Genetic Engineering: Innovation and legislative landscape

As I mentioned in the first blog post this year, I am currently writing my master’s thesis together with my colleague Sina Keshavarzi in Indianapolis, USA. We are exploring the biotech sub-market of biofuels where genetic engineering of organisms provides tremendous potential for leverage. As a part of this study, I have today mapped out the innovation and legislative landscape for genetic engineering in a diagram that I thought that I would post here hoping for some feedback on what else to include. Click on it for better resolution. Please let me know what you think!

Tobias Thornblad

The diagram in this blog post is distributed under a Creative Commons (CC) license. This doesn't replace copyright – which remains undivided with Tobias Thornblad – but it makes the terms more flexible. Anyone is free to download the the diagram; share it with friends; republish or embed it on their website or blog. But this use must be made within the terms of the CC license "Attribution – NonCommercial – NonDerivative."

This Creative Commons license allows you to reproduce, distribute, display or perform publicly the diagram as long as you follow these guidelines:
Attribution: you reference explicitly Tobias Thornblad (Intangitopia) as the original source of the material.
NonCommercial: You can't use the diagram (or any parts of it) for commercial purposes.
NonDerivative: You cannot alter the diagram in any way (edit, cut, etc). These conditions can be modified only by explicit permission of the copyright holder (Tobias Thornblad). The complete text of the license can be seen here.

IDsoftware is reinventing virtual products: Quake Live

IDsoftware has with its latest product surely taken the way of how gamers are able to play a full-scale 3D game to the next level. The provided Quake live platform enables players to play their favorite game directly through the web browser. Once the game is set to full-screen mode, the player will not be able to distinguish the online game from the original game Quake 3 which Quake-live is built upon. More information for the less informed reader could be found here, here and here.

Revenue stream
This brings us to the key question of how a company can keep a game alive and have a revenue stream when players do not follow the conventional pattern of buying new games in order to satisfy their hunger for challenges. Game companies have since long realized how important it is to keep the customer base once they have released a blockbuster game. The enormous online society of World of War Craft is probably the best example in how to keep customers close. The difference between WOW and Quake3 is extensive, not only are these completely different games but that WOW players still expect new features and updates whereas the Q3 players do not.

Shifting focus from hardware to bandwidth?
IDsoftware seems to have a good approach to the solution which is a quite remarkable one. As of today, they are still looking for beta-players to test the game and the potential of the site. More than 1.200 players are already testing the game which only requires a small client-program. It should be highlighted that the game in question, is a full scale 3D-shooter game looking just like Quake 3 which back in 2001 required the best hardware available. I dare to say that this is truly revolutionary if they succeed to accomplish to provide a service where the game floats without delays, which is the most crucial performance parameter within this game genre. As of today, there are no indications of such drawbacks. This unique platform will enable players to compete against others, participate in tournaments and track their game statistics.

What will the business model look like?
The concept is clever in many ways from a business point of view. The company will be able to establish technical control since the players will only have access to the game through their site and since the game is run completely on the server provider’s side, the possibility to cheat are close to zero and facilitates updates. For industry actors, e.g. hardware manufacturers, the site will provide great opportunities to sponsor tournaments and brand themselves among players. The possible opportunities remind of sponsored tournaments on internet-poker sites where the sponsoring party is providing a tournament with a variable price sum. With the strong brand name Quake the future opportunities for the Quake-live platform look promising. Let’s hope that advertising will not be their only revenue strategy.

Whether Quake-live will be a success or not is difficult to say but it is still a happening worth mentioning due to the innovative nature of the concept in an already innovative industry in today’s knowledge-based economy. To re-release an old game, packaged in a new concept and technology and make it financially profitable is surely not an easy task. However, the concept opens the door for a new paradigm for how games are distributed to customers and to strengthen IPR control technically. It is really taking virtual products to its limit and further diminishes the importance of operating systems towards an increasing focus of online applications which can be observed by looking of how Google continuously works its way to move office applications into the online applications domain.



Nicolas Preisig is the second guest blogger invited to post his thoughts here at Intangitopia. He is a part of the new generation of highly talented engineers, lawyers, and business managers pursuing modern skills and tools necessary to create value for industry, universities, and society in the emerging knowledge-based economic paradigm. The ideal education to acquire this skills and tools is the School of Intellectual Capital Management at Chalmers University in Gothenburg, Sweden.

A tax we want? - the success of trolls, trolls 2.0 and why we perhaps want to keep it this way.

Recently Fred Wilson twittered and blogged, at his always interesting VC blog, about his opinion on patent trolls. He said: "Just in case you didn't know how I feel: patent trolls are a tax on innovation and are evil of the highest order"

After that there was a wonderful set of comments on the same blogpost (I encourage to read them) and two linked post found here, and here. The latter by the CEO of the Fred's portfolio companies that were infringed. Fred's expression, comments on his blog/twitterfeed among other things inspired me to write this post (which in hinsight is quite lenghty). I think that looking at NPE litigation as a tax could be a proper and viable way and actually one we should embrace. However there are many open ended issues to such a statement, so I'll try to elaborate on some of them and encourage people to contribute their view on this subject which has so many approaches and, as far as I know, no one correct answer.

A game in three arenas
In order to clearly describe what I think about this I want to look at the innovation processes as part of three arenas. The first being technology, which is all about research and free from patents and money (other than funding the research) and focuses on delivering new inventions, with a die hard race to be claimed as the first inventor. Then there is the second arena, which is the legal arena. In this arena inventors or corporations choose if and how to protect the invention, which is much more complex then binary patent/no patent. Think in terms of patent type, claim type, portfolio strategy, geography, aim of patent (e.g. standard, x-license, ensure free use) and this arena becomes just as complex as thinking of 100 researchers sequencing genes. Thirdly there is the commercialization arena, where corporations exploit these innovations and/or patents for profit through means of products, licensing schemes, services, litigation etc.

It's only business !?
NPE litigation is, in my mind, mainly in the commercial arena, which is also why it attracts so much attention and critique from people. I believe companies/managers get more upset that they might lose money (i.e. make less) rather than actually not being the rightful inventors of a technology. Along those lines I could see NPE litigation as a tax on commercialization, but not on innovation.

My maths would say that if there was a player that would purchase all garage inventors and "few-man" companies' patents - they would churn out much more patents. As this is, in small scale, what some NPE's are doing - one could argue they are creating more innovation (which is also often IV's main claim when interviewed). Naturally this logic has its' flaws as it equals more patents with more innovation and takes no consideration of innovative leap etc. One could also see companies responding and saying that the money spent on litigation would in fact be reinvested in R&D, which is really hard to judge.

My personal opinion is that for large corporations this is much more determined by other factors, in smaller companies (e.g. like Fred's example which spent 10% of VC round on litigation) it could actually be the case. However, statistics show that almost 40% of all NPE litigation 2004-2008 was with only 20 companies (accounting for 534 cases). Without double-checking I would bet a lot on all of them being Fortune 100 companies. The point I want to make is that the first and foremost targets are non-surprisingly large corporations.

Then how about innovation and all the effort put in there?
I am pro innovation in all forms and want nothing more than for new and exciting start-ups to grow and change the way we see the world. But I think we must draw the line between innovation, products and patents ( a brilliant and frequently re-tweeted example is given by Jackie Hutter, here). In the world we live in today, it is very hard to really be sure that you are the first to invent something and unfortunately a patent is no proof of that. Statistics show us that since 2000, 15 patents have made up for 1375 lawsuits with over 16000 possible parties involved. Interestingly the top 8 litigated patents only have 3 different titles and are all within telecom. Now these lawsuits are not NPE lawsuits, but all patent lawsuits since 2000.a
The point I want to make is that statistics show us the difficulty and very contextual and interpretation based nature of patents, especially in a litigation setting.

Tying things together - with an "arbitrage opporunity"
What I want to show is that it is very hard to judge the outcome of a lawsuit but also to know whether a product actually reads on a patent- bearing in mind those 97 lawsuits for a single patent. Out of this there has rissen a large amount of companies that see this as an arbitrage opportunity by acquiring patents and then finding products that read on patents and settling for an amount equaling costs of a lawsuit with the defendant. The most litiguous actor, Acacia, has filed approximately 250 lawsuits since 2003, this equals 42 lawsuits per year. In contrast, they signed 60 new licensing agreements in the first 9 months of 2008, in 2007 that same amount was 69 (source: EDGAR). Without further research it gives an estimate of their success rate, which accounted for $30 million $40 milion respectively those years.

Just taking a guess, I would say a majority are settlements. I think this could take place based on certain criteria. Firstly, Acacias patent portfolio (493 as of 1/1 2009) consists of patents that are either key inventions (success in techniological arena) or written in a way that suits litigation, e.g. broad (success in legal arena - for this purpose). Secondly and in relation to Acacias patents, the defendants have products which might read on said patents. The key here is the word might. Because, this would never be sure until proven in court (which also can be appealed) and it could also be the case that regardless of commercial success, user friendliness or anything like that, the companies product and surrounding patents perhaps just are not the same thing (similar to Jackie Hutter's example mentioned above). All in all, the companies are not willing to pay to prove that they have adequate patents, neither do the want to go to court and lose and perhaps be senteced to damages or even willful infringement. This usually results in settlements where companies agree to an Acacia license and perhaps also a down payment. Which then would lower the defendants margins on the affected product.

Trolls 2.0 - firing the legal guns
With NPE settlements being mainly in the commercial arena, I would like to attract some attention to another way of litigating - invalidating patents. Now this would be something that I, as a manager or c-level executive, would be really afraid of. Just as there are very many patents out there, there are also almost always two or three companies delivering the same type of product service, i.e. there is competition. While an action from a troll is all about getting paid a share of product revenues by the defendant, we could well se a surge in action by competitiors being all about taking all of the defendants customers. Just as it is possible for NPEs to track down profitable companies, target products and map portfolios based on public data, it's also possible to use the power of crowdsourcing to find relevant prior art. Three recent example of that are Article One Partners , the USPTO' peer-to-patent and the recent "save red hat movement".
Imagine receving notice that your competitor claims your patent(s) to be invalid and has 20 scientific articles to prove it. Now you could potentially risk much more than paying up to a troll. Imagine popular companies with a dedicated fan-base starting to use this, especially in the overcrowded telecom, hardware and software space, and just to save the company they like or a product they use often 10 000 savvy people would spend 2 hours each trying to find prior art and all of a sudden you have the workload equivalent of 10 full time employees working one year done in almost an instant.

2.0 Lawsuits - adding another 0 to the costs
Just as a reference one could think of all those extremely costly lawsuits we have seen. RIM with their $600 million, Medtronic with their $1.35 billion. Well I don't the how reasonable such figures are, but they occur. And as soon as the other party uses the legal and perhaps even technical arena to fight you - you will pay big if you lose. There is a big new initiative started by MAPP where they try to get president Obama engaged in capping damages in patent lawsuits.

Ending thoughts - maybe people should embrace the tax?
What I wanted to show with this blogpost was that the patent system is overloaded and there are so many patents out there in certain fields that they are litigated over and over. Tying that together with the cost of litigation, the NPE licensing deal has become a proven model, with acacias succes as one example.
With all the uncertainty in the patent system I honestly believe that some NPEs actually are rightful owners of some technologies that their licensees incorporate in products.
What I also wanted to say that based on this uncertainty and the new movements of crowdsourcing to reach invalidation, corporations should perhaps look at trolls as tax on commercialization, purely in business terms. And instead be afraid of their new and improved competitors - using the legal and technical arena to put them entirely out of business or if challanged ending up in multi million dollar lawsuits with a very fierce and savvy (based on all crowsourcing) competitor that perhaps could make you wish it would only have been the "good old troll 1.o"

Marcus Malek

Value creation through offered access in Biotech...

Relating back to my previous post, I would like to continue the discussion about how intangibles are made into value propositions by applying layers of control. Last time I concluded that the vast number of control systems, both contractual and technical, enables the biotech firm to create a variety of “goods” by making these into an artificial state of scarcity where they are experienced as durable and non-durable depending on the combinations of control layers. From that discussion, it can be concluded that only the creativity by the firm will restrict what is possible. This time I would like to expand upon that concept by adding another layer to the value proposition that makes the business model options for creative design even broader, which is: access.

Biotech Market Transactions
First of all, it is important to realize that the traditional model where the seed seller offers a variety or hybrid with a set of fixed traits “locked into” a germplasm is obsolete. Nowadays, a biotech firm may isolate, sequence, redesign, and make a gene proprietary only to offer it to a number of simultaneous markets (e.g. healthcare, agbio, nutraceuticals, etc.) and applications. This means that the firm selling plant varieties to farmers does not necessarily have to be the same company that owns the pest tolerant trait in that very same variety nor does the company have to rely on a single source of income. Innovations in the seed germplasms therefore often create a number of transactions that all need to be controlled in some way for value to be maintained.
This value, however, will not automatically increase as customers or collaborators’ freedom is restricted, which seems to be how many companies measure the value of their intellectual property in many cases. As an example 26 leading corn insect scientists in the US recently submitted a statement to the EPA regarding how unreasonable restrictions in technology agreements hinder their research. Patent Baristas discusses the issue and links to Monsanto’s Technology/Stewardship Agreement (and Technology Use Guide) as an example, in an interesting recent blog post.

Access as Business Model
Control can instead be used as a gatekeeper to enable access rather than restrict it. Allowing farmers to save and replant seed is an example of a light form of this “enabling” thinking in contrast to the “protect and fend off” thinking. The right to save seed varies among countries and between plant species (according to regulation, e.g. UPOV directives) but the rule, in general, is that farmers should pay a reduced royalty fee if seed is saved and re-sowed the next season (with some prohibitions, such as brown-bagging: here & here). It is quite fascinating that despite the options for farm-saved seed (FSS) are in many regards rather limited, FSS actually still has created intermediate markets in Europe where organizations collect royalties from farmers for FSS to the seed companies, e.g. SVUF. It seems a whole range of new business models would be possible if access was made the focal point in the strategies of some of these companies. It is therefore particularly interesting when access is offered openly to technology such as when the US Department of Energy Joint Genome Institute in December released a complete draft of the soybean (Glycine max) genetic code freely to the research community.

Open vs. Free
I would like to emphasize that my viewpoint is certainly not that companies should offer their services without making a profit or even less. What I am suggesting is that business owners and developers should rethink how their value propositions are constructed, to create more value for their value recipients, which could mean that they could make even more profit but from multiple revenue streams. As pointed out above, a gene technology company does usually not have to rely solely on one particular product for revenue, but can often diversify by offering the technology in many simultaneous markets. The concept of how value recipients does not necessarily have to be the restricted to be the same as a company’s current customers is eloquently discussed more in-depth by Anders in tbmdb.com this week. Genetic engineering and software programming have many structural elements in common, so if profitable in-direct business models can be generated from open initiatives in software (e.g. IBM, second life, Linux Desktop business models, etc.) wouldn’t that mean that openness, and access, also could be made profitable in biotech?

Tobias Thornblad

When will Spotify’s regional restrictions be removed?

As you probably are aware of, Spotify announced last week that they were about to apply the regional restrictions which were part of the license agreements with the record companies. This is not such a surprising step though it might be annoying for us users.

Using the function to show unplayable tracks give me this image of one of my playlists. The red/brown tracks cannot be played. I am in the UK at the moment and since it is country specific restrictions they might very well vary. It might seem as a significant part, and I guess it is. But I also imagine that they will try to include them in the 10000 tracks added each day.

The discussion around regional restrictions should definitely be held but it must be around having them as a general phenomena and not whether or not Spotify should apply already agreed upon contractual regulations.

When it then comes to the record labels and they applying restrictions to music based on geographic territory I think it makes sense in the old economy thinking. When music mainly was (intended) to be sold on physical carriers such as CDs having regional limitations and using different distributors in different areas made perfectly sense.

But today, when music as easy could be downloaded in Gothenburg, London or Doha the restrictions makes less sense. The user will most certainly want to hear the same music independent of where in the world she is at the moment. As well as she would like to share the playlists or suggestions of interesting songs with friends around the globe.

When it comes to Spotify I am not sure if they will be the force that will change the thinking of the whole music industry. But they might at least change the customer behavior which eventually will change the labels, even if it probably will take some time.

Johan Örneblad