Wednesday, June 24, 2009

Netflix Intellectual Vertigo Part 2

Intellectual vertigo returns. Just when my brain had recovered from reading the 87 claims of the most recent Netflix patent 7,456,252, I read an article in the Wall Street Journal that talks about how Netflix is getting ready for the next big thing - having more movies available on line because the DVD is doomed.

WSJ notes, "But Netflix's chief executive officer, Reed Hastings, thinks his core business is doomed. As soon as four years from now, he predicts, the business that generates most of Netflix's revenue today will begin to decline, as DVDs delivered by mail steadily lose ground to movies sent straight over the Internet. So Mr. Hastings, who co-founded the company, is quickly trying to shift Netflix's business -- seeking to make more videos available online and cutting deals with electronics makers so consumers can play those movies on television sets."

Interesting. Probably true. I must confess I recently caught up on some back episodes streamed on my laptop using the wireless not the DVD.

This raises the interesting question about the value of the Netflix patent. How does one monetize intellectual property when your business model will change long before your patent expires? What do you do with this piece of intellectual property that will protect a declining part of the business when you need to focus on building the next big thing? How does the market function with a patent system where it takes six years to get the patent and four years later it may not be a critical component of your business strategy being eclipsed by your newest business model? (We'll save the obvious discussion on how the length of the patent process impacts innovation for another post.)


Do you embark on an enforcement campaign to unearth potential infringers and get them to take a license? Is this a distraction from our core business? Do you know where to look for potential infringers? How much will it cost?

Is it time to bring in the trolls?

The Non-Practicing Entity (NPE), companies that buy and sell patents and other IP but don't actually manufacture the items disclosed in the patent, create an interesting, all be it disruptive, economic element to the market for intellectual property. Do you sell your asset to an NPE and take your own perpetual license and leave it to someone else to enforce and maintain your patent.

In the case of rapidly changing business models, the NPE may provide the accelerated revenue to allow businesses to create new products and services, to transform to the next big thing while having some other focused organization maximize the return on the IP asset. From a purely economic perspective the NPE model can be attractive if you have assets you can't monetize.

Collaborate with Your Competitors?

Another alternative is to adopt the intellectual property approach adopted by Microsoft, yes Microsoft, eloquently described in "Burning the Ships - Intellectual Property and the Transformation of Microsoft", written by Microsoft's former IP counsel Marshall Phelps and his collaborator David Kline. (A good read even if it was a bit of a marketing moment sometimes.) Under this model IP holders make their technology available to their competitors using reasonable licensing approaches. Collaborate, repurpose, enlist. See what other good stuff can come of your invention and guarantee you'll get a piece of the action. A variation on the Win-Win model.

The intellectual vertigo sets in when you consider the lack of decision making tools to support understanding and evaluating options. This is further complicated by the cult of secrecy associated with all matters IP. Finding the list of actual IP assets owned or licensed by a firm takes herculean effort if you aren't a skilled user of the USPTO website, a subscriber to expensive search tools or don't have a staff of analysts. I started keeping track of how many IP articles I read actually contain either the patent number or the actual owner of the patents. So far, none.

So we toil away enhancing the information about who owns what and why you should care to make the process of making IP decisions easier and more transparent. This will be the cure for intellectual property intellectual vertigo.

No comments:

Post a Comment