Disrupting the Innovation Supply Chain – Guest Post by Tom Hochstatter

For those of you following my Twitter feed, and the general tone of this site, you will know that I am decidedly pro-patent in my philosophical leanings. I am also on record as feeling that the recent “patent troll” debate that has played out over the last 12-18 months is potentially damaging to innovative efforts in the United States if our legislators over react in their attempts to confront frivolous litigation. In this guest post Tom Hochstatter takes on the status quo associated with the monetization of innovation and suggests that entrepreneurial approaches, such as the one he has developed, will help create a marketplace for the inventive output of companies both large and small.

Standing here atop the 2014 calendar, it still escapes me why finding, valuing, licensing, or selling innovation or inventions remains so difficult for organizations large and small, especially the individual inventor.  Billions are spent each year, globally on research and development.  According to Battelle’s “2014 Global R&D Funding Forecast” the US alone is set to spend $465 Billion, or 2.8% of our GDP on research and development in 2014 (up slightly over 2013).  Yet, in all of that spend we see very little advancement on the “business” of innovation.

Sure, we are getting our fill of headline grabbing transactions among (mainly) the tech titans buying and selling vast portfolios of patents and intellectual property. Perhaps more troubling still are those same firms gripped in epic court battles wrestling for the future of smartphones, healthcare advancements and the like. Sadly, these issues are distracting us from solving the problems at hand within the Innovation Supply Chain.

Further, we are watching the systematic dismantling of the non-practicing entity / patent assertion entity / patent troll “industry” by our legislators.  Is this an advancement, yes, but is it a solution, no, not really.  Most of us read these headlines with just a passing interest and conclude that the “adults”, corporate executives and Congress have this innovation thing in hand.  Reality couldn’t be farther from the truth.

The Highwaymen

What we have right now in the NPE role is the equivalent of the turn of the century Industrialist, operating on the razor’s edge of the law; manipulating the loopholes to their individual economic advantage.  As a free market capitalist, I don’t disparage the use of the law, but as an inventor and entrepreneur I abhor the detrimental manipulation of it.  Much like back then both the small business, and the lawmakers rose up against the inequality and progress, and change ensued.

My hope is that all the energy being used by NPEs, and their middlemen accomplices (lawyers) can be redirected into real advancement of the IP commercialization and invention businesses.  As an antsy entrepreneur, I wait for no one, not big business or Washington DC to get it right.

“So where is the “innovation” in Innovation?”

What the innovation industry needs is new thinking about building marketplaces, technology solutions with global scale, an eye for inclusion not exclusion, and economic incentives for more participation.  These solutions are going to come from either the exploiters sensing the end is near, and that it is time to change, or a next generation innovator that will spurn the status quo and drag the industry in entirely new directions. So, here’s Tom:

Perceiving a potential peak into the future,  I recently watched a BloombergTV piece on Jay Walker, founder of priceline.com, Chairman of Walker Digital, and one of America’s most prolific inventors with something on the order of 700+ patents to his name.  I bet he knows a thing or two about the innovation engine that drives America.

In his piece he proclaims, “Where is the innovation in Innovation”, and I echo his sentiment.  The era of innovation opportunist (“Trolls”) needs to open up to open markets, fair and level playing fields, transparency and massive friction-less liquidity in innovation, and IP.

The walled-garden approach to IP and invention (trolls accumulating massive IP stockpiles) doesn’t work here no more than it worked for AOL (long term) in the early era of the modern Internet.  To open up a freely accessible and pervasive Internet we had to accept massive market participation from both old, and new providers.

Also the high-priced middlemen; lawyers, IP experts and IP brokers, with their 20-50% transaction fees, need to be commoditized through innovation, and made available to the smallest of inventors at rates they can afford.  There is far too much innovation slowly perishing because these inventors cannot affordably access the marketplace.

The heartbeat of America’s business and the largest contributor to the GDP, and employment is the small to medium business; the same applies to invention, and yet the individual inventor is economically eliminated from market participation. Their channel of choice rests with trolls, or other IP aggregators, and their cut is reduced to pennies on the commercialization dollar.

A Question of Scale

Interestingly, and perhaps ironically, this problem of accessibility is not limited to the small or individual inventor.  The largest of corporations, universities and IP holders suffer similar fate from the opposite end of the spectrum.  They have too much innovation and invention, and a walled garden approach doesn’t serve them any more efficiently.

The largest IP owners have the means to acquire talent, tools, and service providers, but continue to struggle with efficiently cycling through their vast portfolios to determine validity, market value or fit.  Most of the tools available, such as patent analytics, help them know only what they have.  These are research tools that potentially burn valuable time, they are not commercialization tools, nor do they address the broader market issues outlined above.

Therefore organizations are stockpiling, or creating massive IP inventories.  This sounds reasonable, but it’s simply not.  Companies with vast R&D budgets are inventing at rates higher than their capability to consume or exploit commercially.  The largest IP holders have thousands of IP assets (patents, software, trade secrets, trademarks, etc.) they cannot efficiently, or accurately understand.  So these assets sit, and are aging.  Beyond the balance sheet implications (which FASB is eagerly addressing) my concern is more pressing, what if that yet to be understood IP really is the catalyst to the next major human advancement, or if that new start-up only knew that an organization in the Fortune 500 had created IP that could jump start their new business?

One of the things that hinder progress is what we define as “intellectual bias”, the assertion that I am an expert in this field so I know best who and how to use this IP or innovation.  Experts with deep vertical knowledge are the heartbeat of discovery, but horizontal market application is the key to maximizing its value for all.

Back to Jay Walker

So how do you make sense of this convergence of massive market need, the legislative agenda, the dearth of tactical tools, the escalating inventory of valuable innovation, the end of the troll, and the need to lead globally in innovation.  It’s like the twelve roads converging on the Arc de Triomphe in Paris, but with time and patience all that chaos settles into an efficient means for tens of thousands of vehicles to pass daily without major incident.  The same is available for IP if the status quo is ignored, and entrepreneurs are unleashed to innovate on Innovation.

We watched Jay Walker last summer announce the acquisition of a (failing) public company, and outline a strategy to create a massive shift in how we think about IP.  He did it once already with airline tickets in travel with the founding of priceline.com.  He took on a very mature, insular, heavily regulated industry, and showed us all a new way.  There is a good chance he is at it again.

Others with a new approach to IP, innovation, and commercialization are also set to emerge.

Examples of other disruption initially looked like a fool’s errand, look at online retail (Amazon, eBay, AppStore), rental properties (Home Away, Airbnb), ride sharing (Uber), dating (match.com, eHarmony), auto (Tesla, Fisker, Smart). The list goes on, but what didn’t continue in any of these examples was the status quo.

My firm, Fluid Innovation, developed idealAsset to disrupt the Innovation Supply Chain (on purpose) and ignore the status quo.  idealAsset bills itself as the “match.com for IP”; using massive data aggregation, and an algorithm to automatically match sellers of brilliant IP with buyers or licensees of IP.  It uses market-based data to derive priority, value, validity, and commercialization potential that all feed into identifying the best possible match for that IP.

Most importantly, it uses the actual behavior of its membership to help influence the matching outcomes much like Google or LinkedIn or Facebook uses its members’ behavior to surface new content and information, and learn from it.

idealAsset - the "match.com" of the patent world - Click to Enlarge

idealAsset – the “match.com” of the patent world

They have aggregated thousands of innovations and hundreds of thousands of buyer prospects and continuously matches them based on new data, content and insights that arrive daily.  The innovations that they analyze may be for sale or not or a buyer may officially be in the market to acquire or not.  Good matches can come at any time.

idealAsset now has the benefit of not just insight from, say a single Fortune 500s’ IP portfolio, but from hundreds of such entities, and other firms of different sizes including individual inventors.  Their cost of reviewing a single patent for possible buyer or licensee match is essentially the same as that of a large IP portfolio holder’s.  Their model is worth a hard look.

Those of us in the Innovation industry need to ignore current convention, and find a way to advance innovation by matching sellers to buyers at scale, aggregating disparate IP activities into centralized functions reduce the cost to transact IP, shorten the time to transact, avoid the courts like the plague, and shine a light on the dark side of innovation.

Incremental thinking never advanced markets, just individual agendas.  Be wary of the naysayers, they are likely those with the most to lose in the transition from the old to the new.  They manipulate invention unnaturally; they don’t advance it.


Tom_Hochstatter_headshot_2013Tom Hochstatter is CEO of idealAsset and Fluid Innovation, an Innovation Acceleration firm in Austin, TX.
He is also the Managing Editor for the blog ipwire.com – the leading IP deal site with over 2,500 IP deals reported. Tom has been in technology for over 25 years with Microsoft, Boeing, IBM, Yahoo! and numerous start-ups. He jumped into the IP industry in 2007 with a vision to disrupt IP commercialization.

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