Recently I was in touch with two start-up firms both active in highly promising areas of new technology. One, Ambature Inc, is a start-up based in Phoenix, Arizona that is focused on the licensing of A-axis thin film materials in the area high temperature superconductivity. The other is an equally promising start-up active in nanotechnology, which I won’t name.
Although they both undertake R&D in groundbreaking fields, the two firms differ substantially in how they think about IP and the importance that is being attached to IP by their respective boards. At Ambature, the CEO and several members of the board have a background in IP or commercial law and can call on decades of experience in licensing. At the other firm, senior management is composed of a team of economists and MBAs.
Unsurprisingly, the role IP plays within both firms is substantially different. In Ambature, the entire business model is based on IP. The company has successfully built a patent fortress around its technology, owns more than 50% of the patent share in high-temperature superconductivity and boasts a patent portfolio of 171 issued and pending patents with over 3,000 patent claims across 21 industry verticals. In contrast, the CEO of the nanotechnology start-up was not even able to tell me what patents the firm owns and what space they cover. All I heard was that this was outsourced to a US law firm. Worse, he told me that his firm was very business oriented and that he, as CEO, had no time to spend on the “legal questions”. Now for readers of Managing IP, focused on the business of IP, that may come as a shock. But the reality is that CEOs who think like Ambature’s are very likely to be in a minority.
What are the consequences?
Well, apart from the fact that much IP sits gathering dust, the business opportunities available to firms that embrace IP at the senior level are just much more varied than for those who simply tick off IP as yet another (expensive) legal necessity.
Because Ambature holds such an important patent position, it can use that as a way to bring commercially viable products to the market through strategic alliances. By using its patents as a medium of exchange, it can reduce costs and rely on corporations that have the necessary means to bring the technology to market. It also gives Ambature, a start-up firm, a chance to enhance its reputation, while field of use restrictions of licensing agreements help it avoid target market-share dilution. This again allows it to focus on its own core strength in the area of R&D and forward-looking patent portfolios.
Large firms on the other side of licensing deals can exploit innovative technology on a greater scale and thus derive considerable value from it because they are able to access the complementary assets necessary for distributing, marketing and manufacturing products. Accordingly, the patent-based interaction between large and small players offers a win-win situation. None of this is possible if key decision makers within a firm are not knowledgeable about IP.
Using IP to build strategic partnerships is precisely in line with what Professor Henry Chesbrough described in 2003 as “open innovation”. Useful knowledge, he argued, is widely diffused, so that no company holds a monopoly over knowledge in its field. At the same time, the quality of work at small companies, universities, and non-profit institutions is increasingly high. So instead of inventing everything in-house, a firm can innovate effectively by accessing excellent work done outside. Seen like that, IP is not an impediment to open innovation, but rather the missing link that allows for collaboration and exchange. Yet these options remain unavailable to corporations who fail to combine IP with business strategy.
A new school of thought is emerging where the value proposition of IP is modelled through an intangible assets lens and patents are seen as a key variable to increase the efficacy of technology utilisation and a vital enabler for the flourishing of secondary markets for technology, rather than a tool to keep competitors at bay. A different understanding of the value proposition of IP gives way to different institutions, such as Ambature, that bundle IP in a concerted manner and seek to establish commercially viable products jointly with large corporations. So, where does that leave the CEO of the nanotechnology company? Well, let’s just hope his law firm gets the strategic part right!
Roya Ghafele is an academic and a director of consultancy firm Oxfirst.