State of Innovation

Patents and Innovation Economics

Burning the Ships: Intellectual Property and the Transformation of Microsoft

This book explores the business strategies of patents in the context of Microsoft’s attempt to remake its image this decade. The authors of the book are Marshall Phelps, the architect of IBM’s successful patent licensing program, and David Kline, the author of Rembrandts in the Attic – the standard against which all books on patent business strategy are measured.

The book describes how Microsoft used its patent portfolio to build relationships with its customers, like Toshiba. The vehicle for it to accomplish this goal was patent cross licensing deals. However, before Microsoft could make any progress in these deals they had to drop their non-assertion of patents clause. Microsoft had invented this clause in order to compensate for their weak patent portfolio in the 90s.

Microsoft also used its patent portfolio to repair its image with the Venture Capital industry. This required opening up Microsoft’s patent portfolio for licensing by start-ups, something it had been unwilling to do. Patents and the associated technology that were not being actively used were could now be licensed by start-up companies. This initiative became Microsoft’s de facto venture arm. The book explores numerous ways to use a patent portfolio beyond the standard, license for revenue or as a barrier to entry.

Beyond this the book explores the importance of patents to both companies and countries. The book states,

In every country studies-whether rich or poor-economists have found that it is not capital resources or infrastructure or education, but rather the strength of a country’s intellectual property system, that is the primary spur to technological development and economic growth.

Unfortunately, Washington does not seem to be listening. Politicians and many economists are either proposing spending to pursue consumption or strengthening our banking system to spur capital formation. No one is proposing strengthening our patent system which has been severely weakened in the last decade. For more information see Intellectual Property Socialism.

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December 11, 2009 - Posted by | Business Models, Uncategorized | , , , ,

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