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Licensing and collaboration are becoming an essential part of patent processes. Cory Van Arsdale, senior vice president of global licensing at Intellectual Ventures, shares his thoughts on the future of patenting

How are tech companies branching into new technologies? Is it better for them to focus on R&D, collaborations or acquisitions?

Tech companies, at least the ones that embrace the future and where it’s headed, are continually embracing new technologies to the extent it brings them new markets and/or takes them where their existing market is headed. This is true for what would be traditionally not considered a tech company as well.

At Intellectual Ventures, we recognise this and through our work, we enable tech companies to innovate across the broad spectrum of technologies.

As an example, several tech companies are investing heavily into driverless cars. They are doing this not by investing in traditional car IP, but rather by leveraging what is their core expertise in tech and where cars seem to be headed. Cars are increasingly becoming sophisticated computers, and companies such as Apple and Google are betting that their base of technology will be the backbone of that industry. They’re bringing to bear their expertise in cloud, data and UI to where they see the car market headed. Further, the line between tech company and car company is getting blurred. Is Tesla a tech company or a car company? The clearly vague answer is probably ‘yes’.

So tech companies are investing heavily in advancing their R&D, but they are also hedging by purchasing R&D through acquisitions and collaborations. I can foresee industry collaborations such as a car manufacturer and Apple teaming up. Apple brings much of the technology. The car manufacturer brings the vehicle technology, but also the industry experience in the regulatory framework to get the actual product to market.

Non-tech companies are also investing heavily in technology, particularly when technology has the ability to disintermediate their value stream. An example there is banking. Five years ago, it was somewhat rare to use your mobile phone to do any banking other than perhaps looking up your account balance. Now, I, like several individuals, have not even been in a bank branch in the last few years, as I use my mobile to make check deposits, transfer funds to anyone, anywhere, and generally operate my banking life. The convergence of technology with the bank—again necessitated by both disintermediating technology competitors (think PayPal) as well as by the increased efficiency from addressing the user base (mobile)—has caused banks to invest in technology to their benefit.

How are tech companies putting patents to use? Is there a tendency to license?

Note that I didn’t mention patents above, only technologies in general. It is true generally, though, that increased investment in technology accompanies increased patenting in those spaces.

Tech companies are efficient with respect to patenting, particularly in their core areas of expertise and a lot of what tech companies are investing in, even with respect to new markets such as driverless cars, are extensions of their core expertise. As far as licensing patents in those areas of technology, it varies from company to company. In some areas, such as mobile handsets, one point of market share is a huge amount of revenue opportunity, and the players are disinclined to license freely and more inclined to use their patents to protect, if not increase their market share.

In other areas, such as driverless cars, I would expect that a significant amount of patent applications are being filed, but the players are not yet sure where the sweet spot of technology lies, much less where to patent. In those new markets, licensing is not prevalent except perhaps in the normal course of cross-licenses between competitors. And some players, such as Tesla, have made statements about not enforcing their patents in such new areas.

Finally, the current market is one that rewards efficient infringement—that is, those that refuse to take licences are not facing onerous consequences for taking such a position. If they lose a patent litigation, the licence amounts appear to be not much different than what a licence would be if the infringer had engaged in honest negotiations for a licence in the first place.

So why not just refuse and roll the dice? Such an environment is not conducive to efficient licensing, and thus it is less likely that tech companies will embark on systematic licensing businesses. However, it is clear that the pendulum is swinging back, and efficient infringement will be a more tenuous position to take. When that occurs, I expect more tech companies to consider organised, proactive licensing (versus reactive licensing activity such as cross-licence discussions).

How big and important is the licensing business?

Overall, licensing has been and always will be a critical part of our economy. From Thomas Edison to today, licensing is an efficient industry model to enable innovation and invention from all corners of the economy.

Licensing benefits individual inventors, universities and other research institutions and the overall market. Needing to create an efficient ecosystem around licensed technology and attendant patents is almost a tautology to the history of the global economy. Entire industries, such as mobile, have arisen far more efficiently and quickly as a result of licensing. So, licensing is a given in my view.

As for licensing in the current and near future environment, it is highly dependent upon both the timeframe and the applicable industry. The current patent market timeframe makes licensing activity inefficient. This is generally true across most tech industries today. It is also generally true that this will shift in the near future as laws and procedures settle more around patents.

A lack of such a shift back toward the licensing centre will have catastrophic effects on our global economy and our continued ability to innovate. With respect to particular industries, it will depend in large part upon the relevant players in that industry. I do believe that licensing will be an integral part of any industry, either directly or indirectly.

Take the two examples above, driverless cars and mobile banking. In the former, I would expect that unique, licensing companies—analogous to Qualcomm, Tessera and Dolby—would emerge in the form of direct licensing. Such players have historically demonstrated that they accelerate development and advancement of the industry and market. In other words, they create efficiencies for advancing the industry through licensing. In the case of banking, the convergence of mobile and other IT technologies on the world of banking has meant that the industry has benefitted indirectly from the direct licensing that launched the mobile and IT spaces in the first place. And further in banking, the use of necessary standards for encryption and the like also underscores the need for direct licensing.

In essence, I do not think any future industry will ever be one that is not dependent upon licensing.

In areas where companies are not the leaders, how can they put their patents to work?

A licensing programme is certainly an option here, although most companies are unwilling to devote the time, resources and headcount to licensing activities. Sub-contracting licensing activity is certainly an option for many companies. Intellectual Ventures works with many companies to acquire patents from them and thereby monetise their portfolio efforts. We both purchase assets and pay back-end royalties if we are successful in monetising those assets.

This allows companies to make educated bets in certain spaces core to them, and if those bets do not pan out or, more likely, if they have material and significant strength in an area that does work out, they can monetise their portfolio with Intellectual Ventures and hedge their R&D and attendant patenting efforts, which delivers value for their shareholders.

What about the patent marketplace? Is it efficient and useful?

Historically, it has been a highly effective ecosystem. Arguably, the US patent system has been the most important factor in driving some of the greatest technology advances in history. Efficiency in the patent ecosystem, however, has often been the subject of disagreement. Intellectual Ventures was formed because we believe ideas have value and are the surest way to solve hard problems and transform industries.

Intellectual Ventures was formed to create better efficiencies in the patent IP underlying virtually all invention. Intellectual Ventures has invested billions in capital to create new and to buy and sell patents underlying invention. In so doing, we have generated more than $2.5 billion (as of 2015) in payments to inventors, research institutions, companies and universities for their invention efforts, and that leads to even more invention as such institutions continue to invest in technologies, inventions and the patents that underlie them. At Intellectual Ventures, we invest every day in the goal of creating an effective global innovation ecosystem, because we think patents are the backbone of invention and innovation.

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