Many corporate dealmakers have recently been tasked with chasing the latest "money for nothing" scheme - patent licensing. Motivated by recent best sellers such as "Rembrants in the Attic" and "Edison in the Boardroom", CFOs and General Counsels believe they are sitting on a jewel in the rough, which is just begging to be polished for untold riches. Ah, if it were only that easy. Three notable examples - IBM, Texas Instruments, and Qualcomm - have made it all look deceptively simple. Yea, about as easy as getting rich by looking for a diamond ring on a sidewalk. Because when you look a bit closer, you see that each of these three examples was more akin to a decade+ effort with huge upfront investment rather than anything resembling an overnight success. IBM benefited from the massive commitment over many years to a broad range of fundamental research - and had the good sense to patent much of it before patents became as fashionable. TI benefited from a USPTO delay of several years in issuing some of their early semiconductor patents-- TI was able to amend them while they were still pending to make them more applicable, and by the time the patents issued the IP was being used by many others. Bingo. As for Qualcomm, we have all seen the power of their CDMA licensing model. But service providers and handset makers didn't initially didn't beat a path to Qualcomm's door even though CDMA initially was clearly technically superior to TDMA.

Rather, Qualcomm had to build the components, the handsets, and even pay for the initial network build-outs (in LA and New York) before they started to generate licensing revenue. What do these 3 examples have in common? IBM, TI, and Qualcomm all generated patent licensing revenues by first creating - or at least finding - the business model and market for the IP rather than sending out a mass mailing of demand letters. In general, when a company receives a demand letter for alleged patent infringement for something they think they invented and invested to build the market for, they aren't happy. It is more akin to trying to get the proverbial pig to fly - it doesn't work, and it annoys the pig.

Is there a better way? While the patent licensing arrow certainly has its place in the corporate quiver as IBM, TI, and Qualcomm have shown but few others have replicated there are other arrows that may be better in some situations. Just like a good football team has a variety of formations and plays, a good corporate dealmaker needs to look for multiple ways to monetize IP. Alternatives include early stage corporate IP spin outs, buy-outs, and spin offs. I will talk about these in my upcoming entries... — Jim Huston

Jim Huston is a Managing Director with Blueprint Ventures, an early stage technology venture capital firm which specializes in helping corporations monetize their IP.

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