IP Operations in your Business Model

1. Kenneth Horton Main: (801) 832-2600
Associate Professor, Intellectual Property Law & Strategy Cell: (801) 809-0310
MBA Technology Management Program Direct: (801) 212-2056
Gore School of Business, Westminster College Khorton@Westminstercollege.edu
1840 South 1300 East http://www.linkedin.com/in/HortonIP
Salt Lake City, UT 84105
THE IP STRATEGY MINUTE
MAY 2012: OPERATIONS IN YOUR BUSINESS MODEL
In the last two editions of this news letter, I ranked the various business models from level 1 to level 10, with levels 1 to
5 having normal business operations but with an increasing focus on the use of IP assets. Levels 6 to 10 have a
decreasing focus on normal business operations coupled with an increasing focus on IP assets. So how do you move
your company from one level to the next? A better understanding of the differences in their business operations might
help explain such a shift.
1-5
SELL PRODUCTS
CREATE 6
PRODUCTS SELLS IDEAS
& INVENTIONS
CAPITAL
7 ($$$)
IDEAS &
INVENTIONS
IDEAS &
8
INVENTIONS
CAPITAL
($$$)
IDEAS & 9
INVENTIONS
IDEAS &
INVENTIONS IDEAS & GET GET GET
INVENTIONS PATENT GET PATENT PATENT
PATENT
10
GET
PATENT
R&D Brainstorm
CAPITAL
11:
($$$) Leverage
Patent
LEVERAGE
R&D PATENT
CAPITAL
($$$) LEVERAGE
PATENT
R&D
LEVERAGE GET
PATENT PATENT
LEVERAGE
PATENT
CAPITAL OPTIONALLY
($$$) LEVERAGE
PATENT
CAPITAL
($$$)
CAPITAL
($$$)
OPTIONALLY
LEVERAGE
CAPITAL
($$$)
PATENT Leverage=
Litigation +
License
In the diagram, the level of each company is noted in each ring which represents the business components of a company
operating within that level. As we move towards the center of the diagram, the IP assets become more important in the
business. The business contains fewer and fewer non-IP components in the business that can generate revenue for the
company. The business becomes more reliant on the IP assets themselves—rather than other corporate assets—to
bring in revenue for the company.

2. At level 6 (transitory), the company has partially or completely eliminated the business component of creating and
selling a “physical” product. The business generates revenue from existing IP assets and so has partially turned away
from generating revenue using these physical products. Instead, the company creates ideas and inventions from R&D
and then sells those ideas/inventions instead of—or as well as—the physical products.
At level 7 (technocracy), the company decides also to strategically create new IP assets for the purpose of revenue
generation. Some of the typical business operations that would normally generate revenue from other (non-IP) assets
are then re-assigned to creating new IP assets. There is declining interest in selling ideas/inventions not existing as IP
assets. Instead, the ideas/inventions are used to create IP assets which are then used to generate revenue.
At level 8 (opportunist), the company now generates a majority of its revenue from IP assets. The typical R&D
operations have been completely eliminated or partially eliminated (and replaced) with quasi-R&D (i.e., brainstorming)
sessions that explore “what if” scenarios for various technologies. There is an increased focus on IP asset generation.
At level 9 (privateer), the company has stopped almost all business operations except for those assets used for
generating IP assets. The company no longer evens attempts any R&D that level 8 companies’ arguably employ. The
company can still generate ideas/inventions, but there is no concerted effort to produce them. Rather, they are an off-
shoot of the remainder of the operations.
At level 10 (NPE), the only business operations of the company are the acquisition and monetization of IP assets. There
is no longer any development or creation of IP assets internally within the company. Completely absent is the
generation of ideas/inventions.
I added a new level 11 to this diagram that I have not discussed before. In level 11, the company is leveraging the only
remaining assets of the company: the IP assets. A failed start-up company is a good example of a company operating in
level 11. This level is really not a sustainable business model since the company only leverages existing IP assets. There
is no effort to acquire any additional IP assets as other level 6-10 companies would. And since no additional IP assets
will be acquired, eventually this business model will break down because eventually the existing IP assets will become
obsolete.