Speech by Frans van Houten at IP Business Conference, 23 June 2014

Spoken words count

June 24, 2014


It is great to be here with you today. Philips is a loyal supporter of the IPBC, and our IP top executives have always actively participated. This year, the conference takes place in Amsterdam, where we have our head office. So it was only natural for us to become the Host Country sponsor.


I have been told that I am the first CEO, as opposed to CIPO, to give the key note speech at this event. I think that is great for both Philips and the IPBC! It shows that we both see IP in the same way: as an important, value-creating business asset.


So today I want to talk about the close relationship at Philips between our businesses and Philips Intellectual Property & Standards, or IP&S for short.  As they say, a business strategy without an IP strategy is no strategy. This is certainly true for Philips, a company which has innovation and R&D written into its DNA. That’s why IP&S is involved in our entire process of value creation.


Mission to improve people’s lives through meaningful innovation

Let me first talk about our mission. Our Mission at Philips is to improve people’s lives through meaningful innovation. To fulfil this mission, we try to find innovative answers and solutions to some of the world’s bigger challenges. The challenges we focus on include the ageing of the world population, the rise in chronic diseases and the strains this puts on our healthcare systems. We address these challenges in many ways, for example with our state-of-the-art medical imaging that is revolutionizing healthcare. For example, Philips’ innovations have helped develop minimally-invasive cardiovascular interventions. They have now become a safe and cost-effective alternative to costly, risky open-heart operations. People can go home the day after the operation!


Another challenge we address is the global trend of urbanization and what it means for the ‘livability’ of our cities as well as the need to save energy and reduce pollution. Our solutions include smart, energy-efficient, LED-based street lighting systems that you can see all over the globe. Here in The Netherlands, but also in Argentina and China, these solutions save 70% of electricity! Together with many other companies, governments and NGO’s, we tackle these challenges and we aim to create value for our stakeholders in the process. As a diversified technology company, we have around 40 businesses in the areas of Healthcare, Lighting and Consumer Lifestyle. About 70% of our business is B-to-B or B-to-G.


Indeed, innovation is our lifeblood. Over the last century, Philips has undergone many transformations, but we are still very true to our roots, to the search for meaningful, innovative solutions so close to the heart of our founders, Gerard and Anton Philips. We feel inspired by their entrepreneurship and innovative drive. What differentiates us from other innovative companies is our deep understanding of people’s needs and aspirations. We use this understanding to deliver innovation that is personal, relevant and impactful. Making technology work for people; that is our ‘sweet spot’. This is as true today as it was over a 100 years ago.  We made the incandescent light bulb reliable and accessible for all. We brought radio and television to the masses. We made the invisible visible with our X-ray machines, already in the 1930’s. And today, we continue to deliver innovation that matters - with our creative use of energy-efficient, versatile LED and OLED lights, in the whole range of lighting applications, from luminous textiles and carpets to football stadiums. We fight obesity with our Airfryers that don’t use fat and help to prepare healthy and tasty food; we treat cancer through minimally invasive methods; we create breakthrough innovations in clinical informatics by using big data and cloud applications, for the benefit of medical professionals as well as patients.   


Intellectual Property at Philips today

Gerard Philips filed our company’s first patent in 1905, on an invention to extend the lifetime of the incandescent light bulb. Ever since, IP has been intimately linked to our innovation. For many decades, we have been at the forefront of the global IP Community, and we still are. In 2013, we were in the Top Ten of many major IP rankings. At the WIPO, we ranked number 10 in patent applications under the PCT. We were number 2 in “The Hague” design rights applications and number 9 in “Madrid” trademarks applications. At the European Patent Office, we were the third largest filer of new patent applications. Our total IP portfolio now consists of 64.000 patents, 46.000 trademarks, 93.000 design rights and 4.700 domain names.


These are big numbers, but, as you all know, the quantity of patents and other IP is only relevant if the quality is high. For us at Philips, quality is much more important than quantity. That is why we put the bar for filing patent applications so high at Philips.


So, it’s clear that we have got quite some high-quality IP. But why have we got it, how did we get it and what do we do with it? That depends on our business strategy and especially on our strategy for innovation and R&D. For each business, it is all about the alignment of business strategy, R&D strategy and IP strategy. Let me, therefore, share with you a little more about how we approach innovation and R&D.


Philips’ approach to innovation and R&D

As a company operating in a very competitive environment, we play to our strengths. First of all, our deep market insights, based on close contacts with clients and other partners. When we come up with a new idea, it is based on constant interaction with these partners. We don’t dream it up ourselves in a lab or office! For some companies, the lab may be their world. For Philips, the world is our lab! In the spirit of Open Innovation, we engage our customers, suppliers and R&D partners from the very beginning. We listen, we ask, we suggest and we act. Our researchers, our product developers, our market people and, of course, our people from Intellectual Property & Standards, play a crucial role in every phase of the end-to-end innovation process.


Secondly, we build on our strong record of technology innovation. Of course, innovation is not only about technology. At Philips, we also innovate in many other ways. By improving our business processes, for example, so we can get products to market faster. Or by creating new business models such as selling light as a service, or long-term deals with hospitals where we get paid for the cost savings and quality improvements achieved.


But let me focus here on technological innovation. We are committed to R&D as the engine of this innovation. In 2013, we invested well over 1.7 billion euros in R&D, that’s about 7.5% of our 23 billion euros in sales. This shows our deep commitment. Currently, in the Age of Big Data, the Age of the explosive growth of digital interconnectivity, we focus much of our R&D on intelligent, connected, integrated systems. Think for example of smart, fully connected street lighting, where you can manage 100,000 street lamps in a city from one single computer. Another example is connectivity, data integration and data analysis within the hospital. We are the worldwide leader in patient monitoring and our intensive care unit solutions enable 24/7 monitoring of thousands of patients by a small team of doctors and nurses. This reduces costs and improves the lives of patients at the same time. And I could go on with other examples; digital is clearly transforming our businesses.


Our technology innovation strategy looks at both the short and the long term. We don’t want to fall in the trap of ‘short-termism’. Maybe you know the proverb “He is so busy fighting the crocodiles, that he doesn’t have time to drain the swamp.” In other words, he is so busy with the day-to-day problems that he forgets about the bigger picture, about the root causes, about what is necessary to win in the future. In their R&D efforts, some companies are only fighting the crocodiles and limit themselves to incremental, short-term improvements of existing products. That is necessary, of course, but not enough. At Philips, we try to drain the swamp as well. Even in recent bad economic times, we have consistently continued to fund research that looks at breakthrough innovation. We are entrepreneurial, we take risks. We do not shy away from investments in more risky R&D for break-through inventions, R&D that can help create new solutions, new business or even whole new markets. For example, we are pioneering the use of LED lighting for City farming, the growth of fruits and vegetables in multi-layered food production lines right in the city, giving you fresh foods without pesticides. We just installed one of these vertical farms in Chicago.


Strong assets underpinning R&D and IP

The contributions of both Philips Research and the Intellectual Property team in our long term innovation efforts are vital. Research and IP&S are both part of Philips Group Innovation. At Philips, we make a distinction between business-led (incremental) innovation and group-led (breakthrough) innovation. This group-led innovation has an outlook of five to ten years, whereas the business-led innovation only has a horizon of a couple of years.


For this long term innovation, we know the importance of the 3 P’s: patience, persistence and perseverance. As you all know well, most money often is made in the last years of the lifetime of a patent. From the very beginning, our IP&S team looks where the IP roadblocks and gaps may be. They perform extensive IP benchmark and patent landscape analyses. These landscape analyses and methods help answer the many ‘make or buy’ IP questions. They act as truly trusted, strategic counselors.


So our main assets include our deep customer insights; our strong tradition of working with clients and other partners; and our excellent capabilities in technology innovation, including our world-class IP organization. I also consider it a great advantage that we have a presence in more than 100 countries, including all major emerging economies, where we now realize one third of our global sales. We employ 14,000 employees in R&D in 27 countries at 230 R&D locations. This is important for us to get better local customer insights and it enables us to team up with major universities in local R&D hotspots.


Another strong asset is our Philips brand, currently valued at more than 9 billion US dollars. That means we are now ranked number 40 on Interbrand’s list of global most valuable brands; ten years ago, we were ‘only’ number 64. But these numbers are not as important as the reality behind the strength of our brand. And that reality is that our customers trust us, because we deliver on our brand promise to provide innovation that matters to YOU. We make technology work for YOU, whether you are a city planner, a hospital director or a consumer. Moreover, we address the local needs of each individual customer in each geography. We combine global scale with local relevance. This requires an operating model where market teams and product creation teams work closely together. This allows for late-stage customization in order to cater for local needs. We take into account that the needs of a rural hospital in India differ dramatically from those of a hospital in Beverley Hills. And our healthy rice cooker for the Chinese market quickly became a multi-purpose cooker for the Russian market and a bean cooker in Brazil, all based on the same platform.


Let me now turn to IP and Philips IP&S. Everybody here thinks of IP in value terms; otherwise, we wouldn’t be here at this great conference! Let me tell you where I see the great value of IP for our company. Some may say: ‘licensing income’. Yes, I agree. Licensing income has been important for Philips. But at the same time I certainly realize there are many other ways of extracting value from IP than just licensing. IP rights can protect new technologies and deliver premium margins through exclusivity of product features. IP rights can guarantee companies freedom of action. IP rights are a great currency that facilitates joint ventures, partnerships with start-ups, and research-cooperation with knowledge institutes. These invisible euros are actually very real! The value of the Rijksmuseum for Amsterdam’s economy may be difficult to define, but is certainly far bigger than the income from the entry tickets sold. In the same way, the value of IP for a company is far larger than its licensing income.


So it is important to look at the total value of IP. For me, the value of IP at Philips is represented by our steadfast dedication, our expertise, our experience and our investments in the area of IP. All this is embodied in the organization and the people of IP&S. That is where the real value is, in the people and the way they work!


Philips’ IP organization

So let me explain to you how we work. Our IP department is run as a business with its own profit-and-loss account. Our IP strategy is fully aligned with our company strategy. The key managers of IP&S have quarterly meetings with the managers of the specific businesses and Research. IP&S discusses its own annual plan with the Businesses’ management. The head of IP&S, Brian Hinman, is with us here today. At least once a quarter, he talks to the company’s Board. Brian reports to Jim Andrew, who is my Chief Strategy and Innovation Officer in our Executive Committee. So he’s not reporting to the Chief Legal Officer or General Counsel, no, I have my CIPO report directly to my head of Strategy and Innovation, at the very heart of our company’s business.


What’s also important is that IP people at Philips speak the common language of business, that is, financial language. Philips IP&S has developed great valuation models, so we can put a financial value on all those benefits of IP that are not directly monetary. The top team at IP&S knows how to express IP-related alternatives, opportunities and threats in business language, so we feel comfortable making choices. I love sailing in my spare time. Just like the captain on a boat, as a CEO you need to go where the wind is. The information you receive from the experts among the crew is vital in your decisions on the best course and speed to win the race.


I also like IP&S’s integral approach to IP management. We have broken down the silos between patent experts, trademark experts, copyright experts, etcetera. These different experts work together in integrated teams that develop holistic views of what the best IP strategy is for a specific product, market or technology. This is what we call Integrated Intellectual Asset Management.


IP&S has five main remits: IP Creation, IP Value Capturing, IP Value Contribution, IP Counseling and representing Philips in IP matters in the public domain, including work on technical and public standards. As for IP Creation, we ensure that we have a strong IP portfolio that is constantly monitored and discussed with the businesses and with Research. IP&S leverages its long-term view of our IP needs to fill gaps and work around roadblocks early. They are Philips’ scouts in its journey to value: they are ahead of the troops, they discover friends and enemies ahead, they help to define our route, and they prepare the road.


IP Value Capturing is about an offensive use of IP initiated by Philips to ensure exclusivity of our products or commercial income from our IP. We talk about IP Value Contribution when we react to third party IP initiatives and try to achieve freedom of action, or to mitigate licensing obligations. As for the fourth remit, counseling, IP&S helps out the Businesses, Research and the Board in many areas, ranging from advice on IP aspects of M&A or joint R&D projects to litigation.


Finally, representing Philips to the outside world in IP matters and Standards discussions is a highly important task. In standards, we work together with all other parties and try to foster standards for the common good as well as safeguard our legitimate business interests.



Ladies and Gentlemen, I hope my thoughts on IP have given you some insights in Philips, our innovation efforts and our IP practice. Allow me to conclude on a personal note for Ruud Peters and Brian Hinman. Brian took over from Ruud as CEO of IP&S and Philips’ CIPO on January 1st. Ruud’s commitment at the helm of IP&S was of enormous importance during his 15 years as its CEO. I am very excited to have Brian on board as his successor. He brings to the table a fresh, new, outside perspective, and over 25 years of experience in senior executive positions in the field of Intellectual Property.


Brian’s world will be a different one from Ruud’s. I have already mentioned that Big Data, digital interconnectivity and the Internet of Things are transforming the world and Philips’ businesses. These and many other developments will of course have an impact on the role of IP in society and Philips’ IP strategy. The relative importance of patents, trade secrets, copyrights, design rights and trademarks may well change. And what about the emerging countries and how to enforce your IP rights there?


This could be the subject of another speech but don’t worry, I am not going to give that speech now! I just want to say that I am very confident that we are up to this challenge. IP&S will continue to go from strength to strength.


Thank you very much for your attention and enjoy the conference and Amsterdam!