, Lilly, and J&J as well as many large US non-pharma manufacturers.
PE: What are your top priorities for 2015?
Burns: One goal is a targeted revision of the US Patent Law passed by Congress this year. GE favors amendments to discourage the filing of frivolous lawsuits. Our priority is to seek narrowly tailored changes so that it doesn’t harm innovation by expanding baseless patent challenges, eroding enforcement, or making it harder to plead or proceed to the discovery phase of a case.
Globally, our number one priority is reform of trade secrets laws to reflect 21st century commercial realities. GE would like to see Congress amend the Economic Espionage Act to create a federal civil cause of action for trade secrets misappropriation. We support similar changes in the form of a European Union (EU) directive for its 28 member states.
PE: How do you address issues important to the GE Healthcare business? Is this unit a priority for you?
Burns: GE Healthcare is the most IP focused of all our businesses. Acquiring and enforcing patent rights is vital to GE Healthcare’s growth, so the input I get from them on the importance of robust IP policy engagement is greater than any of the other GE businesses. It is a long-cycle business and files many patents; some parts of the business look very much like the biopharmaceuticals model, so its patents are considered high value assets for GE. A cluster of three or four patents held by GE Healthcare will likely carry more tangible value that 20, 40 or even 1,000 patents held in an information technology (IT) business. Our IT businesses tend to be short-cycle businesses, where there are questions as to whether non-embedded software is even capable of being patented today. The technology keeps changing so fast.
GE Healthcare has a particular interest in keeping intact the term length for data protection. Naturally, we are concerned with the integrity of the biopharmaceutical supply chain because we manufacture and sell drug discovery and processing tools and equipment. But it’s also a key area of focus for our customers who invest significant resources in pulling together the information needed to satisfy regulatory authorities around the world. Such processes can involve high up-front expense.
That’s why GE is holding fast in the plurilateral Trans Pacific Partnership (TPP) negotiations, where we back the current US negotiating position for 12 years of data protection, not bartering it away.
PE: Besides US patent reform, data protection, and trade secrets, are there other initiatives where IP has a central position in the GE business strategy?
Burns: Yes. Protection of knowledge assets is vital to GE’s cross-sectoral, multi-platform environmental technology business: Ecomagination. Ecomagination is an innovative source of climate-friendly solutions geared to slashing the carbon footprint. We focus on advancing renewable energy technologies and developing new products that are more energy-efficient than their predecessors. It is not commonly known that emerging country markets have embraced new clean technologies, so GE recognizes there is a reputational gain as well as a commercial rationale for following in their path.
The position we have taken is also relevant to the biopharmaceutical industry, which I think has not fully considered the positive benefits on its own business model from concrete measures to curb energy use. Ecomagination’s product portfolio includes state-of-the art clean technologies that depend on patent protection and enforcement. GE has taken an active interest in the UN Climate Change Treaty negotiations as well as at the World Trade Organization [WTO] Trade-Related Intellectual Property Rights (TRIPS) Council, to ensure commercial incentives for technology development are maintained in the face of pressure to adopt regimes hostile to innovation.
PE: Is there a larger theme at work here? Are you saying it is time for industry to take a larger view of IP that extends beyond the protection of a single technology or product asset?
Burns: One benefit of working at a company like GE is that our interests are so broad we have to look at IP as a strategic driver, not a technical fix. IP advances the innovation that leads to entirely new industries. We started thinking more strategically about investments in solutions to address climate change back in 2005. Our basic argument to governments engaged in the climate change negotiations is we need an up-to-date, dedicated international legal regime to break the “technology dam” that is slowing the development of enterprising, incentive-based solutions. This is the only way to generate the capital necessary to get ideas up and running to tackle global warming. Without a predictable investment environment, where IP can mitigate long-term risk, efforts will fall short of what needs to be done.
PE: My sense is that interest in the biopharmaceutical industry in multilateral negotiations has flagged-drug companies today are much more inward-looking and less able to work in concert.
Burns: GE takes a different view. As new technologies emerge and mature, it is important to engage directly with multilateral organizations and their members responsible for developing principles, standards, and norms of behavior that developing country governments particularly rely on as the basis for local regulation. This is what GE has done. Perhaps in contrast to others, we have decided to be proactive.
PE: Looking specifically at IP, is it fair to conclude that the broad multi-sector coalition that once dominated the agenda on patent reform has frayed? Is the biopharma business model more isolated because of the importance to preserve long-term protections against all that front-loaded investment risk? Overall, has progress on patent protection slowed or even been set back?
Burns: I don’t share this conclusion. It is true in the US that judicial rulings are creating uncertainty around key issues like patentable subject matter in biotech and software. US patent filings have decreased in part due to this uncertainty. In addition, many US tech companies now adhere to a short-cycle business model, one where patents play less of an enabling role than in other sectors. In the federal legislative arena, a private-sector consensus on IP policy is harder to achieve. However, from a global perspective, it’s still a positive story. The European Patent Office is doing quite well. The IP situation in Japan has improved. Most emerging market countries have raised the level of IP protection by signing on to the TRIPS accord, endorsing the view that innovation should occupy a key role in national industrial policy. GE commissions a lot of polling on local business attitudes to innovation in developing countries, and what we find is that IP is seen as a pre-condition for future prosperity. It’s definitely not seen as a fixation of the past.
PE: Should industry and the private sector be more proactive in advancing arguments in favor of IP? Are there gaps in the pro-IP armamentarium that need to be filled?
Burns: I believe supporters of IP must make the case in a more nuanced and empirical way. IP rights alone do not guarantee innovation, economic growth, and prosperity. Instead, IP should be promoted as an enabling factor-one of several-that can fulfill these objectives. Education, for example,
is equally, if not more, important than IP in seeding the path to innovation. If a country is not building a workforce with the research and technical skills to compete in science, then no amount of legal protection is going to deliver an innovation to market. IP has to be evaluated as a threshold, “rule of law” issue: it can put you in the running for a bigger array of useful technology opportunities.
As much as for the importance of rule of law, GE is a believer in the liberalization of markets. We are committed to initiatives that lower tariffs and stimulate competition in international trade. One of GE’s achievements this year has been contributing to a successful outcome to the WTO Information Technology Agreement, which zeros out tariffs on a whole host of different IT offerings. So far, we’ve been successful in including medical and health technologies, which will help drive down costs for our customers and patients in different parts of the world. We expect a consensus text that includes agreement on staging the Agreement will be initialed later this year.
Another negotiation of singular importance to GE is the WTO Environmental Goods Agreement. Wind turbines and GE Ecoimagination products are on the negotiating list for tariff-free trade. This can only be a plus for countries and enterprises committed to deploying cost-effective clean technology solutions.
PE: Does inadequate enforcement of IP rules stand out as a problem for GE?
Burns: To a degree, but the main victims of lax enforcement are smaller firms dependent on a single technology or product line. GE is rarely a plaintiff in a patent case. With a few notable exceptions, the existence of a patent that we have registered locally, coupled with our critical mass as a company, allows us to resolve these cases without filing charges in a court.
PE: How well is the biopharmaceutical industry doing in advocating for strong IP protection? Is the messaging aligned and is it effective?
Burns: One lesson I have learned from GE and working in private practice for biopharmaceutical companies is the importance of addressing IP from a multi-sector perspective. The greatest successes for biopharma have occurred when it works collaboratively with other sectors and their trade associations. It is essential that the industry follows this approach as it opposes efforts to erode or dismantle IP protections in emerging country growth markets, the source of much of biopharma’s future revenue growth.
The multi-sector stance also must be tied back to strong, empirical evidence on why IP matters, not just to big Pharma but to every player in the innovation ecosystem. Working with the International Chamber of Commerce, GE has joined with two key biopharmaceutical industry trade groups-the International Federation of Pharmaceutical Manufacturers’ Associations (IFPMA) and company patent counsel (INTERPAT)-to sponsor a number of peer-reviewed economic studies that place IP in a broader context, revealing that the economic benefits of patent and trade-secret protection are widely distributed, particularly among smaller entrepreneurial businesses. The studies show that IP is an important enabling tool that works best when applied as part of a rules-based commitment to institutional transparency, individual freedom, and good governance. The impediments to innovation capacity are corruption, cronyism, and the informal economy, that erode the fabric of civil society.
The final element is a greater emphasis on communicating a simple takeaway: an environment open to innovation requires IP, because you can’t collaborate outside your own four walls without the confidence of knowing
there is a legal system in place to protect your idea if something goes wrong. Another way of stating it is there are three phases to the journey of every good idea: basic research, product development, and market commercialization. IP is the bridge that joins all three. If that bridge is sundered, then the basic research-the kernel of that good idea-just goes back in the bin. Nothing comes of it to benefit real people.
PE: What regulatory or legislative precedents supportive of IP deserve wider application in emerging country markets?
Burns: One that comes immediately to mind is the 1982 Bayh-Dole legislation here in the US, which incentivizes the translation of federally funded academic research into commercially useful technologies. The Bayh-Dole instrument can be applied in emerging markets to obtain productive economic assets from their own local institutions of higher learning. It’s a message I have delivered with success on behalf of GE in emerging countries like Brazil.
I recently served on a National Academy of Sciences Committee charged with recommending new US foreign policy goals relating to science and technology. The report, released in June, seeks US government commitment to work with countries to improve their innovation infrastructure, including IP measures that encourage and protect locally generated technologies, in three key sectors: energy development, pharmaceuticals, and advanced manufacturing. Such infrastructure should include Bayh-Dole technology transfer models and others that support innovation through collaborative ties between industry, government, and academia.
The tendency in many countries is to place ultimate responsibility for innovation in the hands of one entity-the government-but our report contends that what government does best is to formulate good laws and underwrite basic research, then let the ideas generated through this platform find expression in a commercial enterprise willing to test them in the open market. I like the report’s recommendations because it offers more than foreign aid to developing countries-there is much more these nations can do on their own to promote innovation.
PE: If building successful cross-industry coalitions is the way forward in protecting IP, what, in your experience, are the leadership skills and capabilities most required to make that happen?
Burns: I’d identify two characteristics. The first is the ability to listen carefully to others to incorporate the full spectrum of opinions in the deliberations. The second is to construct an approach that is neutral in terms of building a case around any one business model. My efforts in committee or trade association work is to pursue a strategy that does not favor one sector over another, and rejects picking winners and losers in technology platform domains. The discussions should be pitched at a high enough level so that everyone benefits. You have to create what I call an “umbrella equity” model and be sensitive to each participant’s pain points. This is how you have to do it within GE. Given the diversity of our business, it is not a stretch to take this approach forward to activities at the external level.
PE: How will the work you do change over the next three to five years? What will be different about the IP policy arena by then?
Burns: The patent system today is a victim of its own success. There are many complaints about how it works. In the end, it’s being used a lot, which is good. The down side is national patent offices have an enormous backlog. This is sowing the seeds of a bigger problem whereby patents are viewed by short-cycle businesses as arcane, an impediment disassociated with the many positives involved in developing something novel and innovative.
Over the next few years, we will see a major effort to correct this. There is interest in an approach called deferred examination, where patenting requests are separated into two phases to better align the resources of patent offices with the needs of would-be rights holders. The first phase is the application process itself; the second is the more exacting examination phase, in which the applicant declares a firm commitment to move ahead, and to meet stiff requirements to disclose prior art, evidence of novelty, and non-obviousness. In many cases, delaying examination means that patent offices don’t have to work in addressing those that don’t turn out to be commercially viable. In the US, a fast-track system for examining patents was recently introduced to assist innovators who need patents issued sooner-such as for the purposes of accessing capital. I think this movement, which is efficient in that it enables patent holders to have more control over the timing of a patent examination, is starting to take hold.
William Looney is Pharm Exec’s Editor-in-Chief. He can be reached at email@example.com.