IBM woos start-ups

IBM on Tuesday unveiled a specially tailored cross-licensing program for venture capitalists and their start-ups, as it seeks to populate emerging businesses with its technology.

Under the IBM Ventures in Collaboration program, venture capital firms and their portfolio companies will have access to a two-tiered licensing program. The program is designed to lower licensing costs for IBM products and simplify the licensing process for young companies.

Start-ups with annual revenues under $10 million will receive a standard, three-year cross-licensing contract for $25,000, said Michelle McIntyre, a spokeswoman for IBM Venture Capital Group.

Companies with more than $10 million in annual revenues that are in the process of bringing their products to market receive a custom, five-year cross-licensing contract and pay 1 percent in royalties. There is no revenue cap on a company's eligibility, McIntyre said.

"This program will remove the barriers faced by early-staged, VC-backed companies, and provide them with an opportunity to access IBM's...patent vault," Claudia Fan Munce, managing director of IBM Venture Capital Group, said in a statement.

The program is initially open to IBM's 150 venture capital partners, but Big Blue is willing to discuss the program with start-ups outside its VC network, McIntryre said. Some of the participating VCs include Walden International, U.S. Venture Partners and 3i.

Big Blue's cross-licensing program is the company's latest effort to strengthen its relationship with young companies in the hope that its software and hardware will be used in a start-up's emerging products. The relationship also provides IBM with a glimpse of emerging technology trends.

IBM's approach is also different from those of other Fortune 500 companies. It spends less time making direct investments in start-ups as a strategic partner and instead invests in funds run by venture capitalists. Last year, for example, Big Blue invested more than $20 million in funds run by venture capitalists.

[cjreeves]

Is thsi really a good deal?

My initial reaction was that IBM has a huge patent portfolio and this is a real bargain, plus good PR. Then I had second thoughts:

How many startups would cross-license their patents? Aren?t these their crown jewels?

Rather than a program to remove barriers to startups, it appears to be a way for startups to pay IBM to:

1) Save costs on litigation. An attorney told me that "It costs $3M a year to sue someone for patent infringement if you?re a company like IBM. If a start-up is only making $10M a year, there?s no money to collect so no point in suing."
2) Strengthen even further its own patent portfolio.

Obviously IBM?s patent library is extremely valuable, but is this really a valuable offer or is it the sleeves out of IBM's vest?

I really don't know. I'd welcome opinions.

Feel free to respond here: http://cliffreeves.typepad.com/dyermaker/2005/12/patent_crosslic.html