April 28, 2009

Who Licenses out Patents and Why?

I resonantly read a report on patent licensing from OECD called “Who Licenses out Patents and Why?”. The report is based on a study made on patentees in Japan and Europe and focuses on if they are licencing out their patents and if so why.

Main Findings
One of the main findings in the report is that it only is a limited number of the patent holders which actually license out their patents. The number is around 20% for European ones and 27% of Japanese companies license their patents to unaffiliated partners.

When it comes to what companies that license the report find that it is an U shaped curve with higher licensing with smaller and larger firms. This might be explained by that larger companies produce complicated products needing to license in technology and enter in to cross-license deals. Whereas the smaller companies need to outsource their technology to different manufacturers.

This might however not be totally consistent since the main reason for out licensing is to get revenue from the patents the company holds.

Johan Örneblad
(Follow me on Twitter.)

The report can be found here.
IAM Magazine Blog and The 271 Patent Blog have also written about the report.

Book Review - The Invisible Edge

I thought that it would be nice to provide some variation to Intangitopia by recommending a book that I read recently. The recently published book is called The Invisible Edge- taking your strategy to the next level using intellectual property.

Intellectual assets and IP are traditionally not discussed in the boardroom as the core to business strategies in the way it really ought to be discussed. This is true both for many industries/companies as well as for many of the US top business schools. Too often, business managers think of IP as a problem for the patent lawyer to deal with, or that it only applies to particular industries such as entertainment, software and pharmaceuticals. The authors argue that IP instead should become your number one priority and be the core of your strategy (which may be compared to one of the older posts here at Intangitopia).

Zooming as a Concept
The book introduces the concept of “zooming” where the analogy of using different “lenses” allows you to see different dimensions of your strategy. Using this concept allows you to look at specific cases from several perspectives, and is also something that we recently utilized at Intangitopia in a post to visualize value extraction in Agribusiness. The IBM PC is used as one of the examples in the book. IBM’s strategy is argued to be perceived as an innovation success on a high-level (“architecture level”), whereas it is obvious that a zoomed-in picture (“component level”) reveals details that show a platform where control (and market share) is gradually lost to become cloned and flooded by competitors making implementation on a detailed level less successful.
The book provides some really interesting examples of “zooming” where one starts at the level of competition between nations only to gradually zoom in to company competition, networks of inventions/developers, technology inter-dependency, patent rights and claims thereof.

Control - Collaborate - Simplify
Another simple, but yet elegant, concept that the book presents is: control-collaborate-simplify. This is more of a holistic framework of the dimensions of IP rather than a readily applicable tool. The model describes the exclusionary role (control) of IP that still is the focus of many firms versus the newer phenomena of openness and co-creation (collaborate), and how these concepts can be packaged and shaped (simplify) using ingenious designs, setting standards and architectural thinking into logical/intuitive models that will be the factor that “wins over the market”.

Case Studies
The book presents a wealth of studies ranging from the steam engine to golfballs, razors, computers, patent trolls, as well as IP strategies for Lenovo, Qualcomm, Xerox, Toyota and Boeing among others.

About the Authors
Mark Blaxill and Ralph Eckhardt are managing partners of 3LP Advisors. Blaxill is a former senior vice president of The Boston Consulting Group (BCG) and was head of its Strategy Practice Initiative. Eckhardt is the former head of BCG’s intellectual property strategy practice.
More about the authors here.

The book is very inspiring and is an exceptional read for anyone who is new to the IP world and would like to understand its importance in relation to business strategy and the new economy. Personally, I enjoy case studies and therefore find the book to be really useful to see what strategies that have worked or failed in the past. One of the best things about the book is that it is written in a way that is easy to communicate to non-lawyers, meaning that it provides a good tool when looking for examples to describe why a client should worry about their IP strategy or why patenting should be a boardroom decision. The only negative aspect that I found about the book is that I would like to have seen more detailed frameworks, models and checklists for successful implementation of IP strategy, and I really hope that there will be a more advanced second book in the future where more hands-on advice is provided. I do realize however that the contextual nature of IP makes drafting of general widely applicable frameworks extremely difficult. Nonetheless, I enoyed the book and I recommend reading it.

Tobias Thornblad
(Follow me on Twitter)

Get the book here

More information:
Forbes: IP Is Now Job One For Every Senior Executive
IP Think Tank Podcast: interview with the authors here
IP Finance: Anther book review here

April 17, 2009

The Pirate Bay Verdict: Bad marketing for Intellectual Property

Sometimes, I am ashamed to say I am an IP professional. I rather say I work with Innovation or just general business development.”

Massive attention is directed to the trail and verdict for the founders of The Pirate Bay, a.k.a. the spectrial. Today at 11:00 CET the verdict was released and 15 minutes later the Chairman of the Court, Tomas Norström, held a press conference. The press conference can be heard in Swedish here.

The verdict states that the four convicted are going to pay $905K each and are sentenced to one year imprisonment. The appeal will come is a matter of course, so the outcome is far from set yet since this is the lowest out of three instances. The verdict could be found in Swedish here.

Regardless the stage in the process, the reactions is substantial in the digital community and the rumors are that demonstrations are going to be held in Sweden in the near future. This blog post is not about whether or not the verdict is correct, it is about the bad press intellectual property as concept receives in this process.

So what is Intellectual Property?

Still the term is quite ambiguous and used in many ways dependent on context and market. This is just one non-exhaustive description of the perception which is mine and taught at ICM.

Intellectual Property is one of the primary vehicles for wealth creation in the knowledge based economy. Intellectual Property makes intellectual/immaterial assets translatable, and thus economically functional and managerially controllable.

Consequently, the concept facilitates properties needed for entrepreneurial activities such as turning an invention into an innovation to enable creation of so called intellectual capital, where commercial interaction is a subset of intellectual capital. A quite positive and needed mechanism, don’t you agree?

Where things went south

Currently, copyright and patents are the IPRs mostly attacked and connected to the phrase IP in media. The IPR system is accused not to cope with the technical developement and is percieved to represent the rights system pre-internet.

Copyright – Copyright is seen as something holding creativity and creation back. Both due to the quite long life time of the copyright, but also due to the change in how we consume copyrighted materials nowadays. One of the most disruptive pattern in this is file sharing, now enables global dissemination of knowledge and culture practically for free. File sharing is seen as one of the primary democratic vehicles but in the same time as the technology version of Beelzebub destroying copyright holders’ opportunity to preserve the moral and economic rights over their copyrighted material.

Patents – Patents are commonly plainly coined as intellectual property, which naturally is wrong since the concept is much broader. Patents have gained a lot of negative publicity lately in relation to software patents, but also in relation to Big Pharmas use of their patent portfolios.

This is a free translation from one organized entity against intellectual property´s conclusion:

“[...]Thus, the only ones who actually benefits from the use of patents are the paten attorneys or IP lawyers. Without a patent system, they would be unemployed. Unfortunately, these people form the politics and policies in our society despite their lack of objectivity.[...]”

(The reason why I dont state the source is that I dont want to direct more attention to this organisation, for most of you who follows the debate surrounding the Spectrial knows which entity I am citing. However, for transparancy reasons I am happy to provide the source via e-mail)

How to turn the direction of where the perception of IP is heading

I guess the youth of today imagine Intellectual Property professional to be a greedy, filthy rich, old fart making his living on exploiting what they perceive almost as human rights. At least this is the perception I’ve got following the spectrail discussion, my own twitter feed and other media.

To change this, the mindset of Intellectual Property owners must change. IP is not an exclusive right to exclude others from using the captured assets constituting the IP. It is not a tool to keep the third world from the global trade. It is not a tool to hunt poor counterfeiters to increase bottom line results for multi-national conglomerates. However, that is the way IP is presented in media and often used by the IP owners.

We need to see change in how IP is used in the business arena. The positive properties with IP as facilitator for the development of our society must be communicated. It must be brought back as the primary asset for entrepreneurs regardless if they build they utiliza online business models or not. I hardly believe spectrail helps in that. We need more initiatives such as Spotify, TED (CC-licensed content), Hulu, last.fm, etcetera. They leverage the technology development of file sharing and streaming without violating the underlying IPRs. Let’s pray to improve the perception of intellectual property and to get help by a more innovative culture industry, an industry taking the step into the knowledge based economy.

For further reading about perception of IP, please read Roya Ghafele´s Perceptions of Intellectual Property: a review. For further reading about IAM/IPM in the business arena read Tobias Thornblad’s splendid post.

Mathias Hellman (follow me on Twitter)

EDIT: the youth political organization Ung Pirat or Young Pirate in English, is now the largest in Sweden. However, Larry Lessig had somewhat of pin pointed the question already two years ago at TED.

April 13, 2009

IAM/IPM system in Agribusiness visualized

In my previous blog post, I conclude with “IAM/IPM capabilities will need to become key to business strategy for every organization that wishes to be a player in a knowledge-based economy”. This will require companies to form, and transform into, elaborate IPM/IAM systems where internal assets are consciously controlled to create maximal value. Teece D.J. states in his 1992 (Competition, Cooperation and Innovation) article “the boundaries of the firm are getting fuzzy”; and it is therefore, in my opinion, even more important to manage all types of assets in the development network of a firm, since value creation will be more and more dependent on collective participation in open technology platforms. However, this is to think in practice but rather complex to implement in practice. I therefore thought it would be interesting to visualize a small case study of a real life example where an intellectual asset strategy has been successfully implemented. The problem, as always, is that there is never enough public information available (for obvious reasons) to do an in-depth study, so bear with me as I briefly try to deconstruct one of the more successful commercialization strategies in Agbio; Monsanto’s commercialization of its INGARD technology in Australia.

Case Background
Cotton containing the Bt gene – known as ‘Bt cotton’ - was among the first genetically modified crops in widespread commercial production. Bt cotton has been commercialised in Australia, by Monsanto, under the trade mark INGARD® and in many other countries under the trade mark BOLLGARD®. INGARD cotton has been modified by the insertion of the Bt gene derived from Bacillus thuringiensis together with a promoter region into the cotton DNA. The genetically modified cotton plant expresses the Bt toxin targeting pests such as the cotton bollworm and the native budworm.
The key players involved in the commercial development of INGARD cotton technology in Australia are;
• Monsanto: the owners of the Bt patent and the INGARD® trade mark
• CSIRO: the public sector research institution which owns variety rights on cotton germplasm
• Cotton Seed Distributors and Delta Pine: two commercial seed firms.
Read more about the case here.

The INGARD Value Chain
A simple overview of the value chain that shows a high-level of a selection of the transactions that enable the commercialization strategy is shown below.

Knowledge Management: At the top of the value chain is the knowledge management level. Here all the basic discoveries and enabling technologies can be found that provide a foundation of information and knowledge that may ultimately lead to societal utilities through bundling, innovation refinement or other usage. In this case we find scientific discoveries that ultimately lead to the identification and characterization of the Bt-gene and promoter. The arrows between Monsanto and these discoveries are dashed as I have not been able to find any information regarding the transactions between these two levels.
Genetic Management: At this level we find Monsanto and its Bt-gene capabilities and assets, in this specific value chain.
Genomic Management: Despite Monsanto’s many years’ of R&D in the Bt-gene and its expression in plant systems it did not (at the time) have access to suitable germplasm necessary for developing new varieties of cotton bearing the gene for production in Australia. CSIRO did both have the germplasm and a commercial partner (Cotton Seed Distributors) with the capabilities to distribute the finished product.
End-user Level: The finished product (commercial Bt-cotton) is delivered to growers at this end-user level. Much of the success of Monsanto’s commercialization strategy was owing to the technology user agreement that enabled additional value extraction and direct royalties from end-user to technology provider.

IA/IP Management Level
It is quite simple to stop the analysis at the “value chain level“ and conclude that licensing is important in a knowledge-based economy. This is too simple, in my opinion, and fails to unveil where the real value is created and captured. To understand this on a more detailed level we need to zoom in to see ”Monsanto as a value generating IAM/IPM system“. Since I was able to find Monsanto’s technology user agreement for INGARD cotton (1999/2000) I was able to map out at least some of the value creating processes on a more detailed level, although there is still a lot left to understand for a full picture;

Since most of the assets shown in the picture are of intangible character, it is simple to conclude that clever governance will allow for value extraction of one assets in simultaneous markets (e.g. Bt-gene in cotton, corn, soybean, etc.). Moreover, some assets will increase in value by feedback-loop mechanisms where the technology and market database is an interesting example. According to the user agreement, growers are obligated to disclose scaled map of their farm units as well as information about what they are growing and how. This valuable information becomes proprietary to Monsanto which is allowed to use it as value propositions towards CSD ”to anticipate INGARD Cotton Seed demand“, according to §6.1 (c) of the technology user agreement, meaning that the value of this database further increases as more customers uses the technology. Then considering that growers are obligated to grant-back improvements and developments in relation to the technology to Monsanto ”to use, license or assign, without charge or restriction” (§4.3) it is quite simple to conclude that this is a valuable strategy for the company.

More about IAM/IPM capabilities in upcoming posts.

Tobias Thornblad
(Follow me on Twitter)

IAM/IPM capabilities will be discussed further by prominent IP thought-leaders during CIP FORUM 2009, 6-9 Sep, Gothenburg, Sweden.

For some interesting examples of the norms that create these types of transactions see: http://intangitopia.blogspot.com/2009/05/transactional-norms-in-agricultural.html

April 8, 2009

The IP marketplace in 5 years?

I recently answered a question at LinkedIn with the same question as the title above. I found it very close at heart and thought I'd incorporate it here for further thoughts and some more elaboration

When I think of the IP marketplace I envision sales and acquisitions of IP and not the roll of IP within the marketplace (i.e. technology). The closest embodyment so far would be Ocean Tomo, which seem to have hit a slump with its last auction being seen as a failure (see here and here). In recent years we have seen a surge of different players entering the market (Ocean Tomo being one) and I am a firm believer that this is a field in its infancy, which I have written about here and here.
Before elaborating more on how I see the IP marketplace in five years, I'll take you throug my reasoning. I have chosen only to look at patents as they are by far the most liquid asset.

The IP Marketplace today

First 4 observations I hope we can all agree on:
*Corporations continue to file enormous sums of patents each year, thus "non-core" patents will likely only increase and so will supply for a market.
*Not least in this recession, bigCo,smallCo and inventors are having an easier time to motivate divestiture of patents and are also in greater need of liquidity.
*Non-us legislations are slowly catching on the US model of heavy patent litigation (examples are EU harmonization attempts).
*Increase in large scale patent acquisitions by e.g. trolls, RPX, IV etc.

Looking at above factors; increase in supply and demand combined with legislative action - the obvious answer would be that the IP marketplace would be booming. However this is not that straightforward.

The main reasons for that being:
* Selling (or out-licensing) naked patents is very hard and time consuming and is very much a tacit skill compared to selling many other asset classes which have no element of negotiation as well as much historical data.
* IP landscapes are often cluttered due to wide X-licenses, encumbrances / deal clauses, standards and what's commonly seen as the "troll threat".
* The marginal value for naked patent acquisitions / in-licensing is situation based and that value is often logarithmic from buyer point of view.

I think that in 5 years the IP marketplace will continue to be built up by three sub-markets:
* BigCo broad licensing - continuing with wide X-licenses to increase FTO.
* Liquidity Divestitures - from BigCo to inventors, patents for sale will go up.
* Patent aggregators - nothing indicates any slowdown of RPX, IV trolls.

The IP market moving forward - more behavior than a unified exchange

However I believe there will be great changes, but within quality and behavior as companies recognize strategic value of patents and also the importance of dealing with acquisition or divestiture properly. E.g.:
* Companies will actively start looking for certain technologies when planning a new venture / spin out / line-extension slightly outside of core.
* Patent sales will require more and dedicated work by the seller if looking for short term ROI. The model with an unspecified Cease & Dsesist, countered by a declaratory judgement and then a long wait in Texas, Cali or Delaware is not scaleable and slow - not to mention unpopular.
* With laws passed that could open up for lawsuits also outside of the US, savvy companies will start to be proactive when considering defensive or offensive IP acquisitions to strenghten portfolio.

One could draw the easy parallel of IP and general business where certain amounts of analysis, preparatory work, appealing sales material etc. are given and anyone not complying with the norm has no chance (e.g. not having a thorough business plan, strong PPT and proof of concept if driving down Sand Hill Road). My meaning being that such a norm has not been set in the IP sphere yet.

The emerging new actor

In light of an increase in "homework" (i.e. analysis) needed I see the emergance of a new actor. Such an emerging actor would be similar to an m&a department within an investment bank. An actor dealing with sellers and buyers, possibly being a strategic partner to BigCo when divesting/acquiring patents. Cases are built around business, technical and legal strenghts. Key metrics are profitability, portfolio strength, ROI and regional / technological FTO. This actor will also, like the banks, rely heavily on trust and look for long term partners rather than short term assertion raid. Which is also the reason why such an actor in the long term could develop a scaleable model of naked patent sales - which I see as the true key of a functioning patent marketplace.

// Marcus Malek
(follow me on twitter)
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