Why the Patent Wars Matter

I was dozing off to sleep when the news had its mindless snippet after the sports at 11:25 PM. The come on was how barbeques would never be the same again.  Engineers at MIT have developed a coating that allows ketchup and honey and other things to flow easily out of a bottle.  Liquiglide.  Patents pending.

I laid there rooting for these guys, thinking I would rather hear of them making it big than Facebook CEO Mark Zuckerberg.  I knew of a guy made independently wealthy by coming up with the two-barred paper snap packet for salt. Or what of the guys who thought up trivial pursuit over their weekly pizza meals where they asked each other questions? (And hence why the game board and player tokens are shaped like a pizza.)

Now think of Facebook.  Stolen idea? It’s certainly an idea Zuckerberg discussed while under the employ of the Winklevosses seeking to get their own social site up and running as the movie The Social Network attests. Was the equity distribution fair and reasonable between Zuckerberg and the Winklevosses who got 1.2 million shares and $20 million in cash after protracted legal battles with him?  Zuckerberg is worth $19B, give or take a billion here and there.

And disruptive technological forces do nothing if not quicken our time to intelligence.  Cloud means scale no longer serves as a barrier to entry.  You do not need capital to build out a datacenter to analyze information.  You can subscribe to a cloud service and get going in your garage in no time flat.  Big business sheds datacenters and moves IT spend from CAPEX to OPEX.  Pharmaceutical companies now partner more with competitors to spread risk. 

IT as a Service quickens the pace at which people can innovate off, or build upon, other people’s ideas in the marketplace.  (See this blog that touches upon product lifecycles from the social media lens if interested.)  In technology we talk of product rev levels and coined marketing phrases like “Web 2.0.”  In short, we have improvement upon what came before it.   

So, for example, a lot of the baseline for smartphones came from RIM.  They pioneered the market.  Like most trailblazers, as my mentor would joke, the second to market usually finds the pioneer face down on the trail with an arrow in their back as the second to market passes them by. The second to market sometimes has the time to bury the pioneer, and other times the second to market just keeps on going up the trail.  Either way, the second to market stops to pick through the pioneer’s belongings before moving on.

Now consider RIM who pioneered the smartphone market and looks like a dead man walking at the moment with upheaval in upper management and intimations in analyst calls that they have put the for sale sign on the front lawn of their corporate headquarters.  RIM has a lot of patents.  A lot of IP that can be protected and monetized.  And IP’s rising economic value as we become a services economy makes it more attractive to protect litigiously.  We generate knowledge, and we can more quickly come to discover knowledge through analytics with a leveled playing field between big and small economic concerns as computing becomes as vital and low cost a utility consumed by commerce as simple electric current.

This is why patent lawsuits will proliferate. Technology both shifts the nature of commerce and quickens it pace.  It compresses product lifecycles.  It narrows exploitable competitive advantage gaps, so if you develop marketable innovations, you have to protect them from theft at the same time that you, as Steve Jobs preached, seek to develop your own products and services that will render them obsolete.

So, what are the market implications in addition to a spike in patent infringement cases and a higher valuation on patents in M&A analysis that leaves me convinced RIM will have value to someone based on their pioneering the smartphone market.

More “co-opetion” and joint ventures

Pfizer, for example, has made clear it will do more branded drug research in collaboration with others.  Joint research minimizes risk.  Pfizer likewise has moved to more mobile, collaborative approaches to clinical research to make more nimble and faster investment decisions against their development portfolio. 

Comcast, Time Warner Cable, Cablevision, Cox Communications, and Bright House Networks LLC have entered into an agreement for free Wi-Fi platform sharing to overcome geographic restrictions to their business operations to compete against telecom companies in the United States.

IBM states the cost of rolling out Watson requires joint ventures with customers to commercialize the technology by applicable industry segment.

Pushback on the notion of “vendor agnosticism” in the IT space. 

TBR research in the professional services space indicates this shift to be gaining rapid traction and swinging the pendulum away from vendor agnosticism, suggesting IBM to be poised for a resurgence in relevance while I personally wonder what we will be saying about Microsoft once it brings Windows8 to market.

CIOs do not want to be in the business of constructing computing engines or to be worrying about business data security on worker devices.  They want proven technologies and a trusted advisor.  In the past IT Decision Makers remained leery of established IT Provisioners being too wedded to one proprietary technology view.  But the velocity of commerce and the need for instantaneous technological innovation to maintain competitive advantage has the business market shifting away from that approach.  ITDMs want to be told by a trusted advisor what pieces work well together, and in the age of 99.9999% uptime demands, that also means knowing the companies work well together in the event of a system outage.

 

Brand Still Matters

Apple’s consumer cache and IBM’s resurgence rests on this.  Apple for the user experience and IBM for the security assurance that the pieces pitched to business IT performs as promised, deliver value to business, and will be supported and extended through continued research investments on a par with the $15B IBM spent on Watson for analytics innovation quickening business time-to-intelligence.

Patents protect drugs to allow firms to recoup the development costs in an industry where only 16% of research investments receive FDA approval.  It’s high stakes and unforgiving even before the consumerization of IT cranks up the RPMs on the velocity of commerce, and Pharma is but one example.

Technology Market Implications

Technology patents and intellectual property in our industry will rocket forward as critical business assets in our industry as it transforms from delivering products for business to assemble over to services quickening a business’ time-to-intelligence.

Scale drives a manufacturing economy; ideas drive a services economy; and our rapid transition into a services economy dictates taking all necessary measures to protect intellectual property.  Look at the fierce protection of music and film rights in the media and entertainment industry; it’s coming to our industry.

The next Mark Zuckerberg will have to pay more than $20M to make their $19B off someone else’s earlier idea, and the folks at MIT deserve their financial due for Liquiglide when it hits ketchup bottles and drives a big revenue spike for Heinz or one of its competitors.