Some companies are built to conduct research and product development and new technologies that will be incorporated into components manufactured by other organizations. Qualcomm and Fallbrook technologies are but two examples of US companies who use R&D organizations create intellectual property and other forms of IT to meet the challenges in their respective marketplace. Typically because they understand they can’t compete with the low cost of manufacturing products globally, they instead choose to focus all their efforts on innovation. Once the technologies are protected by patents, they can license their ideas to other companies that operate a lower cost. In effect they are selling to industry communities that share the same technologies.
The challenge for these entities is to accurately forecast the future needs of different industries and then create technologies, products, and business models that will enable those industries to increase their sales and profits. This often requires that such companies develop best practice market forecasting and technology roadmaps in specific niche areas. When successful, the licensing company licenses its technology to manufacturers in their target industry group. The manufacturer then pays licensing fees back to the patent holding company. From a technology management standpoint the best strategy is to engage in next-generation technology developments, and to avoid incremental and breakthrough innovation efforts.
Universities, government labs, and research institutes can also be placed in this generic class of entities. The distinction here is that their research is typically not consumer oriented, but rather focused on the pursuit of basic science and engineering principles. The patents these entities produce often need further market specific development and intellectual property protection to be of high value.
There are other entities that are considered as non-operating entities. These organizations specialize in finding, developing, and commercializing technologies that will shape the markets of tomorrow. This typically entails a high-level systematic assessment of technology gaps in commercial markets of high potential. Examples of such entities are BTG in the pharmaceutical area, Acacia in the area of internet pornography, and Rovi in the area of TV Guides. In the case of BTG, it identified interesting technologies (with approximately half coming from university and research institutes and half coming from businesses), acquired the rights of them, developed and/or aggregated them, and then licensed them to others. Traditionally BTG focused on biotech products with a smaller number of high-tech products in the semiconductor and telecommunications area. The business model was formulated on the time-honored 80/20 business equation were 20% of the licensed technologies can be expected to make real money and 80% do not. However this flies in the face of the lognormal value distribution and the experience of many venture capital firms that less than 10% of the art generates 90% of the value.
Clearly the real challenge for these organizations is to find industry segments that are to be highly profitable and second, locate chokepoint patents that will be necessary for almost all industry participants in that segment to license. These entities also need to have deep litigation pockets, as until threatened with a patent lawsuit, many of perspective licensees resist paying.