Patent Exchange

Here is an interesting story on OceanTomo’s Intellectual Property Exchange International from the DowJones Newswire — First Patent Exchange To Launch Early Next Year. The purpose of the exchange is to give patent owners a mechanism to sell their royalty rights – thereby creating more liquidity and more price transparency in the IP market. But, as the story points out, there is some concern that the exchange will lead to greater litigation via as “patent trolls” buy up licensing right:

“Whenever anybody aggregates patents, there’s always that suspicion,” said Patrick Thomas, principal at 1790 Capital, a hedge fund that invests in companies based on their intellectual property. But Thomas said Ocean Tomo’s current business based on valuing companies’ patent assets lends credence to the new venture.

I am less worried about the troll aspect of this — trolls will do what trolls do. I am interested to see how it works for providing price setting. As the story notes, “Traditionally, companies hoping to license out patents do so in secret, labor- intensive and expensive deals that can be hard to value properly.”

In some ways this is a derivative market — in that it is buying and selling licensing rights rather than trading the patent (which is what ICP OceanTomo’s patent auctions does). While monetization of IP is a useful activity (and something which Athena Alliance has looked at extensively), it is the actual right to use the patent which most companies care about — not just the renting out their licensing rights. So I am not sure there is enough trading to create the liquidity needed to adequately set prices. Derivative markets, such as this patent exchange, can help set the market price – but can also be way out of line if they are illiquid and/or captured by speculators. A friend of mine tells the funny story of when he, as a journalist covering a certain market, ended up being the “market price setter” when the exchange prices were considered wacky – so much so that apparently companies were concerned when he took a trip for fear of losing him in a plane crash.

So, the exchange is a good step forward. But we should treat it as a pilot – and look carefully as to what else may be needed to both help it operate effectively and to provide the price setting and liquidity the market needs. Most importantly, we need to view this through the lens of our ultimate goal: innovation. For my part, I’m not interested in spurring monetization of intangibles for the sake of creating more trading. I am looking at this as a mechanism of funding – and fostering -innovation. If it doesn’t do that, then it is not worth it.


More funds for green manufacturing

According to a story in today’s Wall Street Journal, the Obama Administration is greatly increasing funds for the green manufacturing:

The expansion would increase three-fold the $2.3 billion available in the Section 48C Advanced Energy Manufacturing Tax Credit program, part of the $787 billion stimulus package enacted in February. That program has been over-subscribed. The additional money could go to applicants turned down when the money ran out.

This is good news — the “48C” program is one I have strongly supported (and have been told by Administration officials that it were far more good applications than funds).

It is also a program that can be made even more powerful. As I’ve argued before, the program should be modified from a current tax credit for clean energy technology manufacturing facilities to be an up front payment in lieu so that companies who are trying to build facilities like wind turbine manufacturing facilities can get the start-up cash they need. Such a payment in lieu of tax credits was already created for alternative energy production facilities in Section 1603 of the America Recovery and Reinvestment Act — and can serve as a model for the change.

This will need legislation — I do not believe it can be done through regulations. But there is a tax extenders bill working its way through Congress and there is likely to be a “jobs bill” next year. So, Congress will have an opportunity to take this successful program and make it even more successful. And put us on the path to truly using green technology to spur a renaissance in American manufacturing.

Innovation and Health Care

David Leonhardt has an interesting column in the New York Times — If Health Care Reform Fails, America’s Innovation Gap Will Grow — where he makes that case that our current system is bad for the future of the I-Cubed Economy:

Economic research suggests that more than 1.5 million workers who would otherwise have switched jobs fail to do so every year because of fears about health insurance. Some of them would have moved to companies where they could have contributed more, and others would have started their own businesses.

As he points out, as part of an innovation policy, “you would want to make people feel confident that they could take risks — start a new company or join a young one — without worrying about whether they would still receive adequate medical care.”

Our existing health care system is already a drag on our economic competitiveness by imposing costs on US businesses that their competitors don’t have to face. Leonhardt’s point about the negative impact of the health care system’s “job lock-in” affect is even more telling.

US innovation data — finally

Apropos of innovation metrics (see previous posting), the US is now beginning to collect innovation data as part of the NSF’s Business R&D and Innovation Survey — formerly known as the Survey of Industrial Research and Development. The survey (which started this year) asks questions similar to the European Community Innovation Survey and the OECD Oslo Manual — something that I have been advocating for years.

The new questions include whether the company introduced any of the following during the three-year period of 2006 to 2008:

New or significantly improved goods (excluding the simple resale of new goods purchased from others and changes of a solely aesthetic nature)
New or significantly improved services
New or significantly improved methods of manufacturing or producing goods or services
New or significantly improved logistics, delivery, or distribution methods for your inputs, goods, or services
New or significantly improved support activities for your processes, such as maintenance systems or operations for purchasing, accounting, or computing

It also asks new questions on patent licensing revenue.

Unfortunately, the 2009 data will not be available until spring since it is a new series of questions. In the following years, the data will be available in January with the publication of NSF’s Science and Engineering Indicators.

Next step, in my mind, is to tackle the question of “hidden innovation” – as mentioned in the previous posting. It will be interesting to see if we can use the new data to conduct a similar type of analysis.

Example of Hidden Innovation – not even on the survey

The previous posting mentioned NESTA’s reports on Hidden Innovation. I was at an event this morning with Digby, Lord Jones, the former UK Minister for Trade & Investment. When I mentioned the study, he remarked that even with the report it is difficult to ferret out these non-traditional innovations. He gave the example of the supplier of aggregate (sand, gravel) to the construction of London Olympic facilities. There is a motorway that runs from the quarry to the construction site. So, the standard way to haul the stone would be by truck (in part right through London). But since the construction site is on the Thames, the contractor decided to ship the stone by rail from the quarry to the river and then take in by barge to the site. This was better from both an environmental point of view and for traffic safety and congestion. Apparently the contractor won the bid based on this innovative idea. Yet, Lord Jones noted that when the company filled out the innovation survey, they checked the box on “no innovations.”

Of course the company didn’t think it was being innovative – since our mindset still equates “innovation” with “technology.” They are still blasting and crushing rock the same way. The innovation was much more subtle. But for all the people who won’t be trapped behind a large number of stone carriers on the motorway, it has a profound impact on their lives.

Therein lies the other problem with these hidden innovations: they can be invisible because of what they don’t do. How do we measure innovations that prevent a negative, and how does the policy (and political) system reward these innovations? The market can reward them through acknowledging the cost savings/expense reduction. For policy makers it is much more difficult. But that is the challenge of getting the innovation system right.

UK Innovation Index

The UK’s National Endowment for Science Technology and the Arts (NESTA) has released its new pilot Innovation Index
. As the press release states:

The aim is to make a significant improvement on existing metrics, both by making clear the contribution of innovation to productivity and growth, and by capturing ‘hidden innovation’.

The index is now in its pilot form with launch of its final form due in the fall of next year. The Index is actually three reports.

The first report provides a growth accounting framework, built in part on the measurement of intangible assets as formulated by Corrado, Hulten and Sichel in the US and Marrano, Haskel and Wallis in the UK (see previous postings).

The second report is a follow on to their earlier report of “hidden innovation” – that is innovation in industries where levels of traditional R&D investment are low. These include: architectural services: accounting; business and management consultants; legal services; software and IT services; automotive industry; construction; energy; and design services. The report shows that low R&D intensive industries are not necessarily low in innovation. And even in areas were industry wide innovation may be low, successful companies are more innovative than their peers.

The third report looks at seven clusters of what it calls the “wider conditions” for innovation:

• Public research. Both the amount spent on public research, and the strengths of business-industry links.
• Openness. How quickly and effectively good ideas can diffuse and be absorbed. This includes both the physical infrastructure for openness (such as broadband internet) and its social underpinnings (such as how hierarchical workplaces are).
• Entrepreneurship. How effectively new businesses spring up to take advantage of innovative opportunities, and how willing people are to take the risks necessary to innovate.
• Demand. Whether customers are willing to buy innovative products. An important part of this is government’s willingness to procure innovative products.
• Competition. The overall level of competition in the economy.
• Access to finance. Whether risky, innovative businesses can attract funding, in particular venture capital, but also other forms of finance such as business credit.
• Skills. Whether skilled workers are available to work in an innovative venture, and whether workforces have the necessary skills to innovate themselves.

The study concludes that the UK does well in competition and entrepreneurship, needs work in the areas of public research and openness and lags in access to finance, demand and skills.

These three reports are essentially refinements and follow-on to previous NESTA work. Taken together they point to a new direction of measuring and understanding innovation. As they show, innovation based on investments in intangibles assets occurs across economic sectors. It is not simply a function of what we traditionally see as R&D These report highlight that our industrial age notions of innovation are woefully out of date. As the hidden innovation report states: “One reason for this innovation gap is that traditional metrics do not reflect the nature of innovation in today’s economy.” New metrics will come from the new formulations of innovation presented in these report — and in turn the metrics will help us better the workings of the I-Cubed Economy.

Barbie versus Bratz — who owns your ideas?

For those of you with young girls, you may be aware of the Barbie vs. Bratz issue. For the rest of us, it may seem like just a war of the dolls. However, it centers on an important concept in innovation and intellectual property: who owns an employee’s idea. In this case, Mattel (maker of Barbie) claims that Carter Bryant designed the Bratz dolls while he was an employee of Mattel. Therefore, Mattel says owns the rights to the Bratz doll (which they view as a direct competitor).

Here is the twist: Bryant says he designed the dolls on his own time. Mattel says it doesn’t matter since he signed an agreement that gave Mattel the right to anything he designed while employed. A judge and jury agreed with Mattel and ordered the Bratz makers, MGA Entertainment, to pay damages, turn over the Bratz product line Mattel and buy back and destroy all Bratz dolls still on toy stores’ shelves.

Now the case is moving up the judicial system. According to the Wall Street Journal, on Wednesday — just in time for Christmas — an appeals court has stepped in:

In addition to staying a lower court’s order, a panel of the Ninth Circuit Court of Appeals in Pasadena also ordered that the two companies enter mediation.
. . .
The appellate judges on Wednesday questioned whether the trial judge went too far by awarding MGA’s Bratz doll franchise to Mattel and wondered why he didn’t instead award Mattel a royalty or ownership stake in the company. The judges also questioned whether Mattel’s “inventions agreement” at the center of the dispute gave the toy company ownership of all ideas the designer came up with, even when he was not at work.

Sounds like this one may go all the way to the Supreme Court — and set a major precedent on who owns what ideas.