Introduction to the Law, Economics and Practice of IP Licensing

Mark Schultz

Agenda:(1) What is licensing?(2) Some economics and history of IP licensing(3) Licensing’s economic role with examples(4) The practice of licensing

Introduction

2

What is licensing?

License: A right to enjoy some of the rights that owners have, but not all of them. Like a lease or rental Limited in time, or scope, place, or so

on.

Two types of licensing: Business to consumer Business to business

Introduction

4

IP Licensing: Some Economic and Intellectual History

This section should help you understand:

Why licensing is efficient and important—the division of labor

How licensing and the division of labor help enable invention and creativity, and, in turn innovation

Basics information about the historical and current importance of innovation

Learning objectives

6

• IP licensing is efficient because it enables the division of labor between inventing or creating something new and commercializing a product

• IP licensing is important because it enables more and more efficient innovation

7

A Bit of Theory

The Division of Labor “The greatest improvement in the

productive powers of labour . . . seem to have been the effects of the division of labour.”

Adam Smith’s Pin Factory By specializing, workers achieve vast

improvements in productivity

Specialization in jobs and enterprises develops expertise and economies of scale

8

The Division of Innovative Labor and the Great 19th

Century Inventors Didn’t get great by “doing it all”

Thomas Edison was “the world’s greatest inventor and the world’s worst businessman.”

Henry Ford

9

• Arora, Cohen & Welsh (2014) Survey of 6000 US firms 18% of firms had innovated Nearly half of most important new product

innovations came from outside the company The most important innovations tended to

be licensed or acquired from “technology specialists”

Without “outside innovation” innovative firms in US manufacturing would drop by 43%

10

The Division of Innovative Labor Today

Remember that pin factory?

11

In 1841, John Howe obtained U.S. Patent No. 2,013 for a pin machine.

Howe increased production to 24,000 pins per day per worker.

Howe and his employees went on to get 9 patents in total.

The USPTO granted 47 patents on pin manufacture in the 19th

Century

Today: around 1,000,000 pins per day per worker

A Bit of History The past and present of US innovation is in licensing

12

The Industrial Revolution and

Beyond1800 - 1920

The Era of Big R&D

1920 - 1990

The Rebirth of Technology

Markets1990 - today

What we know (and don’t)

• Data is often private and not necessarily disaggregated from other income

• But, we know it’s significant• USPTO Report:

In 2014, the share of GDP attributable to IP-intensive industries was 38.2% ($6.6 trillion)

For some industries (where IP-licensing revenue was identified). IP licensing accounted for more than $115 billion of revenue in 2012.

• US Census reports some licensing data Excluding copyright, revenue of $37 billion.

• AUTM reported 5,435 licenses from members in 2014

Government Ambivalence

• Competition authorities have long (and intermittently) viewed licensing with skepticism They often forget the “compared to what?”

question• There are still a few countries that regulate

IP license agreements• Increasing scrutiny of licensing in the SEP

context worldwide• U.S. government wont “let go” of control of

copyright licensing

IP Licensing: How Licensing Divides Labor and Some Examples

This section should help you understand:

The different roles IP licensing plays in the economy

Some examples of each

Learning objectives

16

Licensing as Division of Labor

• Specialization: Inventors invent, creators create and licensees commercialize

• Entry Into New Markets: After success in one market, IP owners expand into new products or places with the help of licensees

• Organizing and Coordinating Markets: Voluntary cooperation and exchange is enabled and encouraged by the opportunity to license

• Aggregating Rights: Licensing to intermediaries who aggregate and employ economies of scale to license bundled rights

17

DEKA Research and Dean Kamen

• Independent research company Uses individually negotiated licenses to see

technologies to market• Exemplary technologies

Insulin pump Segway Stair climbing wheelchair

Specialization: Inventors invent, creators create and licensees commercialize

Wisconsin Alumni Research Foundation (WARF)

• WARF: Technology transfer arm of the University of Wisconsin

Direct licensing negotiations facilitated by Bayh-Dole Act

Licensing revenue benefits the University and provides real world impact for publicly funded research

• Exemplary technology FluGen

Specialization: Inventors invent, creators create and licensees commercialize

WARF

Fortification of Milk with

UV Irradiation

Warfarin

Time Resolved

Contrast MRI Imaging

Human Embryonic Stem Cells

Local Electrode

Atom Probe (LEAP)

Microscope

Biofuels

Non-surgical Camera

Based Aids for the Blind

Nanoscalemanufacture

Regenerating Tissue

• Sometimes, licensing enables commercialization where it would likely never otherwise occur

• University professors research, university TTOs patent, licensees commercialize

The Harry Potter Universe

• Licensing of multiple forms of intellectual property Trademarks and copyrights licensed to vastly

different users Allows for creative control over all end

products• Exemplary products

Books and Movies Theme parks

Entry Into New Markets: After success in one market, IP owners expand into new products or places with the help of licensees

Qualcomm

• Standard Setting Organizations (SSOs) Develop Technology Platforms

SSOs bring innovators and users together to coordinate the creation of technology platforms

Innovators are encouraged to participate but also to cooperate by the opportunity to voluntarily license their inventions to adopters of the standards

• Exemplary technologies CDMA 5G

Organizing and Coordinating Markets: Voluntary cooperation and exchange is enabled and encouraged by the opportunity to license

American Society of Composers, Authors and Publishers (ASCAP)

• Performing Rights Organizations (PRO) Supports copyright licensing with many creators and

many users Allows creators to benefit from the dissemination of their

works without needing to individually negotiate licenses with each possible performer

• Exemplary uses Radio stations Bars & nightclubs

Aggregating Rights: Licensing to intermediaries who aggregate and employ economies of scale to license bundled rights

The Practice of IP Licensing

This section should help you understand:

The particular nature and special requirements for licensing: Patents Copyrights Trademarks Trade Secrets

Learning objectives

24

Patent Licensing

• What is being licensed? The rights to:

Make Use or Sell

The invention

• Particular restrictions: Governments, courts, and private organizations

tend to restrict the licensing of Standard Essential Patents to Fair Reasonable and Non-Discriminatory Terms

SEPs, FRAND

Copyright Licensing

• What is being licensed? The rights to:

Copy Make derivative works Distribute / Make available Publicly perform / broadcast / display Transmit / Stream

• Particular restrictions: Distribution limited to the first sale Public performance / broadcast rights are

highly regulated Collectively managed Prices set by courts or governments

Trademark Licensing

• What is being licensed? The rights to:

Use the trademark to identify the source a good or service

• Particular restrictions: Must be licensed with the goodwill that the

trademark represents The licensor must maintain quality control or it

will lose the license

Trade Secret Licensing

• What is being licensed? The rights to use information that is a trade

secret

• Particular restrictions: Tricky, because if too many people learn a

secret, it is no longer a secret Done pursuant to an agreement, a non-

disclosure agreement or an agreement with confidentiality clauses

Typically include security requirements