We live and work in an increasingly knowledge-based economy. Much of what people produce and consume has no tangible manifestation. Even when it does, the thing that makes that good most valuable and unique \u2013 the innovation that sets it apart \u2013 does not.\nAs companies increasingly compete on innovation, and as we continue to digitize everything (IDC predicts we will generate close to 1,000 exabytes of data by 2010) \u2013 as that happens, our ability to understand, leverage and protect our intellectual assets is core to the health of our organizations and our economy.\nLast month I moderated a panel on The New IP Economy at a meeting of the Executive Council of New York. The discussion took the assumption that at least some portion of that 1,000 exabytes of data is not only materially valuable; it also can and should be accorded property status so it can be valued, leveraged and protected appropriately. (Note: there\u2019s a patent or copyright lawyer in your future if not your present.) We talked about the current state of IP; opportunities and risks; organizational implications, and where things are headed.\nThe panelists were extremely knowledgeable and brought an eclectic mix of views to the topic. They included Robert Cote, a nationally recognized patent litigator and trial lawyer who is a partner in law firm Orrick's IP litigation group and chair of their software group, and Marshall Phelps, who heads Microsoft's intellectual property groups and oversees the company's management of its intellectual property portfolio (which comprises some 20,000 patents worldwide) and who previously did similar work at IBM.\nDavid Kuttler, vice president of information management architecture in the office of the CIO at Johnson & Johnson, brought an executive management view of leveraging and protecting IP \u2013 a view that was shared by Jack Nelson, senior vice president and CIO at Mount Sinai Hospital. \nFinally, J. Moses, co-founder and CEO of UGO Networks, an online entertainment network for men age 18 to 34, is more concerned about copyright protection than patents. As other sites have built business models around \u201cuser-generated content,\u201d he made the strategic decision not to allow users to upload content to his site. Given last month\u2019s announcement of Viacom\u2019s $1 billion suit of YouTube for copyright infringement, that\u2019s looking like a pretty savvy move.\nWhat Is the New IP Economy?\nI launched the discussion by asking each of the panelists for his definition of The New IP Economy. \nMicrosoft\u2019s Phelps pointed out that according to some estimates, over 80 percent of the value of the S&P 500 is tied up in intellectual property.\nBob Cote added that with so much of the market value of corporations tied to intangible assets, companies need to come up with a way to manage that IP, protect it and exchange it with others around the world. \nJ&J\u2019s Kuttler agreed but stressed how important it is in the health care realm to be able to do that simply, to make it easy, and to know what to protect and what not to. \u201cThe concern for us is that we protect the wrong things and make it harder for people to have successful healthcare alternatives.\u201d \nMt. Sinai\u2019s Nelson raised the issue of IP and partnerships. \u201c We have to make sure that IP doesn\u2019t get in the way of the business relationship; how do we keep innovation going even though we\u2019re protecting IP on both sides?\u201d\nJ Moses, who in a previous life was head of interactive at BMG, and who founded MTV in Russia (that hotbed of intellectual property rights) talked about the challenges of running a mid-size online media business that respects IP at a time when a lot of competitors are abusing copyrights \u2013 but because they\u2019re not generating revenue (just stealing eyeballs), the copyright holders don\u2019t go after them. \u201cWe can\u2019t play that game, because we\u2019re large enough to get sued.\u201d\nIn response to a question about who needs to worry about IP protection, Phelps replied, \u201cEveryone has to worry about this, I don\u2019t care what business you\u2019re in. You can patent your back office now. The reason we\u2019re still having conversations like this is IP still doesn\u2019t show up on the balance sheet. The accountants have taken a pass on this.\u201d\nThe State of Patents & Copyright\nThe conversation quickly turned to patents and patent protections. Bob Cote told the audience their companies would become \u201ca free research and development lab for your competition if you don\u2019t protect your ideas, your innovation. And then all you really have is a head start.\u201d\nIn response to a complaint by an audience member about the U.S. patent system and some of the ways it is abused (e.g., Jerome Lemelson and his \u201csubmarine\u201d patents; see \u201cLemelson's Legacy: Great Inventor Or Patent Hoarder?\u201d), Cote said, \u201cThe problems that are out there are overplayed; by and large the system works. We want the system we have in the U.S.\u201d as opposed to the systems that exist in other economies. \nMedia exec Moses returned to the issue of the copyright wars that are taking place over the Internet. \u201cAt the moment in the media business we have a lot of big players with very big bats in a ring beating the heck out of each other. Google is as much in the business of fighting this fight as they are in the business of search. But to carry a big bat is enormously expensive.\u201d\nAt the end of the day, Cote added, this is a fight that\u2019s going to be fought \u201con Capitol Hill and in Brussels and all around the world.\u201d\nThe IP of You\nJ&J\u2019s Kuttler made a fascinating point about IP in healthcare. \u201cWe\u2019re starting to talk about the information you receive about your health. We\u2019re talking about what happens with the genome, and what\u2019s available to you [as the individual]. Digital rights management goes beyond the YouTube discussion to who has ownership of the information about you. Can an insurance company apply that information if you have a specific genomic disorder and determine what your health profile is and make some determination based on that? Digital rights management has to be expanded to cover that territory. The situation with Viacom and YouTube is about starting that conversation, but it needs to take a broader context.\u201d\nHe also worries about applying IP protection to business processes: \u201cthis notion that because I choose to do something a certain way I can patent it. That actually scares me. the notion that a doctor could do a particular surgery in a particular way and patent that, so he licenses other doctors to use that procedure: that\u2019s monetizing intellectual property, and that scares me.\u201d\nMaking Money\nThe topic of monetization brought up other interesting ideas. For example, said Cote, IBM uses IP as part of its services portfolio, making $1.5-2 billion a year in an 80 percent to 90 percent gross margin business. He cited IBM as one of the real pioneers in recognizing that the innovation and ideas are the product.\nMicrosoft takes a different approach to monetizing its IP, taking promising ideas and spinning them off as independent companies. They\u2019re able to take an equity position in the company with their IP only, no cash. \nLockheed Martin takes their defense-related innovations and uses them to seed companies in the commercial space.\nAnd some companies use IP as a way to enter a new market. If you don\u2019t have patents, panelists agreed, it will cost you 20 percent to 30 percent more to get in.\nEvolving Business Model\nMoses has faith in the integrity of the U.S. consumer. "My base philosophy is that, in the United States, if you offer people a good product and a value equation that works, they\u2019ll take it, because Americans, by and large, do not like to steal.\u00a0 Steve Jobs and Apple have proven this to be true. This can be and should be and will be applied to other types of media going forward. It\u2019s about putting the right technology in place, it\u2019s about pricing it correctly, and it\u2019s about making it accessible. Now, I also launched MTV in Russia and spent a year in Russia; I\u2019m not sure this would work in Russia."\nOrganizational Hurdles and Changing Behaviors\nTo fully leverage your IP, you have to be able to \u201cput the discoveries of your professionals in the hands of your other professionals,\u201d said Mt. Sinai\u2019s Nelson. To do that, you have to \u201creward knowledge creation, sharing and reuse.\u201d\nIt\u2019s not easy to change the way large organizations operate. Nelson was with Ernst & Young in the early \u201890s when the firm realized that knowledge and IP were a huge differentiator and a way to win business. To change people\u2019s behaviors, they dedicated a fifth of their reward system to knowledge. Adding to the corporate knowledge base tied directly to earning more money.\n\u201cTo change culture, you have to create a reward system,\u201d Nelson said. \u201cMost people are coin operated.\u201d\nMicrosoft\u2019s Phelps offered another suggestion for kick-starting an IP program: \u201cGo find a place in the company that\u2019s not doing very well. They\u2019re going to be your easiest customer. If you make someone a few million bucks\u2026 then other divisions will see what\u2019s going on and say why can\u2019t we get in on that? That\u2019s how IBM did,\u201d said Phelps, who should know, since he helped start it all. \u201cIt took a few years to get everyone in the rowboat, but that\u2019s how we did it.\u201d\nPanelists agreed that none of this will happen without senior management and the CEO driving it across the company, but it can be difficult to even get senior management engaged, in part because \u201cit\u2019s a complete change in the business model,\u201d said Kuttler. \u201cGetting people engaged in that discussion \u2013 to believe in it \u2013 is a huge challenge.\u201d\nWhat the Future Holds\nWe wrapped up the discussion with panelists\u2019 predictions for the State of IP 10 years from now.\nMarshall Phelps: \u201cThis horizontal model we have now is going to move completely across industries \u2013 for example, data mining\/supercomputing and the pharmaceutical industry.\u00a0 The 767 was designed totally inside a computer. This kind of horizontal thing is going to blossom even more.\u201d\nBob Cote: \u201cPatent portfolio and IP management will become a critical component of companies\u2019 market value.\u201d Various studies show that companies with patent-driven business culture and sophisticated IP culture have significantly higher market value than those that don\u2019t. (Here's a great paperfrom Cote.)\nDavid Kuttler didn\u2019t have a prediction; he had a wish: To have the horizontal nature of patents actually work well: to understand what\u2019s out there; to make that simple for a small company that\u2019s out there doing something new, and the ability to include that in a contract in understandable, readable format. \u201cFor me it\u2019s about horizontal enablement \u2013 for me those are the business mashups that are going to occur. Mashups aren\u2019t about the technology but about how the businesses work together and make those things happen, and we\u2019re seeing fabulous results out of that.\u201d\nJ Moses: \u201cThere will be an almost limitless way in which we can all access intellectual property, and there will be an economic model to support it.\u201d\nJack Nelson: \u201cKnowledge sharing and collaboration is going to happen. What I\u2019d like to see is a truly dialogue-based knowledge tool that you can ask questions of, in English, and get back a real answer \u2013 not 94 million hits, most of which are meaningless."\nWhat I Think\nA few things struck me about all this. First, there are some amazingly sophisticated examples of large companies cultivating, leveraging and protecting their IP -- and there are some amazingly crude examples of companies being without a clue. This has created a huge delta between the leaders and the followers, and the leaders have a tremendous competitive advantage.\nSecond, the issue of copyright protection will get resolved, but it will take years. In the meantime, people's content will be used and abused in all sorts of interesting ways. Thanks to a provision in the Digital Millennium Copyright Act, the burden is on the copyright holder to track down and notify the infringer to cease and desist -- and with sites like YouTube, where users pop up content at warp speeds, this can be like playing a cosmic game of Whack-a-Mole in a truly surreal Fun House setting.\nFinally, companies are already being awarded patents on business processes. When you apply this to processes that affect public safety or health or any other socially critical area, the implications are stunning.\nDoes your organization value IP in the same way it values tangible assets? What's changed as a consequence? Let us know!