Platt Perspective on Business and Technology

Innovation, disruptive innovation and market volatility 48: innovative business development and the tools that drive it 18

Posted in business and convergent technologies, macroeconomics by Timothy Platt on August 13, 2019

This is my 48th posting to a series on the economics of innovation, and on how change and innovation can be defined and analyzed in economic and related risk management terms (see Macroeconomics and Business and its Page 2 continuation, postings 173 and loosely following for its Parts 1-47.)

I have been discussing two-organization based, innovation discovery and development scenarios here since Part 43 when I began outlining and analyzing:

• University research labs and the university-as-business systems that they function in, as original sources of new innovation,
• And invention acquiring, for-profit businesses that would buy access to these new and emerging opportunities for development and sale

as organizations of these two types come to work together through technology transfer agreements. And my goal here is to expand that line of discussion to include a wider range of participating organizations. I raised a possibility for that in Part 47, when I made note of how larger companies can and do at least occasionally divest themselves of patents that they hold, but that do not supportively fit into their current or planned business model and its needs. IBM is known for having sold off tens of thousands of patents in that way as they have, as a business, redefined themselves to remain competitively effective in the face of overriding change and its challenges. (See, for example IBM Has Sold Over 15,000 Patents Since 1991; Google is its biggest customer, where this news piece only addresses part of a still larger and longer-term patent divestiture story for this business.)

For purposes of this line of discussion and this posting in it, it does not matter as much what types of businesses are involved in these transactions. It only matters that one of them holds effective control if not direct outright ownership of at least one trade secret, patent protected or otherwise access-limited innovation that another would want to be able to benefit from, and that second organization is both willing and able enough to secure control of this for itself to make a transaction for managing that transfer, a viable option. Under these circumstances, the precise business models and business plans of the enterprises involved, do not particularly matter except insofar as that type of information would add insight into the nature and details of whatever those businesses could negotiate an agreement upon in this specific context. And that means relevant information concerning these businesses that fall into four fairly specific question-defined categories, that are all fundamentally grounded in a same set of operational and strategic concerns:

• What value would the initially owning business gain, or retain if it were simply to maintain tightly controlled, access limited hold over the innovation or innovations in question here?
• What value could it develop and secure from divesting at least contractually specified control over the use or ownership of this innovative potential?
• And from the acquiring business’ perspective, what costs, or loss of positive value creating potential would it face, if it did not gain access to this innovation and on terms that would meet its needs?
• And what positive value would it gain if it did gain access to this, and with sufficient ownership control and exclusivity of use so as to meet its needs?

I posit this entirely in cost and benefits terms, and in terms of risk and benefits where the more disruptively novel the innovations under consideration are in this, the less firm data will be available to calculate a priori, what the actual costs and benefits would be, as efforts are made to answer the above four questions. That places this type of analysis at least significantly in a risk management arena.

Timeframes enter this narrative here, as even the most dramatically new and novel innovation as initially conceived, is going to have a time limited shelf life. And this can be expected to hold true with particular force if an innovation in question offers dramatic new sources, forms or levels of value that would not have been possible before it. As soon as word of its existence gets out, efforts will be made to bypass any ownership or licensure-based access restrictions to what it can do, with duplication of initial discovery and innovation pursued by others and either by directly copying it with knock-offs or through efforts to create similar if analogous product offerings that would capture similar forms and levels of new value, or both. And with this, I cite my above-noted IBM example again. On the whole, the thousands of patents that that company has sold off, have still held value for at least select business-to-business markets and sectors, and for specific types of potentially acquiring businesses. But it is likely that many of them were worth less on an open market of this sort when finally sold off, than they were initially worth. And some of them have undoubtedly fit into a “cut your losses” pattern where it had in fact cost more to initially develop them and secure patent protection over them, than could be fully recouped from their ultimate sale.

I am going to continue this discussion in a next series installment where I will add in the complexities of scale, and for both the divesting, or licensing business and for the acquiring one. And I will also discuss the issues of direct and indirect competition, and how carefully planned and executed transfer transactions here, can in fact create or enhance business-to-business collaboration opportunities too, where that may or may not create monopoly law risks in the process.

Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation. And also see Ubiquitous Computing and Communications – everywhere all the time 3 and that directory’s Page 1 and Page 2.

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