Intermediaries of IP Commercialization and Its Business Operation in the Open Innovation - Coursework Example

Intermediaries of IP Commercialization and Its Business Operation in the Open Innovation, such as Non-Practicing Entities (NPEs), IP Exchange Platform Contents Introduction 3 Intellectual property – the concept 5 IP Intermediaries 6 Failure of IP market intermediaries 10 IP market complexities 14 The evolving IP market intermediaries 15 Observations and conclusions 17 Introduction Innovation in ideas and marketing are key aspects driving business performance and growth in an increasingly competitive economic environment. Organizations are constantly finding new ways of capturing markets and innovating ideas to enhance profitability. However, there is little agreement on the ways of innovation and managing innovative ideas (Jolly, 2011). The fact that innovation is important and integral to the growth and development of any organization cannot be denied and most organizations strive to support an innovative work culture for gaining competitive advantage in markets. The research and development team of organizations focus on developing and fabricating creative ideas that can help the company in coming out with a product that meets the evolving need of the customer and more. While in the recent past most organizations operated on the principle of closed innovation that required the companies generate, develop, and market their own ideas, the past few years have witnessed a dramatic shift towards open innovation model where the companies “commercialize external (as well as internal) ideas by deploying outside (as well as in-house) pathways to the market” (Chesbrough, 2003, p36). This new model has gained wide popularity owing to its wider perspective and application that allows companies to create value through an open culture and closer integration with its surrounding environment. Open innovation model is based on free flowing knowledge and information sources that contribute to value addition for both manufacturers as well as end consumers. While the model does allow businesses to utilise and exploit new opportunities, the challenge lies in tapping key knowledge resources and expertise that have the potential to generate profitable ventures. The closed innovation business model applied strict controls over its intellectual property rights (IPR) and the management focused on guarding its IPR to prevent competitors from stealing their innovative ideas. But in the age of open innovation model, businesses focused their strengths on commercializing their ideas and allowing its competitors to use their IP and purchase other firms IP to improve profitability. The organizational strategies today work on defining new strategies that enable them to exploit the open innovation model for creating new ventures and expanding their existing scope of markets and revenue towards potential revenue addition sources. The focus is to utilise their existing resources and technologies to accomodate innovative ideas that open new sources of market capturing strategies and expanding operational scope (Chesbrough, 2003). The key issue that arises from the open innovation model is the protection and commercialization of intellectual property (IP) and the different intermediary channels used for this purpose. It must be noted in this context that IP is an intangible asset that is not only difficult to valuate but also involves a lot of legal risks. There are number of intermediary channels that enable easy and smooth transaction of IP between innovators, funders and prospective users who develop products based on the IP. The paper provides a deeper insight into the operations and mechanisms of these intermediary channels that cash in on firms looking for IP that creates new opportunities in an open innovation environment. Intellectual property – the concept Before going into the details of IP intermediaries and its commercialization aspects it is important to understand the concept of intellectual property and its basics. Intellectual property can refer to any innovative idea and this idea has the potential to generate value for businesses. Hence, it becomes a valuable asset for the company. Thus, the ownership of IP equates to a profitable entity that has the capability to create new opportunities for business growth, expansion and create new channels for cash flow. IP has the potential to contribute to economic growth and development and thus it is much valued resource that can extend market scope and create new opportunities. It also helps in attracting investment to new sectors contributing to new avenues for revenue growth and enterprise development (Cook, 2007). While inventions and innovations are key tools for growth and development, the debatable issue here is the commercialisation of such knowledge or property rights. There are number of environmental forces that promote and inhibit the commercialization of inventions. The constraints and enablers in this process of commercialization of inventions are guided to a great extent by cultural environment, physical barriers, and lack of adequate knowledge or capabilities to exploit potential resources (Cook, 2007). A number of business models have emerged over the past few decades to enable smooth exchange of IP and allow businesses to operate in a more open environment. IP intermediaries play an important role in enabling the exchange and transfer of IP for furthering business goals and objectives. There are number of entities that contribute to the production of commercializable IP and these include individual inventors, commercial agencies, academic institutions, and trusts or foundations working for charity (Cook, 2007). Individual inventors are driven by personal goals and objectives that depends on his or her intentions of disclosing or the potential scope of commercializing their inventions. The scope of commercializing one’s creative efforts may be restricted by environmental forces that make it difficult for inventors to reach out to potential buyers. Cultural environmental forces play an important role in this. IP Intermediaries Over the past few decades, a number of IP intermediary channels have emerged that have evolved new ways of enabling transaction in designs and patents. The business models have focused on bringing together innovators and users on a common platform that enables them to purchase IP for furthering their business development goals. Businesses dealing with IP have experienced increased demand for this kind of services and this has promoted a rise in the number of intermediaries emerging to transact in the intangible assets that have extensive value to firms. “The new market for intellectual property has inspired entrepreneurial legal professionals and business professionals alike to create new opportunities and expand existing ones to act as middlemen, encouraging the continued proliferation of patent transactions” (Wang, 2010, p159). The intermediaries provide a vital connection between the buyers and sellers of IP, besides taking care of protection of IP. According to the works of Allen W. Wang (2010) on Rise of Patent Intermediaries, there are three distinct categories of intermediate entities involved in IP commercialization – brokers, defensive aggregators, and offensive aggregators. Brokers refer to companies that form the linkage between potential IP buyers and IP sellers. They act as advisors to IP buyers and enable them to connect with suitable IP sellers that match the buyers requirements. Defensive aggregators are entities or services that acquire the IP rights and license them to their subscriber companies. The offensive aggregators however, acquire and develop patent for companies and collect license fees from them (Wang, 2010). Patent pools The concept of IP intermediaries originated with patent pools that took care of IP transactions between inventor and buyer (Hagiu & Yoffie, 2011). These patent pools gained popularity in the IP market with many buyers and sellers resorting to this platform to seek investment and ideas for their business development goals. However, a key limitation of this form of intermediary is the fact that it favors large companies having ample financial resources to invest in IP that leaves little room for negotiation for smaller companies. Patent pools are also used by large companies to transact in IP portfolios and this creates barrier to individual inventors who cannot compete with the size and bargaining power of these companies (Hagiu & Yoffie, 2011). However, the application of patent pools is limited to smaller markets having distinct products or services that require IP solutions. “If a specific firm owns a disproportionate amount of the essential IP in a given sector, it is unlikely to derive much value from joining a patent pool since it can extract more surplus on its own” (Hagiu & Yoffie, 2011, p7). The market inefficiencies related to IP transactions are not addressed through this form of intermediary and thus patent pools do not provide an effective platform for small investors or individual inventors who do not get adequate commercialisation opportunity. Patent brokers The IP intermediary market comprises of patent brokers who are small groups of people dealing in IP transactions and enable the sellers to connect with buyers. These brokers help in selling or licensing of IP in lieu of fees paid to them for their services. Most often these brokers command 20 to 30 percent of the transaction amount as their commission, that is quite high (Hagiu & Yoffie, 2011). The brokers facilitate not just the sale or license of IP but also enable technology transfers that facilitate business growth and operational efficiencies. The consultation services provided by these brokers hence promotes efficient exchange of services between the buyer and the seller. Owing to the hefty fees charged by patent brokers and the small scale of operations, the brokers in IP market focus more on high end transactions that can provide them with higher revenues. Hence there is a growing demand for other form of intermediaries such as Non-practicing entities (NPE) . Non-practicing entities (NPE) The non-practicing entities acquire the patents from the inventors or innovators and license it to other businesses from whom they collect licensing fees. The NPEs thus can be termed as dealers in the IP market who operate in dubious terms to capitalize on the opportunities of the patent market. The previous sections of the paper have highlighted the inefficiencies of the IP market and it is this particular feature that is exploited by the NPEs to serve their own ends. The opportunistic behavior of the NPEs have resulted in increased number of litigations in the patent market. According to the findings of Hagiu and Yoffie in their paper (2011), out of a total of 350 active NPEs in US, only 35 have ownership to 100 patents. Most of these entities licence patents through litigation or threat of litigation (Hagiu & Yoffie, 2011). “They behave opportunistically by waiting until industry participants have made irreversible investments before asserting their claims” (Hagiu & Yoffie, 2011, p9). Intellectual ventures Intellectual ventures are similar to venture capital firms and seek to licence patents by acquiring patents from individual inventors, small firms, and large companies who are in the business of producing patents. These ventures also focus on developing their own patents through partnerships with innovators or acquiring inventions from universities through dealings in technology transfer (Hagiu & Yoffie, 2011). The key aspect driving the success of Intellectual ventures is their tie-up and dealings with prominent technology based companies like Apple, Amazon, Cisco, Google, Nokia, Sony among many others. Online IP platform A significant trend marking a widespread change in business strategies and collaboration is the Internet that has enabled instant exchange of information, access to widespread information and data related to industries and scope for online collaboration. The growing importance of this medium in promoting business goals and objectives has given rise to e-commerce and portals that enable online transactions between prospective buyers and sellers. The primary advantage of this medium is its ability to reach out to millions of online users who are potential buyers of their products and services without having to pay commission to middlemen and intermediaries. However, this does not mean that online intermediaries are not there. The online intermediaries help the seller in reaching out to extensive group of buyers who can fulfill their business needs through these intermediaries. Online portals like ebay and tynax have gained rapid popularity in the IP intermediary market offering scope to individual inventors and small companies to sell their patents (Hagiu & Yoffie, 2011). The online platform enables sellers to post the details of their patents and related information that can help buyers to seek relevant information and make the decisions for purchase. Related information include sale terms, conditions, licensing details, agreement conditions that can assist in the decision making process for potential buyers. Failure of IP market intermediaries In today’s world, patent has is not to be dealt in the same way, as it should be, it has no ease to use and also the clear definition of it. It has now restricted only to the pen and paper work between the companies and has not come up with the bridge between the companies like Amazon or NYSE to start dealings. The small companies who are not so popular have to travel a long way in order to get buyers fro selling their patent. As a result of which the patents which are already their for the large companies are just at rest, rather they being used and also the right persons to sell their intellectual property (Hagiu & Yoffie, 2011). There are many factors or reasons actually which are contributing to this or the factors or reasons which is actually stopping or preventing the patents world from changing to more liquidity. The value or the price of patent is much to judge and also to calculate. There are other properties which will result in more costs and also will lead to point of dispute between any two parties. Intellectual property is a particular asset or value which is cannot be extended or carried forward one person to another, as the one who has actually written the patent has or possess the capability to be able to change or top amend it . There are other things also like the brand name and brand equity, which also cannot be extended or which is not elastic. Brand equity means the brand power and also the reputation earned by the particular company by using and also producing the product, over a certain amount of time. The intellectual property is in real terms different form others, the patent is a something absolutely different, so the value of it cannot be generalized or standardized .In many companies the value the patent is given or estimated up to the mark or the way it should be . Now with the advancement of so many different technologies and also patents or different patent pertaining to the same product, and it is easy to violate the rule of any using any patent illegally, as a result of which the companies, constantly thrive to find more and more patents for one particular product, so that the use of it in and around the product can be avoided. As a result of which the companies have to put forward the value, in much amount so that to put all the patents in a single throw. This imparts the number of potential buyers from entering the market and keen to use the product or the patents (Hagiu & Yoffie, 2011). As a result the number of buyer and also the chance of using the patent and converting in cash is also restricted. This increases the non liquidity of the patents and also on account of the all the cumulative investments of the operating companies forces them to file and to take up more and more patents as possible. Thus it leads to the accumulation of many patent, increasing only in quantity, the quality of the patents is still undetermined as the more the patents are in a particular product , more are the chances that some may not be of so much use. The correct utility of any individual patent is also lessened by the kind of contract which has now come into being where two or more companies enter in an agreement, where both will protect the other from any kind of exploitation against using any patent. They rely on comparing the sizes of their patent investment. This thus restricts or prevents the companies to enter in the competition and also to stop any double costing, but this stops or hampers any quality patent from entering the market. These set of law for the products and services which has its own brand, create large or huge differences between large companies and also the small companies and the inventors in person, the patents which are of the small companies and also of the individual person are of less value as they have less money or resources and also have not so strong legal expert, as this require huge amount of money to hire them , thus imparting the possibility of less money transaction and also to have lower deals. There is high and huge cost involvement on both the sides of the patent For a company or a person, who has a particular patent, it is imperative as well as difficult to buy a user and also to be able to use the patent properly. With the ever changing world of technology , it is difficult to find the previous work done relating to that particular patent and also the works which are already work done in that particular direction , so as to use. The patent officers or the people who has been doing this work has to also find and put all possible items so by searching and listing the database, so the person who is using the patent is usually not transparent. This actually restricts the users sometimes to find the authenticity of the one, when there is so many in the market already (Pollard, 2006). The third factor is patent dealings always happens in the through the process of court. As a result of which it creates an uncertainty and also prejudice As it is pointed out by Hagiu and Yoffie (2011), the most of the patents which are being taken up through the court are rejected. Most of the intellectual protocol owners and persons want to settle it out of the court, and also would test in the correct cost of the intellectual protocol, the potential buyer are likely to see that they depend on the intellectual protocol to be settled in the court They would definitely want the cost to be of much less value. The buyer who can be entered into the two company’s licenses, some companies will want to enter in the litigation so that the value is undermined and also the defendant may find it much difficult to deny and stand the ground that the patent is of more value. Some courts are also notorious for doing the same. Some courts have the tendency of being bias in favor of the small companies and against the large companies, which makes the condition favorable to them and also the individual persons. Thus the transactional cost of the patents increases and the buyers and the sellers have an extra burden and also the cost to the large companies increases. Thus because of all these the market failure happens and also the intermediaries creep in, in order to solve the market problems, thus they tend to create and make money out of it. Over some years the intermediaries have actually come into play and thus have different set of goal and also aims, but the market cannot go , now without them . They are also of the opinion that the market for the patents can be made nice and also transformation to cash can be increased. IP market complexities A key aspect defining the IP intermediary markets is the owner and user perspective that defines market terms and conditions. The inventors want their own control over their design and ideas. On the other hand, the investor wants to assume full control through his financial power and claims ownership (Touhill et al., 2008). Control over the patent or design element plays an important role in transfer or exchange of IP. The idea may have originated somewhere, designed and developed by another person, bought by someone else and used by some other party. The control or authority shifts from one to another but the individual perspectives rule the market operations. The negotiations between the buyer and seller in IP market is thus riddled with complexities that require thoughtful approach while deciding the payment terms and transfer of IP rights. The buyer tries to assert his control since he has the monetary power and the originator of the ideas needs the money for investing in the project. “The inventor/innovator must understand that once we invest our money, we assume the risk of development and commercialization and we should be accomodated accordingly. On the other hand, if we behave poorly, he or she knows that we are not the only fish in the ocean and if we demand too much, he or she can choose to move on to other potential investors” (Touhill et al., 2008, p131). This caption aptly describes the buyer seller incompatibility in the IP market. The solution lies in negotiating a mutually beneficial agreement that considers the interests of both parties. The fact remains that no two negotiation in this market can be similar or generalised, since each patent involves different amount of risks and benefits to the ultimate user (Touhill, 2008). The evolving IP market intermediaries Now a days many business men , have now taken the form of the intermediaries and have a important role and shape, which was not there at least ten years ago. Today, intellectual property merchants have arose both in number and also function. There are many factors which have contributed to this: Thanks the increasing use of internet, the cost of the inventors could reduce their cost to an extent; they can find more intermediaries to sell their patents. Today an inventor or a person who has a patent can use online resources and contact NPE (this is a platform used to sell patent) or brokers and also can look for functions to organize selling of patents. The cost of the intellectual property values have increased, as more and more use of the software and also the advanced technologies used. No firm can have more than a stipulated percentage of the patents to cover all the technology involved. Result is that there are many owners and also the buyers are needed for all these different segments of the product used. This created a uncertainty in the minds of the patent users. Earlier this issue was resolved by cross licensing, but now they are not so used. Many new laws have also come like US International Trade Commission (ITC), for conserving the patent forum and also to uplift the value of patents stakes. Try risky, as this has given more powers to the NPE and also the settling of the case in the courts is now very risky, as it may lead to ban to certain patents as well. Though there is no monetary damage given or any monetary punishment, per se is awarded. Last but not the least, is the internal factors, which the intellectual property merchants have actually entered on a contract by which they have defensive response which would protect the large companies. Observations and conclusions The discussion has highlighted the role and mechanism of different kinds of IP intermediaries, but in this context it needs to be noted that managing such business models is not only complex but also requires an in-depth understanding of how innovations can be traded effectively. The failure and risk rates associated to such models are high and hence there are few companies who want to get into IP transaction in the open market. Several studies and research works have focused on the improving the efficiency of IP market operations and provide effective platform for trading in IP. However, this is not an easy process. “Managing internal and external innovations and IP within an open business model requires the construction and support of a rich internal innovation network, connected to a diverse external innovation community” (Chesbrough, 2007, p134). The commercialization of IP has been widely debated and researched to find out commendable solutions that support effective transaction between buyers and sellers. Firms are restrained by tight budgets that does not support extensive spending on research and development on the one hand, and on the other, the competitive environment seeks a high degree of innovation in order to retain market advantage. The behavioral aspect defining the attitude of inventor is yet another parameter that seek acclamation and credit to the designs and ideas generated by them. Control over patents is one of the significant issues facing open innovation business model (Jolly, 2005). Everyone has a tendency and a passion of acquiring knowledge. It is a thing which can be used and also be capitalized over some time. When we talk about any invention, it is the knowledge adding up to the experience and then it takes the shape of invention and also patent. By Patent it means, when any one uses or taken an account of his/her invention, in order to either capitalize or to modify or reform in certain way. This right is being granted by a specified organization or government and usually the time period is for fourteen years. Knowledge is a free thing, it can be used by anyone, as if anyone uses it, it does not restrict or stops anyone to use it. But the intellectual property rights, which actually stops or allows anyone else to use or restricts from using the same information by anybody else. Knowledge and expertise are the key components required to channelise patent development and create more opportunities for businesses to invest in innovative ideas. The commercial aspect of such ideas however, focus on the intermediary operation that enables innovators to reach out to prospective clients who can apply their ideas to create value addition. The paper has highlighted the weaknesses of existing structures and in this context it may be noted that motivating the intermediaries can be an effective step towards this objective. Cook in his works points out that intermediaries can be rewarded on the basis of their financial performance, community development initiatives, and humanitarian contribution. Such rewards may involve a share in profits, involvement in the operation team, and personal involvement in humanitarian goals. The nature of reward may vary from one situation to another, depending on the context of IP and its perceived goals. IP intermediaries play a significant role in enabling transactions, helping innovators sell their ideas and designs. A stable economy and enabling government policies that support innovation within their institutions can promote effective commercialization of intellectual property through technology transfer and other form of intermediaries that operate on a more transparent basis. Commitment of senior managers, government officials and research institutions play an important role in this aspect since any kind of technology transfer cannot be successful without their involvement. The integration between the two components is crucial in order to get effective results and the role of IP intermediaries must strongly focus on achieving an equilibrium between the needs and aspirations of the innovator and the goals and objectives of the buyer. Intermediaries in IP sector can play myriad roles that include providing information services related to technological applications, industry data, competitive knowledge; consultation services relating to technology managment and innovation application; support patent applications, licensing, project management enterprises, and contractual agreements (Tietze, 2010). References 1. Chesbrough, H. 2007, Open business models: how to thrive in the new innovation landscape, Harvard Business School Press. 2. Chesbrough, H.W. 2003, The era of open innovation, MIT Sloan Management Review. 3. Cook, T. 2007, The role of technology transfer intermediaries in commercializing intellectual property through spinouts and start-ups, ISIS Innovation Ltd. 4. Hagiu, A., Yoffie, D. 2011, Intermediaries for the IP market, Harvard Business School. 5. Jolly, A. 2005, From idea to profit: how to market innovative products and services, Kogan Page Limited. 6. Pollard, D. 2006, Innovation and technology transfer intermediaries: a systemic international study, eds. Beyerlein, M.M., Beyerlein, S.T. Kennedy, F.A. Innovation through collaboration, Advances in interdisciplinary studies of work teams, vol 12. 7. Tietze, F. 2010, A typology of technology market intermediaries, Working paper no. 60, Hamburg University of Technology. 8. Touhill, C.J., Touhill, G.J., & O’Riordan, T.A. 2008, Commercialization of innovative technologies: bringing good ideas to the marketplace, John Wiley & Sons. 9. Wang, A.W. 2010, Rise of the patent intermediaries, Berkeley Technology Law School, Vol 25, No. 129. Read More