By Timothy Bourgaize Murray | Waters Technology
From the smallest startup to the largest financial institution, protecting the intellectual property (IP) that drives technology has become a more complicated—but also, potentially more profitable—process.
Financial technology has never been more litigious, and one need only look at the recent, years-long Australian litigation around low-latency provider Zeptonics and HFT firm Zomojo to understand IP's importance to the industry. However, Joe Beyers, who held a variety of leadership roles at Hewlett-Packard (HP) before heading up the computing giant's IP licensing team, says there are ways to make the patents work for you that don't involve lawsuits.
At HP, Beyers started with an IP licensing windfall of about $35 million. Less than four years later, that number had skyrocketed more than ten-fold to $400 million. And after the 2008 financial crisis, many firms have looked to licensing, he says, as an additional source of revenue. The challenge is in getting it right, or finding the right partner to essentially outsource your IP management to, such as Beyers' Investergy.
"If you look at the IP licensing business, for some companies, IP is sometimes treated as lottery tickets: They have a patent portfolio, they'll sue a bunch of people, and they'll either win or lose big. But I tell people, ‘If you want that, go to Vegas,'" Beyers says. "A model like ours is different in that it puts together a set of portfolios that diversifies between industries and across geographies—so far, we've acquired three large portfolios from the telecom industry, including Panasonic, Hauwei and Nokia, and we have a funnel of 10 more. The other thing that's really different about the model is that the focus is not buying assets in order to sue people. If you start out with litigation, your time-to-money increases substantially, so we engage in collaborative conversations intensely and get contacts with the right people. Shortening the time-to-money and diversification are what I'm really focused on. Yes, some companies may choose not to engage properly, and you therefore need to have litigation as an option. But it should always be a secondary option, rather than the primary model."
After his time at HP, Beyers launched several startups, with one company filing 189 patents in a single year, and the former CIPO says that experience highlighted the difference between monetizing IP at a well-established firm, and protecting it at one that's just gotten off the ground.
"When you're an established company, what you're experiencing is an 'intangible asset economy,’ where 80 percent of the assets of corporations today are intangible, most of which is IP, so it's one of their most critical assets of the company," he explains. "The opposite is a startup, where you're developing technology that may be innovative, but is often very easily copied. So you have the startup guys where IP is critical to the future, and the larger established firm where it's an asset management viewpoint, and what's your return on those assets? Those are the two perspectives. Little guy to big guy, this is important to them. A lot of the inventions we had at HP in prior years we didn't care about patenting—we always figured we could be faster than competition. But today, when mergers happen very quickly, especially in other regions of the world, your entire business model is at risk."
Having also headed up HP's financial services arm, Beyers says the risk is particularly acute with technology for finance, where, compared to other industries, it can be difficult to differentiate oneself on technology, alone—particularly when starting out.
"If a startup's being funded, they've already convinced investors that they're special, and that they're working in a greenfield of some kind. The typical problem is failing to properly protect newly-created IP, rather than tripping over someone else's," he says. "So a good patent portfolio or access to it can be a big factor; otherwise you're eventually just going to be commoditized. That's why you're seeing more legal action by companies in this space, and at the same time, you're seeing the antibody reaction with challenges to business method patents, as we've seen in Europe more recently. It works both ways in this industry: Certain parties will argue that some of this stuff should be open to everyone, and that's still an ongoing debate."
But it's a debate better had on strong legal footing, he says, and in fact, affinity for IP might simply be part of the cost of admission today—a necessary requirement for any technology provider, however mature.
"From an end-user perspective, if I were a financial institution eyeing a new vendor, I'd obviously be looking, first, at whether the technology can make a difference for me. But right behind that, number two, is whether their technology is properly protected. If it isn't protected, and I incorporate, for example, their trading platform in my larger solution, then I could put my entire infrastructure at risk. So you have to look at a startup from the perspective of whether can they protect themselves from losing their advantage, but also is there a sense that they truly own their IP, or could someone else potentially come after me, if I adopt that technology? I could partner with that company and assume they'll indemnify you, but if they're small and someone comes after them, my liability may well be larger than the value of their company overall."
For both sides, then, it's a tricky thing, especially for the small shop looking to court investor dollars and potential customers to pilot with. But those that can get it right could be the next HP—licensing their IP more, and battling in court less.