What Universities Can Learn from IBM’s IP Licensing Strategies

What Universities Can Learn from IBM’s IP Licensing StrategiesCan U.S. research universities learn from IBM’s intellectual property (IP) licensing strategies? I don’t mean that universities should behave like a for-profit corporation and attempt to wring revenue out of the plethora of intellectual activity that takes place on campus. This wouldn’t work for several reasons. I mean that some elements of IBM’s IP licensing strategy might improve the way U.S. research universities manage the patents that result from publicly funded on-campus research projects.

Here are some elements of IBM’s IP licensing strategy that are revelant to university patent portfolios, although not necessarily in the way you would expect:

  1. IBM IP-related revenue includes payments from licensing know-how, consulting fees and other intangibles, not just patents
  2. Patenting decisions at IBM are de-centralized and inventors given bonuses
  3. Selected IBM patents are cross-licensed to other companies
  4. Potentially patentable IBM technologies are sometimes placed into the public domain
  5. Selected IBM patents are donated to open source projects
  6. IBM engineers search for potential patent infringements

Clearly, IBM’s licensing strategy is designed to suit a for-profit, corporate environment. Could the IBM strategies listed above be applied in a university setting?

IBM strategy 1: Monetize a broad swath of company know-how and resources.

IBM’s reported revenue stream from licensing intellectual property is earned by monetizing a number of different types of company expertise and resources, not just patents.

  • IBM earnings category 1: Sales and other transfers of IP ($138 million USD a year): this category involves fixed fee transfers of IP and cross-licensing arrangements of patents. Some of this includes valuation of IP in IBM divisions that were sold or spun off.
  • IBM Earnings category 2: Licensing/royalty-based fees ($514 million USD a year): this category contains patent licensing revenue, which, according to a figure cited in an article by Joff Wild, accounts for an estimated 40% of earnings. The remaining revenue in this category is from technology licensing. That includes the transfer of trade-secrets, technical know, training, loans of personnel, or providing access to IBM labs.
  • IBM Earnings category 3: Custom development income ($501 million USD a year): this income consists of consulting fees for IBM developers who are providing customized software solutions to clients running proprietary IBM solutions.

In a university setting: Unlike IBM, universities do not license most of the innovative technologies and know-how that comes out of university research labs. There are good reasons for this. University research is funded to improve public health and promote open-ended scientific inquiry. Therefore, university inventions are typically exploratory and in an early stage of development. Some university inventions make their way into a patent, but most university patents aren’t commercially applicable, hence remain unlicensed. In addition, university research careers are built on broadcasting knowledge and know-how, not contributing to commercial product development efforts. As a result, the vast majority of university IP is distributed via scientific publications, personal relationships with industry researchers and by graduating students out into the work force. IBM licenses as much of its company IP as it can; universities, however, should continue to favor open innovation.

IBM strategy 2: Patenting decisions are de-centralized; IBM inventors get bonuses.

Within each business unit, teams of engineers and lawyers meet regularly to review invention disclosure forms filed by unit engineers. About half of the reviewed inventions end up filed as patent applications, earning its inventor a $1,000 bonus. If an invention gets a patent, the inventor receives a second bonus. Each year, the company CEO identifies three or four inventors who have made a special contribution. Their rewards can reach as high as $100,000.

In a university setting: I do not believe that a faculty’s commercialization activity should factor into her tenure process (i.e. as measured by a faculty’s number of patents, commercial licenses, or involvement in startups). However, there’s a more subtle point here, that IBM’s engineers conducting innovative and commercially viable research are not only tolerated by their departments, but recognized for their contribution to the larger organization. To recognize inventive faculty, universities could award annual cash bonuses per patent issued or add patents into the formula used to calculate faculty annual raises. While many university technology transfer offices recognize their leading inventors, small-scale ceremonial recognition is not as attractive as a nice bump in one’s paycheck.

The second point here is that patenting decisions are made by IBM’s inventors, not by a centralized unit. At IBM, a central unit manages the legal and contractual aspects only after a patent has been identified and licensed. In contrast, university patent decisions are made in a centralized technology transfer office with varying degrees of input from the university inventor. If universities were to de-centralize their patent decision-making process, a few staff members could remain in a central technology transfer unit to manage patent paperwork and license-related billing transactions. Remaining headcount and budget could be distributed amongst university departments in proportion to inventor activity (as measured by the number of invention disclosures per department for the past five years). In-college technology transfer staff would work directly with faculty to identify inventions and their patentability. Staff placed directly into colleges would gain a better understanding of faculty research. Each department could retain a share of resulting patent licensing revenue; each department would make its own patent decisions using its own allotted budget.

IBM strategy 3: Cross-license patents to other companies.

To save money on potential patent infringement litigation, IBM cross-licenses selected patents with other companies. Companies agree to freely share selected patents in one another’s patent portfolio without negotiating each separate transaction.

In a university setting: Universities can’t directly cross-license their patent portfolios with a single company given the obligations associated with publicly funded university research. However, universities could cross-license patents with other research universities to form large, central patent pools. Corporations interested in licensing one or several patents from the patent pool would sign a single license. Participating universities would divide the revenue at year’s end, either evenly or proportionately by the number of patents licensed. Non-profit, public health initiatives would also benefit from university patent pools. Organizations such as UAEM and UNITAID are advocates of pooling university-owned patents to foster lower-cost treatments for AIDS, TB and malaria.

IBM strategy 4: Place potentially patentable technologies into the public domain.

For potential patents that represent a peripheral, not a core innovation, IBM places technologies into the public domain, a competitive tactic called a “picket fence” defense. A picket fence defense is cheaper than applying for a patent. Once an IBM invention becomes prior art, competitors may be less incented to patent their own related incremental advances that may lock up, or poach onto other more significant IBM patents.

In a university setting: Unlike IBM employees, if they choose to, university researchers may introduce university inventions into the public domain but not to block competitors. Hard-core advocates of a patent-based university commercialization process may not agree, but most universities choose not to audit or penalize faculty who choose not to patent their inventions. A university’s patent license revenue has always been a poor proxy for its ability to externally disseminate campus research. In fact, a widely-shared scientific breakthrough could be viewed as an alternate currency as its gains a university more visibility and stature than even a lucrative patent. It gets trickier, however, if a university inventor releases technology that’s related to a patent resulting from earlier research, particularly if that earlier patent was exclusively licensed to a company.

IBM strategy 5: Donate patents to open source projects:

In a well-publicized maneuver in 2005, IBM donated 500 software patents to open source software projects, promising not to sue anyone who used them. Unfortunately, five years later, IBM ended up suing a company that used a few of the donated patents.

In a university setting: Universities should consider open sourcing patents that are more than 3-5 years old and still unlicensed. What universities should learn from IBM’s perhaps ill-fated approach is that if a patent remains unlicensed, other approaches need to be considered. My current favorite alternative approach is a free-agent model. In a free agent model, a university gets first right of refusal on inventions, and those it does not want are entrusted to the care of their inventor (if she so desires). The university still owns the patent, but the inventor is authorized to find her own license deal for her patent, as long as she shares a set portion of resulting royalty revenue with the university and her department.

IBM strategy 6: Hunt down patent infringers.

At IBM, within each business unit, engineers and lawyers search out patent infringers. Some engineers are even tasked with pulling apart competitor’s technologies to figure out whether they are utilizing IBM patents without paying IBM a license fee. If an engineer finds and reports an infringement, company lawyers pressure the company to pay for a license. IBM’s dedication to finding potential infringers is viewed by some as a bullying behavior that halts innovation. Particularly in cases when a potentially infringing company caves into IBM’s license demands simply because it cannot afford litigation.

In a university setting: Several lawsuits over the past two decades were the result of a university suing a company — even its own researcher –for perceived patent infringement. On a philosophical level, I believe that when a university launches a patent infringement lawsuit, it’s a sign there’s something deeply amiss with its approach to managing federally funded university research. On a practical level, a university simply can’t win on patent infringement issues. If a university sues a small company, the university’s image suffers. If a university sues a large company, the university’s pockets may be slowly drained by years of pointless litigation. Finally, universities do not have the personnel to search for infringers. University inventors have other concerns. Staff in the technology transfer office do not have the technical skill, the time, nor the organizational backing to follow up on reported infringements.

Conclusion

IBM has a staunch corporate commitment to monetizing IP. It has deep pockets, and is willing and resourced to play patent-related hardball with competitors and standards bodies. In contrast, the university mission and revenue model is not well-suited for aggressively monetizing intellectual resources. Nor is IP-based hardball an appropriate role for a university that has agreed to act as a steward of federally funded scientific research. Some elements of IBM’s approach, however, should be considered. Universities should apply IBM’s largely de-centralized patent decision-making process and shift patent decisions, staff and budgets into university departments. Universities should also recognize and reward prolific inventors. Universities should consider forming patent pools and donating unlicensed patents to open source initiatives. Finally, when conventional methods to find a commercial use for a patent have failed, universities should embrace alternative agent-based methods to bring research to the marketplace.

A Guide to Open Innovation and Crowdsourcing

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Melba KurmanMelba Kurman writes and speaks about innovative tech transfer from university research labs to the commercial marketplace. Melba is the president of Triple Helix Innovation, a consulting firm dedicated to improving innovation partnerships between companies and universities.

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5 Responses to What Universities Can Learn from IBM’s IP Licensing Strategies

  1. David Locke says:

    Everyone at IBM can get an idea patented, NOT just engineers. Each of those ideas is explored and may still be commercialized in some way if it isn’t patented. This program is regularly evangelized internally.

  2. Pingback: University technology transfer offices can learn from the private sector | BVR's Intellectual Property Blog

  3. Pingback: UNIVERSIDADE POR APRENDER COM O SETOR PRIVADO. « inovarufes

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  5. Pingback: IP Licensing Strategies: Lessons for Universities | PD.Notebook

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