With 'open innovation,' no idea is left behind

(continued from previous page)

Businesses could decide to sell even those technologies they are using, leasing back the right to use it in their industry while allowing another company to put the technology to work in some other application.

Indeed, the idea of a secondary market for software patents is one that's gotten a great deal of attention lately.

"That's why most patents are worthless.... They don't do anything anyone would pay for."

--Jim Huston, managing director for Blueprint Ventures

But panelists cautioned that the market is not yet here.

"Today there isn't really a secondary market," Huston said. There are indications that one is emerging. The challenge is that patents are hard to value and it takes a lot of work to evaluate whether a particular one is any good.

"Intellectual property is not like pork bellies," Huston said. "Valuing a patent and understanding what it is, is devilishly hard."

Companies also face a number of pressures that make it easier to keep even unused patents, rather than look for alternatives.

One problem is that because patents are still legal weapons, you never know when you might need one as a negotiating tool or other such implement. Huston pointed to a time when he was at Intel and the company was looking to donate or let lapse a number of underutilized patents. There was one that was close to being given away, but a lawyer noticed that it could be critical to boosting Intel's bargaining position in a pending cross-license deal.

"It probably saved Intel $100 million," Huston said. "This was a patent that was within weeks of being given away."

Another issue is the "winner's curse," in which executives stand to be criticized for licensing out a technology that ultimately makes another company millions--criticized more, in fact, than they would be for having let the technology languish.

Many say the benefits of open innovation could be hampered if companies fail to recognize that there's more to innovation than filing a patent.

Huston said that without proving a technology can work in the marketplace, it's an invention, not an innovation.

"That's why most patents are worthless," Huston said. "They don't do anything anyone would pay for."

Often singled out for criticism is Intellectual Ventures, the Nathan Myrhvold-led company that has been scooping up patent portfolios and says it will build a business licensing out the technology.

The potential benefit, Chesbrough said, could come by companies like Intellectual Ventures increasing the value of independent invention. That said, he acknowledged that what one person sees as an increased value for innovation "is another person's extortion."

Though there's a chance that companies could try to wait for other companies to develop an infringing technology and then seek royalties, Chesbrough said that would take a lot longer and run the risk of spurring adverse legislation.

The better approach, he said, is to license technology early on and seek only a reasonable cut. If they seek too much money, it won't be profitable to use their stuff. "That will set a practical limit on how much they extort, or charge."

Both Huston and Chesbrough point out, though, that even under the best circumstances, a company devoted purely to intellectual-property licensing is a tough proposition. Those who believe the future of such companies is rosy often point to Qualcomm, which today gets most of its money from licensing its cell phone network technology.

"Today they've got this lean, mean IP machine," Chesbrough said, adding that its current business stemmed from a huge investment of several hundred million dollars to demonstrate its technology. Key in that, he said, was straightening out the kinks. Only by actually building out its technology, Chesbrough notes, did Qualcomm realize it needed to vary its signal strength, boosting the signal in some areas and weakening it in others. That kind of knowledge can't come from a company that doesn't build anything.

He said the Intellectual Ventures business model doesn't appear to cover that. "They are not going to accumulate this knowledge," he said. "Somebody is going to have to do that. That's something I'm not sure those folks have fully thought through."

[Johnny Mnemonic]

Patent Troll Business Model

I just summarized this two page marketing non-sense
into 4 simple words.

[chuck_whealton]

Re: Patent Troll Business Model

I'm afraid I'd have to agree with you.

Charles R. Whealton
Charles Whealton @ pleasedontspam.com

[P. Jackson]

Not quite right

A patent troll is someone who buys up patents and then tries to enforce them in the courts. The article is about people spinning off ideas they have developed but can't use and either licensing or partnering.