March 22, 2009

IAM/IPM - IP Ethics - Market Behavior

This is the third blog post in an ongoing investigation in how IAM/IPM capabilities apply to IP ethics.
In earlier posts I have looked into;

1. IPM/IAM - IP Ethics: Innovation Management

2. IPM/IAM - IP Ethics: Corporate Profile

This post will look more into IP in relation to market behavior. There are some market practices that almost anyone would consider unethical, such as litigation of academic institutions or effectively blocking societal benefits for personal (financial) gain. Then, there are the more uncertain cases such as gaining a control position by making technology incompatible with other technology providers, or solely focus on patent licensing without practicing the invention oneself. In the latter case, some may argue that this is not unethical when this is not the only revenue stream of a company (i.e. a mix of both patent licenses, and practicing of some inventions), whereas others may feel that it only becomes unethical when patents are acquired and used only for the purpose of litigating, whereas others may just perceive all of the above as innovative “new“ business models.

Access exclusivity: Ethical dimensions of patenting upstream technologies per se are often discussed in biotech (e.g. DNA patents, etc.). However, as most people would argue, the patent document protecting a biological invention is obviously not unethical in itself. The ethical considerations are (or should) rather determined based on how the intellectual property right is used. This brings the focus then to offer a value proposition with sustained control. Is it ethical to let only one entity have access to the invention as an exclusive license? What if the exclusivity is only geographical? Is it more ethical to offer non-exclusive access controlled by a pricing-mechanism? Of course, most people would argue that from a societal perspective the more open the access and lower the price is the better - but what if this means that return-of-investments for the technology are not reached? Time and money invested (could be external investments from public sources) is not returned, diminishing the value for the technology inventor, its shareholders, investors, potentially also affecting society.

Dependence vs loyalty: Many of today’s newer applications create utilities for its users (e.g. Facebook, MySpace, some mobile phone contracts) that will increase the more that join, which will make users persuade their friends to join as well. This is commonly known as the network effect. Common strategies to capture the value from this mechanism include lock-in strategies, which create a dependence to a certain provider due to substantial switching costs. While this may create lucrative revenue models, there could be a point for enabling technologies where the incompatibility between different technologies may create societal inefficiency problems. Participation in standardization (in particular open standards) efforts may therefore provide both an opportunity to design a future market but also a way to ensure that transactions costs for society are kept to a minimum.

Transparency: Knowledge-based business, unlike traditional industries where production and marketing of physical goods was in focus, that is run efficiently will have an inventory of valuable objects which do not show up on the financial statement. These objects, commonly known as intellectual assets (IA), may be what distinguishes one company from another but will still be difficult to know for anyone external to the company or for stakeholders such as shareholders. A US Supreme Court decision (1976) stated that under federal securities law and court decisions, a public company has an obligation to disclose a fact in its filings if "there is a substantial likelihood that a reasonable shareholder would consider it important". This may rightly be considered to be taken somewhat out of context (as the case is focused on negative effects), but the point that I am trying to make is that a lack of transparency is a matter that is likely to be taken seriously by the public, and should therefore be managed in a controlled manner. An efficient IA management system enables IA reporting where objects (R&D assets, processes, surprising research results, technology know-how, etc.) can be packaged and managed into a state where it can be controlled whether certain assets may be propertized into patents, plant variety rights, trademarks, copyrights, design protection or similar. This is important since the balance between what to disclose (and render non-patentable) to the public and what to keep secret obviously needs to be fully aligned with the IP strategy of the company (meaning that assets often most appropriately should be registered intellectual property rights first unless a defensive publication strategy is being pursued).

The latter is not a clear-cut ethics issue, but I think that it is still an interesting perspective to look from upon IAM, since the focus of IAM discussion is usually on how it can be used for tax savings, expanding the portfolio, etc. As I have mentioned in previous posts, this list should rather be viewed as some examples of cases I find interesting in relation to ethics rather than a holistic or comprehensive framework thereof.

Tobias Thornblad
(follow me on: Twitter)

IP and Ethics, in relation to IAM/IPM capabilities, will be discussed more in-depth during the CIP FORUM 2009 event (6-9 Sep), where myself and fellow Intangitopians will actively participate.

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