Patent wars: Stripping the iPhone bare

The BBC has done a short video about patents in ICT. Not too bad actually. 







More information can be found here.

The role of Open Intellectual Property Platforms

Intangitopia has unfortunately remained dormant for quite a while now with all authors being busy with their jobs. This has certainly been true for myself too as I recently changed jobs to work in a startup within the medical device industry. But since I still do some research on the topic IP strategy within the Life Science industry I thought that I should write a blog post based on my latest article (co-published with Ulf Petrusson and Henrik Rosén at the Center for Intellectual Property, University of Gothenburg).

Global Technology Markets – the role of open intellectual property platforms

In the article we analyze the business phenomena where multiple stakeholders collaborate, package and transact upon technology in systems with ‘venture-market hybrid’ characteristics. We term these complex interactions, including the structures and stakeholders who build and participate in them, ‘open IP platforms’ in lack of a previous descriptive term. As many of our Intangitopia readers will recognize this concept captures much of the processes that are seen in open innovation, distributed innovation, open source, public-private partnerships and crowd-sourcing concepts. Activities on these platforms typically include collective gathering, creation and development of knowledge assets to which openness is regulated through the determined level of access, ownership and utilisation rights. We analyse how IPRs (Intellectual Property Rights) and contracts operate as a set of self-regulatory tools in the construction of platforms where technology is accessed openly but still is priced on what could be described as technology markets.

The impact of these platforms on new and developing technology intensive markets is evident and growing, though it is not yet fully clear what it is that drives the creation of such platforms, how the specific characteristics of the platforms should be understood, and what kind of markets arise as a result of these platform interactions, whether on the platform itself or in a market context where the platform participants can act as a single entity. If one wishes to understand the future of knowledge based business it will be necessary to understand and begin to answer these questions, as it is our strong belief that relating to open IP platforms, whether through participating or acting on the markets shaped by the platforms, will increasingly become a necessity. For this reason, the article presents a first attempt at answering some of these questions, by outlining the trends that have driven the emergence of the business phenomena we define as open IP platforms, and by presenting an initial concept for a framework model to understand and classify these platforms by their common characteristics.

A new collaborative logic - case study: GSM

A case study of the GSM (Global System for Mobile Communication) platform has been incorporated to illustrate a transition over time as a new logic for collaborative, market-based development coalesces. We describe a historic development that views patents as monopoly interventions in the free operation of the market. Something we argue to be a danger that need to be limited or surrendered if a common standard is to be developed. Our literature review shows a perspective on the patent as a tool through which actors can build a standard or platform for developing the standard as notably absent; at best, patents are seen as a necessary evil incentivizing innovative contribution. While it would be going much too far to say that there is not an inherent danger in the combination of strong individual IPR-based protection and the technology lock-in effects of standardization, it is our view of that it is possible and necessary to see patents as the building blocks enabling collaborative platforms such as GSM.

Framework

To further understand the underlying building blocks and enabling legal tools that provide the foundation for open IP platforms, we suggest a framework. The ambition to build platforms can only be approached by understanding the building blocks that create the platforms and design the platform characteristics. These building blocks can take the form of relationships or tacit connections, but our focus remains on the explicit legal instruments that build the platforms, and the role of IPR’s in the platform as constructive elements.

In the article we present frameworks for measuring the following parameters;

· Level of system/tool leverage

· Level of collaboration

· Level of public responsibility

· Level of platform governance

· Level of IPR claims

By applying the framework to the Innovative Medicines Initiative platform the tools that govern openness and stimulate creation of new knowledge markets are made visible based on the information in;

· IPR policies;

· Collaboration policies;

· Policies on exploitation of background and foreground;

· Membership fees and financing policies;

· Secrecy policies;

· Working guidelines and processes;

Application of the framework – Case study: Innovative Medicines Initiative

Our case study results shows that a novel creation of knowledge markets can be argued to occur whenever IP transactions – that provide access rights - take place between participants in IMI. By intellectually categorizing utilization of the generated project results in pre-competitive arenas (e.g. clinical trials and preclinical research) as IMI Research Use, an internal market is created where commercialization is not the end goal. The altruistic motives behind making tools available at little or no cost for the purpose of ensuring that pharmaceuticals are safe may be questioned by tool-supplying actors who do not normally perform clinical trials themselves. But the fact remain that an internal knowledge market with different conditions than standard commercially negotiated terms is the result. And by using the same research data with the intent to commercialize them (IMI Direct Exploitation) as therapeutic, diagnostic, screening, or recombinant tools - another knowledge market with completely different norms emerges.

The third, and arguably most radically different, ownership and access norms result when the generated results fall within the IMI Sideground definition. The outcome in this case can be interpreted as separating the generated results from the platform altogether and join the other assets of the creator’s proprietary portfolio, which have not been brought onto the platform. This means that the owner of Sideground can commercialize the results without having any access right obligations specified in the IMI IP Policy.

Since the rules and norms that govern the scope of the three knowledge markets are determined, before accession to a project, when drafting the Project Agreement – drafting this plays a major role. Successfully negotiating terms favorable to one’s self-interests is thus likely to be seen as a key activity for each participant. Developing the ability to clearly objectify and define Background, before negotiations are started, as well as implementing an intellectual asset management system to capture valuable results are consequently imperative factors to create strong market positions in these internal knowledge markets.

Conclusions

We see a development where intellectual property is increasingly used to claim early research. If we are to have platforms that increasingly make title claims on academic results, those platforms must also be capable of managing a structured contribution to the public domain to ensure that it is not impoverished by shortsighted commercial approaches. Both the ICT and Life Science markets are increasingly characterized by complex transactions of IP and cross-licensing, and we therefore need to develop and strengthen mechanisms for openness such as FRAND. This will be the only way to support proportionality and limit destructive ransoming of these platforms.

Our presented IMI and GSM examples demonstrate these issues from different perspectives. The GSM history, which by any measure is a successful collaboration, shows how a lack of structural clarity and central responsibility in open IP platforms can lead to unilateral royalty demands and the rise of complexities when trying to navigate the patent landscapes. In the case of IMI we can identify how mechanisms for sophisticated claiming of early stage research result. But also how this creates higher demands on the capabilities of universities and academic research institutions to wield these mechanisms appropriately and safeguard the public interest of independent and uninfluenced research.

Our collective abilities to develop open IP platform will in many ways define which kind of businesses that will be created and which business climate we will generate. The specifics of how to constructively develop these platforms to generate an appropriate business climate; how to safeguard public interests, build up public domain, ensure open and functioning markets, manage complex knowledge transfer and technology interdependence, etc., is a future discussion that we believe is both inevitable and vital to the construction of a functioning knowledge economy

Tobias Thornblad

(Contact via Twitter)

For the article in its entirety, please see:

Ulf Petrusson, Henrik Rosén & Tobias Thornblad: Global Technology Markets - The Role of Open Intellectual Property Platforms: Review of Market Integration August/December 2010 vol. 2 no. 2-3 333-392

Too much ownership creates gridlock

The Columbia Law School professor Michael Heller is perhaps best known for his book The Gridlock Economy from 2008. A book which popularizes the concept of "tragedy of the anticommons". He summarizes the thesis in a speech at Google 2008 as "When too many people own pieces of the same thing, no one can use it".

Gridlock Economy
His works on the Gridlock Economy comes from the time when he was working for the World Bank on post socialist property in the aftermath of the fall of the Soviet Union. The state had little experience in private property and ended up in many cases dividing the property in too small and conflicting pieces for anyone to be able to use it.

He published his experiences in the 1997 article "The Tragedy of the Anticommons: Property in the Transiton from Marx to Markets". From this came 2008 the book The Gridlock Economy. Heller writes in the abstract to the 1997 article:

"When there are too many owners holding rights of exclusion, the resource is prone to underuse -- a tragedy of the anticommons. Anticommons property may appear whenever new property rights are being defined. For example in Moscow, multiple owners have been endowed initially with competing rights in each storefront, so no owner holds a useable bundle of rights and the store remains empty. Once an anticommons has emerged, collecting rights into private property bundles can be brutal and slow. This article explores the dynamics of anticommons property in transition economies, formalizes the empirical material in a property theory framework, and then shows how the idea of anticommons property can be a useful new tool for understanding a range of property puzzles."

Modern gridlock
To understand the concept of the tragedy of the anticommons one can think of a piece of land divided in to so small pieces that in order for any one person to farm one acre he would need permission from hundreds of property owners. The cost and effort needed to gather all of those property owners and negotiate agreements with each would take more time and cost more than what it would be worth farming the land. In the terms of Heller this would be the opposite of the tragedy of the commons where for instance a pond is fished dry of fish since there is no owner managing the fishing in the pond.

The effects of the gridlock can rarely be seen even though they might be most significant. The New Yorker puts it as that

...the effects of underuse created by too much ownership are often invisible. They’re mainly things that don’t happen: inventions that don’t get made, useful drugs that never get to market.

One of the clearest examples of tragedy of the anticommons today is patent gridlock. The fact that there is in a specific are so many patents that you can not in any meaningful way use the technology without infringing on potentially hundreds or thousands of patents. This could be the way with for instance mobile phones which might be covered by some 5000 patents or new drugs which could have similar patent thickets laid out.

A similar situation is present when it comes to the documentary series "Eyes on the prize" from the late 80s. Heller talks about that the series which portraits the African-American Civil Rights Movement to a large extent is built on archival footage and contemporary songs, met problems when it was to be broadcast again and also released on DVD since it was too costly to track down each rights holder to get permission for the new release. Further on this can be read here.

One way to get around these problems with too fragmented rights can be to pool the rights. This is commonly used for patents, where it for many products would be an impossible task to evaluate each patent and track down it's potential rights holder. Collection societies such as ASCAP and BMI can provide the same function for copyrighted works, for instance music played on the radio.

But as Michael Heller concludes in a Newsweek article we still have a big challenge in the gridlock economy.

A survey sponsored by the National Academy of Sciences found that scientists now routinely respond to gridlock by becoming patent pirates, just like students who illegally download music. Commercial drug developers, of course, cannot risk disregarding competitors' patents. Many of the world's leading drugmakers simply redirect investment toward less challenging areas and innovation quietly slips away. The dearth of new blockbuster drugs should prod Big Pharma off its longstanding position that the existing patent regime must be defended no matter what.

Commons and Anticommons
The ideas of commons and anticommons are not new and Michael Heller does not claim to have come up with the concepts, though he has coined the term "tragedy of the anticommons". It is in this rich idea tradition the newly published anthology "Commons and Anticommons" edited by Heller, takes an in depth approach trying to understand the relation between overuse and underuse of property.

Heller has collected 35 articles over a total of 1,192 pages in two volumes. Contributors ranging from Aristotle and Carl Shapiro to the 2009 Nobel laureate Elinor Ostrom and Michael Heller himself.

To me, the book's contribution lays in that it collects most of the relevant research on the tragedy of the commons and anticommons in one place and thus challenges the reader to understand the broader picture as well as the specifics of for instance spectrum allocation and the fishing industry.


Johan Orneblad
Follow me on Twitter


Further resources

Audio and video
Authors@Google: Michael Heller on YouTube
Heller on Gridlock and the Tragedy of the Anticommons on Econtalk
Tragedies of the Gridlock Economy, an Economy Information Project conference on the Gridlock Economy hosted by George Mason University School of Law, with a discussion by Michael Heller and Richard Epstein. The conference is discussed here and some of the papers from the book Commons and Anticommons can also be found on the conference website.
Hearsay Culture interview with Michael Heller
Are patents and copyrights making innovation impossible? Out-Law Radio interview with Michael Heller

Books
Gridlock Economy on Amazon.com and Amazon.co.uk
Commons and Anticommons on Amazon.com and Amazon.co.uk

Ford and Geely closer to agree on Volvo IPR

The talks between the Chinese car manufacturer Geely and Ford seems to have gotten a step closer to actually closing the deal on Volvo Cars. According to a press release on November 27 the key issue about how and in what form the technology is to be part of the transfer has been solved.

For acquired Volvo Cars from the Swedish automotive company Volvo some 10 years ago. Volvo AB still manufactures trucks and heavy vehicles under the same brand name.

Ford has for some time had negotiations with the Chinese car manufacturer Geely about selling Volvo, a deal estimated to be worth some USD 2 billion. Even though the brand itself probably adds up to a great deal of that price the actual technology to build up the cars have been one of the key issues in the negotiations. For one, Volvo has been tightly integrated in to Ford and as such most likely shared technology, and IP, across both companies. This has been an issue in the negotiations, since Chinese companies are not as highly regarded when it comes to respecting IP. The current integration in to Ford has therefore created some issues, now when it is assumed Volvo will operate independently as an own entity.

The press release yesterday stated that a solution might be close at hand.

"Volvo will retain ownership over key technologies and IP that it has developed and will retain access to all Ford IP that Volvo plans to use to implement its business plan," and that by owning Volvo Geely would get "access to a significant suite of IP, including Volvo's safety and environmental IP."According to Reuters.

I think this is interesting for two reasons.

1) The automotive industry is to a large extent driven by innovations and the IP portfolios and teams of engineers are key assets that Chinese companies have had a hard time keeping up with. By acquiring Volvo Geely will get access to many interesting technologies, possibly both to be deployed in vehicles with the Volvo brand but also in other brands.

2) That the IP owned bu Volvo will come with the purchase might not come as a total surprise and will possibly be quite easy to handle in the long run. The issue which to me is a bit less clear is that Volvo will get access to IP for the planned implementation of the business plan. What is included, for how long and to what extent. They will possibly/hopefully define it in a better way in the final contract, though one can not be too sure.

I recollect the now settled dispute between eBay and Joltid around the fundamental technology for Skype. It turned out that it was not included in the purchase of the company. I might not see as fundamental technology retention in this case, but there might be some core IP kept in Ford's control to surface in a couple of years time when the cars not planned in the business plan are a reality. Perhaps impeding Volvo and it's owner in efforts challenging established US companies (read Ford).

Johan Örneblad
Follow me on Twitter.

Patent disclosure and SSO

The court has agreed that failure to disclose essential patents required by the standard setting organization is considered to be a waiver of the patent rights in relation to the standard.

It is interesting to read that the court in Qualcomm Inc. v. Broadcom Corp (Fed. Cir., Dec. 1, 2008) has taken the issue of patent disclosures in standard setting organizations to a new level. There is a separation between organizations where you are required to license your essential patents by default when entering in to the organization and the cases where you explicitly have to disclose the ones you have knowledge about. It sounds reasonable to agree with the court that even if there were no explicit obligaton to disclose, the members of JVT understood it as if they were to disclose. By not disclosing, Qualcomm put the other members in a false understanding of the position when they were deciding upon the new standard.

Since standards are as important as they are, especially in the ICT sector, they also have to be treated as if they are. The economic impact of setting a standard, although a RF one in this case, could be enormous and the investments huge. Therefore we need more understanding of this impact, both in the legal system but more importantly in the SSOs themselves.

I know that there is a rising interest from the actors to look in to the patent policies which I think is good. One could of course ague if it should be constructed to be RF or FRAND, but most importantly is that it is clear to the actors in the organization to have a common understanding. This is where the decision in this Qualcomm case might be a pointer in the direction of more clarity.

Johan Örneblad

RE: Abbreviated Pathways to drug development

I would just like to add some thoughts, on the money side of things, regarding Tobias' interesting thougts. As pharma is a huge ecosystem changes wont come suddenly and definately not without a noticable fight! Below I put down my thoughts on the situation, although perhaps not entirely correlated.

Sharing is caring - also in pharma ?
Almost everyone is writing about pharma collaborations with academia and how that will generate openness, speed and lower costs. Just having researchers work together and streamlining NDA's and disclosure policies lowers transaction costs for development. My question is if (when?) some BigPharmas will take it one step further and come togehter and own entire universities, paying for tuition in exhange for all research results.

I'm envisioning special purpose, e.g. gastrointestinal, (PhD) universities. These would paid for entirely by e.g. 4 bigPharma companies and would give scholars a PhD degree and the companies lots of input. My idea is that BigPharmas would focusing on getting more brainpower rather than the a selected few. Also that they would start sharing the most valuable substances that are discovered. Simple maths show that a blockbuster is needed to make up R&D costs of all non-profitable drugs, especially now when "only" the western world is buying drugs.
But what if the hit/miss ratio of drugs get's improved, by sharing knowledge and goals in the universities I envision, maybe sharing expense/income on blockbusters would be enough. And also - costs need to be cut when India and China catch on.
The natural concern for this would be on the competition-law side, as I can envision a good 'ol gentlemans agreement when dividing the markets.

Generica deteriorating Pharma innovation ?
A recent ruling in California (well commented here and here) basically says that Pharma companies are liable for side effects etc. caused by generica using the same substance.
To me the situation becomes quite perverse as generica companies would operate on a totally risk free basis if they would also be excluded from litigation. In relation to Tobias' post even shorter times before generica becomes available could turn into an interesting pricing situation.
Firstly - shorter times mean shorter times for ROI on drugs. As R&D costs likely won't drop substantially, by all laws of finance a price increase is to be expected.
Secondly - if big Pharma are liable for damages caused by the substance as such rather than the drug, this would either result in an increase of litigation costs or large insurance policies (if someone is willing to write one in these days). It would likely impose a cost on BigPharma.

Bottom line - costs go up for patients/consumers. That could create a very interesting marketplace for drugs. The high price means makes it analogous to drilling for oil in remote locations. If the price is high enough it would mean that more players could find the market feasible. I see that this could have any of the following implicatons:

1) A surge in pharma R&D as a blockbuster with the new high price could mean even higher revenues. Perhaps smaller VC-funded labs could be the way to go as splitting that large revenue could be enough to see ear-marked VC funding for drugs.
2) A more dismal scenario would be a standstill in the innovation and patenting pipeline as fewer actors would see the financial benefit.
3) Forum shopping for lower R&D costs, i.e. pharma development follows the path of heavy industry and moves production and research to remote locations.

The big question is really - when will pharma markets as we know them change?

Marcus Malek