Corporate venturers, just like traditional venture capitalists, need to understand the fundamental change in innovation – the speed of innovation requires collaboration with third parties to develop products in the short timeframes demanded by modern markets and the power of platforms to leverage the contributions of third parties in other ways.
The iPhone is a great example of collaboration – Apple supplies the design and operating system, but all the other parts are provided by third parties, and the iPhone acts as part of the iTunes/iOS platform which leverages third-party content from music to video to apps to satisfy customer demands.
This change in product development means corporate venturers should review portfolio companies to ensure they have an intellectual property (IP) strategy consistent with their business plan.
Such IP will be critical to a company’s ability to work collaboratively with other companies to develop their products. And this IP strategy should be designed to protect their products and services from potential competitors.
IP has shifted from a series of dusty legal documents, kept in a filing cabinet by the legal department, to a financial asset with multiple methods of exploitation.
Recently, AOL has sold 800 of its patents to Microsoft Corporation for $1.1bn. This trend has extended to start-up companies such as Friendster, which has reportedly sold its 18 patents for $40m.
Corporate VCs should understand IP basics. The four basic forms of intellectual property – patents, trademarks, copyrights and trade secrets – are summarised as follows: patents protect inventions; trademarks protect words, designs and images that indicate the source or origin of goods; copyrights protect artistic works such as software, books and music; and trade secrets protect information not commonly known in the industry and which the company has made reasonable efforts to keep in confidence.
The best method of remembering IP is their application to the Coca-Cola’s can, which has all four of these types of intellectual property – patents protect the metals used to make the can and the process of filling the cans; trademarks include the words “Coca-Cola”, one of the most valuable in the world; copyright protects the design on the can, including swirls and other devices; and trade secrets protect the formula for Coca-Cola, one of the most valuable trade secrets in the world.
Start-ups need to develop and maintain an IP strategy combining all four of the major forms of IP. The strategy must take into account the time it takes to have a patent issued – three to five years unless certain accelerated procedures are used – and ensure the issued patent continues to be useful for the start-up as its business changes.
A start-up should also consider buying patents to ensure it has protection while its own patents are pending. For example, Facebook has been active in purchasing patents and has already used such purchased patents – when Yahoo sued Facebook for patent infringement, Facebook asserted eight patents in a counterclaim and six of the eight patents had been purchased.
Patents can also be important as an asset in a merger exit. If the corporate venturer is developing platform strategy across its portfolio of companies, then it needs to review the IP strategies of the portfolio companies to coordinate them in implementing the platform strategy.
Does the coordinated IP strategy have gaps that could create problems in protecting the proposed platform? This strategy must also take into account the distinction is between the platform and third-party applications.
The IP strategies for protecting platforms is new and continues to evolve.
Corporate venturers should also consider other strate-gies for collaboration, such as open-source projects. Many companies are using open-source strategies to develop all or part of their products through collaborative efforts.
The most visible example is Google’s use of the Android platform to develop its mobile market. Other examples include the OpenStack Foundation to develop software for cloud computing and Genivi for the automotive industry.
IP is frequently a start-up’s most important asset and corpo-rate venturers need to ensure their portfolio companies have a strategy to develop such IP assets and are implementing the strategy.
This article is an edited version of Radcliffe’s keynote speech at the Global Corporate Venturing Symposium in May and an associated webinar (to listen, click here).