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To
come to grips with a business model for IP is a dire necessity for any firm
seeking to compete on the edge. The many business opportunities afforded by IP
extend beyond its ability to protect and enable a firm’s performance. IP can in
and by itself constitute a business opportunity. Particularly firms operating
in forward looking technology spaces cannot ignore the business dimension of
IP. The need to thoroughly establish a business model for IP is given by the
sheer growth opportunities enabled in many technology sectors.
What is a business model?
At its simplest form, a business model consists of
generating value for somebody else. In return one receives some sort of
compensation that allows to keep oneself going. How much one adds value to someone
else’s undertaking and how much one can request in return for this service or
product offering, differentiates a strong business model from a weak one.
This understanding of a business model is commensurate
with the findings put forward in the academic literature, which argue that the main elements of the business
model are the creation of value and the implementation of strategy to capture
revenue from the established value. As such, the business model can be seen as
a mediating structure between a host of different input factors and various
economic outputs. The success of the business model relies on its adequate
appraisal of the market environment.
The
internal dynamics of a business model rely on two key elements: value creation
and value appropriation. The business model establishes the organizational,
procedural and operational means by which a firm creates and appropriates value
in its target market.
Value
creation involves all of the resources and processes deployed towards the
achievement of a given strategy. In that respect intellectual property can be a
key internal resource a company can rely on. Value appropriation again
describes the revenue logic of the firm’s operations. Also here, IP can play an
important role.
While
these insights are generally established in the field of management, they have
so far found insufficient application in the area of intellectual property law.
This is somewhat astonishing as business model innovations have been at the
core of the very technological revolutions that intellectual property is
supposed to protect.
Take the example
of cloud computing. Cloud computing allows for an infinite amount of data
storage and processing capacity on demand. As such, it constitutes a major
value proposition for businesses. Yet, the intellectual property that reads on
such services remains more or less entangled with a traditional IP paradigm. IP
is often used to protect the goods and services offered. If the IP actually
meets up to this requirement remains more often than not unknown. This is
explained by the fact that patent validity can only be tested through court
proceedings. If the IP is not upheld, then in such a scenario the IP has not
lived up to its expectations.
Applying a Business Model to IP
The
existing body of IP management suggests that the role IP can assume in a
corporate context can extend beyond this single value proposition. Patents can
be used to block other market participants from entering the market, but they
can also serve to enhance the firm’s reputation. Patent attorney often
emphasise on the strategic function of patents to assure a firm the freedom to
operate.
Other than
the important signalling function that IP can offer, it can also be an
instrument of revenue generation. Often, this is achieved through the licensing
and sales of IP.
Source: OxFirst research
From the
lens of the business model, the way IP can be instrumentalized can be
categorized into three broad areas.
1) Competition management
2) Marketing Function of IP
3) Generating Income from IP
While in
the first two approaches the IP serves primarily to protect and enable a
business model based on the delivery of products or services, it is the third
approach that allows to most closely associate the IP itself with a business
model.
If IP is
being used for keeping competitors at bay or for enhancing a firm’s perception,
then the IP is not directly used to drive business. Rather, it assumes a
support function. It is only when the IP becomes subject of the business
activity in itself, that one can speak of an IP business model.
In these
instances the business model centres around the IP itself and allows to
establish a corporate function for intellectual property that can be detached
from the trading activities of the company per se. Trading on the grounds of
intellectual property assets can have several advantages. For one, it is much
less costly and complicated to ship intangible assets around the planet. For
two, the trade in the underlying rights to a technology can enable a firm to
enter into joint ventures, collaborative exchange or other forms of open
exchange, while foregoing the many hassles associated with a full fletched
merger or acquisition.
Why one cannot ignore the IP business dimension
Developing
strategic relations on the grounds of IP can be much easier to achieve than on
the basis of tangible items. This is explained by the nature of IP rights. With
the further differentiation of business models, I tend to believe that
companies will be forced to consider more thoroughly what type of business goals
they would like to achieve through their IP. This requires a more systematic
investigation into the business proposition of a firm’s IP. At present, there
is too much intellectual property gathering dust. In the current crisis, firms
simply can’t afford to continue doing so.