Database Management Systems Ramakrishnan (Raghu Ramakrishnan)

done by depositing a copy of the work with, for
example, a solicitor or a bank and formally recording
the time and date of the deposition.

5.6.5 Costs Associated with Intellectual Property
Protection

An important factor that must be considered during the
protection of IP is the associated costs of protection –
which in many instances can be quite considerable.
The issue of costs will of course vary depending on the
type of protection being sought and must be
considered in the context of an overall strategy to
define the optimum route to commercialisation (as
discussed later in this chapter). In turn, this strategy is
dictated by (among other factors) the geographical
market in which the IP owner wishes to commercially
exploit their IP. Because of the inherent variability, it is
thus difficult to provide a definitive statement of what
costs might be in any given situation. However, this
section outlines in broad terms the activities associated
with IP protection and indicates a range of costs that
might be expected for each.

Patent protection in general tends to incur more
costs than other types of IP protection. Typically three
types of costs arise for patent applicants: patent office
fees during the application phase; professional fees,
for instance to patent attorneys who help draft the
application, or other service providers such as
translators or patent searchers; and annual
maintenance fees for renewal of protection. These
costs in turn depend primarily on the geographical
scope, the complexity of the application and the
duration of the grant procedure.

Fees paid to the patent office during the patent
protection process typically range from hundreds to

low thousands of euros per application (Quantify IP,
2020; Patent Pilot, 2020). There are fees incurred for
activities such as the initial application filing (typically
tens or low hundreds of euros depending on the
National Patent Office in question); a search report
(typically low hundreds of euros); an examination
request (typically less than €1,000); translation costs
(typically €1,000−3,000 per country). However, it
should be noted that from an EU perspective, some of
these costs can be defrayed as the European patent will
cover all member states.

Professional fees vary widely from country to
country and are dependent on the complexity of the
application in question. It is not uncommon to see
professional fees ranging from anything between €100
and €600 per hour (IPWatchdog, 2020).

Ongoing maintenance fees are dictated by the
number of countries in which the patent holder wishes
to maintain protection of their IP. Furthermore, these
costs tend to increase the closer one gets to patent
expiry (20 years). In the early stages of protection (e.g.
the first 10 years), one could estimate the annual costs
of maintaining protection in major markets such as
Europe, the United States, Japan and China to be in the
region of €5,000− 8,000. For the later stages of the
patent’s life these costs could be three or four times
this amount (Patent Pilot, 2020).

In summary, obtaining a national patent can
generate costs of around €5,000 up to patent grant.
Depending on the country, further costs of between
€5,000 and €15,000 may be incurred until expiry. Over
the lifetime of a patent, to obtain and maintain
protection in major markets, it would not be
uncommon to incur in excess of €100,000 in expenses
per patent.

With regard to trademarks and product designs
(often referred to as three-dimensional trademarks),
the costs incurred are generally far less than for
patents. Most countries recognise a trademark
registration for a period of 10 years, after which it can
be easily renewed. Typical trademark filing costs are
in the range of tens to hundreds of euros, depending on
the country. Similarly, copyright filing costs tend to be
at the low end of the range (typically in the range of
tens of euros).

5.6.5.1 Ancillary Costs

In addition to the costs associated with filing and

maintenance of IP, there are also additional costs that

may come into play and should be considered. These

include the costs associated with defending a patent (in

the event that a dispute over IP ownership occurs),

which can be considerable. A survey carried out by

WIPO in 2013 illustrates this point. The survey’s

findings were based on the 393 responses received by

WIPO from small (employing 1–10 people) to large

entities (employing over 10,000 people) in 62

countries and operating in many different business

areas, including pharmaceuticals, biotechnology,

information technology, electronics,

telecommunications, life sciences, chemicals,

consumer goods and mechanical engineering.

With regard to patent disputes, the survey

participants indicated that they spend more time and

incur significantly higher costs in court litigation than

in arbitration and mediation. The estimated duration of

court litigation in a home jurisdiction was on average 3

years and cost around $475,000. When litigation was

undertaken in another jurisdiction, it took an average

of 3.5 years, with average legal fees of just over

$850,000. In contrast, the survey highlighted that
mediation takes on average 8 months, and in the
majority of cases costs less than $100,000. Arbitration
takes on average just over 1 year and typically costs
around $400,000 (WIPO, 2013).

It should be noted that insurance can often be taken
out against the risk of IP infringement. Typically there
are two types of IP insurance:

• Infringement defence – this is generally the most

popular type of IP insurance. It covers
policyholders for infringement claims brought
against them.

• Abatement enforcement coverage – this

coverage is designed to cover the financial costs
incurred in enforcing IP rights and pursuing
infringement claims.

Again, costs of insurance vary widely depending on
the country and the extent and nature of the IP
portfolio, but could be anything from high hundreds to
potentially tens of thousands of euros, depending on
the nature and commercial importance of each specific
piece of IP.

5.7 DEVELOPING AN INTELLECTUAL
PROPERTY STRATEGY

Developing an effective IP strategy can be particularly
relevant to technology entrepreneurs and SMEs. Many
business models are focused exclusively on selling or
licensing IP and even, where this is not the case, a
properly implemented IP strategy could generate
significant revenues for a modest cost. However,
failure to protect a significant innovation can be
incredibly costly to a new business. For a new

technology venture business, the following are
therefore important:

• Build awareness first among the start-up team

and later among key employees of the
importance of IP;

• Always search for any existing solution(s)

before starting a new innovation project;

• Capture all current and potential IP and use it to

add value to the company’s products and create a
culture of best practice in its creation and
capture;

• Maintain confidentiality on new technologies

until professional advice is provided;

• Conduct competitor analysis to avoid

infringement of their IP and to challenge, if
appropriate;

• Plan and routinely review the entire IP portfolio.

5.7.1 Capturing Intellectual Property

The importance of an IP strategy is largely dependent
on the industry sector in which the business operates
and its approach to the competition. In some cases, for
example where it is easy to copy the IP, protection may
be absolutely necessary. In other cases, maintaining
secrecy and first-mover advantage can be effective.
Large companies with financial muscle often pursue a
strategy of acquiring and maintaining a portfolio of
patents and other forms of IP. This strategy can be
prohibitively expensive for a start-up unless it has
significant investment behind it. They key for
technology entrepreneurs and SMEs is to focus on one
or a small number of flagship patents as a cost-
effective way of developing a valuable IP portfolio. It

is important in such circumstances to implement
mechanisms for identifying, creating, capturing and
protecting IP, where appropriate.

While it may not seem like it at the time, the way in
which IP is created and captured is very important.
Investors in a business underpinned by IP will always
look to ensure that the IP is “clean”; that is, that its
creation is fully documented and there are no disputes
over who created it or who owns it. A good practice is
to use a paper trail or online system to record your
project work. In laboratory environments, for example,
R&D work is often recorded daily or weekly
laboratory notebooks. Best practice frequently
necessitates that each page of the notebook is signed
by the researcher and their supervisor and, perhaps, by
an independent witness who is not part of the project
but has sufficient knowledge to understand the field of
work (McManus, 2009).

Laboratory notebooks may serve, for example, as
legal documents in evidencing inventive steps and
include:

• Data to support patent applications;

• A record of procedures undertaken to meet

regulatory requirements;

• Evidence of background IP provided by partners

in collaborative projects;

• Verification of inventorship;

• Information underpinning know-how relevant to

a licensing deal;

• A contribution to a company’s repository of IP

for valuation purposes.

5.7.2 Invention Disclosure Forms

Having a formal process for disclosing inventions is
also important. The purpose of the invention
disclosure form (IDF) is to record the capture of
intellectual property so that its potential for legal
protection and subsequent commercialisation can be
evaluated. The IDF can enable a business to record the
creation of the IP and provide information that would
assist it in determining the legal title and any third-
party claims to IP rights associated with that creation.
The IDF is often used for information sharing with
external patent attorneys as the basis of drafting a
patent application. Although each invention begins as
an idea, the inventor should demonstrate feasibility by
reducing the idea to practice with experimental data
and/or working prototypes. In general, an invention
that is still at the idea stage should be further
developed before disclosure. IDFs are typically kept
confidential and distribution of copies of an IDF to
third parties is prohibited, except where the technical
description provided in the IDF is shared with
prospective licensees under a confidentiality
agreement. When disclosing an invention it is always
worth completing a patent search for prior art and a
review of scientific publications.

5.7.3 Technology Trends

It is vital for technology entrepreneurs to maintain the
currency of their knowledge within their technical
field. It is useful to routinely conduct a thorough
search in fields of interest. Independent services, such
as technology watch reports, can provide up-to-date
assessment of new technologies and emerging trends
that provide valuable information in de-risking
investment decisions. It is important not to confuse
technology watching with industrial espionage,

benchmarking or technology foresight. Technology
watch services can:

• Determine the start of the art in a particular

technology sector;

• Provide information on new patents in a

particular sector;

• Highlight technologies available for licensing

and provide information on licensing activities;

• Highlight new applications and markets for

existing technologies; and

• Monitor developments in technology platforms.

Entrepreneurs should also monitor developments of
their competitors. Competitive intelligence is the
ethical gathering and analysis of competitor and
market information from open sources.

5.7.4 Intellectual Property Policy

Clear policies and procedures that determine
ownership and assignment of rights can help
incentivise innovation within a business. In particular,
employee contacts and contracts with external partners
should spell out clear provisions on IP ownership and
how (if) they can share in the economic benefits from
commercialisation. A growing international trend is
for research institutions, including universities and
government-owned laboratories, to encourage
innovation. This trend can be traced back to the Bayh-
Dole Act of 1980, which essentially allowed US
universities to own their own inventions and placed
responsibility on them to make their IP more widely
accessible to their communities. It had the knock-on
effect of encouraging universities to establish
technology transfer offices to help researchers

commercialise inventions; the number of patents shot
up, as did venture funding for innovations developed
at academic institutions. Commercialisation is often
the most efficient means of promoting the widest
possible dissemination and use of this IP. It is
appropriate, therefore, for both the institutions and the
creators to benefit from its commercial exploitation.

All new ventures should consider a policy on IP.
After all, commercialisation of IP requires significant
investment and effective protection and management
of IP are essential to attracting investment. A potential
investor will seek clarity on IP ownership and that the
venture’s innovation processes will facilitate optimal
commercial potential. Most importantly, policy can
facilitate implementation of harmonised systems and
procedures for all stakeholders in a new venture.

5.8 SEARCHING PATENTS AND OTHER
INTELLECTUAL PROPERTY
INFORMATION

In addition to being an important mechanism for
protecting innovation, intellectual property can be an
important source of information for technology
entrepreneurs. Patent specifications, for example,
contain important technical information that might
highlight current innovation trends, and they can
inform entrepreneurs on pursuing wasteful
developments or unnecessary infringements.
Trademarks and design registrations can provide
important insight into competitor marketing strategies.

5.8.1 Patent Information Sources

Patent information can be gathered from free online
databases as well as from paid services. Individual

country patent offices often host their patent databases
online. EPO provides an online patent search called
Espacenet (http://ep.espacenet.com), which provides
information on patents from over 60 different
countries. Similarly, the US Patent and Trade Mark
Office (USPTO) and the Japanese Patent Office
provide online text and image databases. Google
Patents offers a search engine that indexes patents
from USPTO and, more recently, from EPO.

Searching is generally conducted using one or more
“keywords”. However, in “advanced” searching, users
are allowed to specify the search using a number of
search parameters, including inventor, publication
date, patent assignee, patent type, International Patent
Classification and patent number. From an
entrepreneur’s perspective, the benefits of patent
information can be applied to:

• Spotting emerging technology trends and

understanding the state of the art;

• Informing on the direction of development

efforts;

• Eliminating wasteful research efforts due to

patents already filed by competitors or
dominance by established companies; and

• Recognising possible patterns and identifying

technology licensing opportunities.

A further method of searching is to search using the
International Patent Classification (IPC). Details of the
IPC coding system can be found on the WIPO website.
There are approximately 70,000 different IPC codes
that can facilitate searches in very specific fields of
work, for instance:

A Human necessities

B Performing operations and transporting
C Chemistry and metallurgy
D Textiles and paper
E Fixed constructions
F Mechanical engineering, heating, lighting, blasting
G Physics
H Electricity

Commonly used patent search tools are available
online, including:

Espacenet (EU) http://ep.espacenet.com/
www.ipo.gov.uk/types/patent
British Patent Search
Engine http://patft.uspto.gov/
www.wipo.int/pctdb/en/
PatFT and AppFT (US)
www.wipo.int/ipdl/en/overview.html
Patentscope
(international)

Intellectual Property
Digital Library
(international)

Table 5.1 Protection of software

Software Protection possible?

Idea ✗
Algorithm
Flow chart ✓
Source code ✓
Object code ✓
✓

There are also a number of commercially available
patent databases and private patent search firms. It is
important to point out that patent searching can be

quite complex due to the huge volumes of existing
patent data in multiple languages and, while a do-it-
yourself approach is OK for provisional searches, it is
best to have this carried out by professionals.

5.8.2 Other Intellectual Property Information
Sources

There also databases for other forms of IP, including
registered designs and trademarks. EUIPO can provide
information on European trademarks and WIPO can
offer searching of internationally registered designs.

5.8.3 Protection of Software

Software is copyrightable in almost all PCT countries
and copyright has been the tradi11tional method of
protection. Copyright protects the precise expression
of an idea (or algorithm) rather than the idea/algorithm
itself (UK Intellectual Property Office, 2011). The
major advantage of copyright protection lies in its
simplicity. Although copyright protects the “literal
expression” of computer programs, it does not protect
the “ideas” underlying the computer program, which
often have considerable commercial value (see Table
5.1).

Software is patentable in the United States and
Japan, but less so in Europe. Perhaps the best known
legal precedent comes from Diamond v. Diehr (1981),
in which it was deemed that a computer algorithm that
controlled a physical process could be patented.

EPO Guidelines state that “a computer program
claimed by itself or as a record on a carrier is not
patentable irrespective of its contents” (Hart et al.,
1999). Consequently, there has been a significant
increase in patenting by software firms since the early
1990s, partly fuelled by the lack of “prior art” and a

weakening of the “non-obviousness” test through court
decisions (Graham and Mowery, 2010).

5.9 ENFORCING INTELLECTUAL
PROPERTY RIGHTS AND DEALING
WITH INFRINGEMENT

Infringement of IP rights allows the owners to sue for
damages. Not everyone respects the rights of others
and infringers can inflict significant damage through
erosion of market share and poor-quality imitations
ruining brand reputation.

In respect of patents, it is always important to
obtain a broad scope and if well drafted it will often be
enough to deter potential infringement. It is a good
idea, for example, for the inventor to encourage
colleagues to try to design around the patent. One way
to do this is to study the patent claims and then to try
to identify which key features of the invention can be
modified.

In respect of design registration and trademarks, as
an entrepreneur it is always advisable to seek legal
advice on options for redress against others with
products that have a very similar appearance to yours
or against those who have used your trademark
without authorisation. Otherwise, the value of your
business may be diluted or lost.

However, litigation can be very expensive and any
venture relying on IP protection should consider IP
insurance. It is always wise to assess the cost of legal
fees in taking court action vis-à-vis the chances of
winning and the amount of damages that could be
reasonably expected from the infringing party. It may
also be possible to avoid the courts and negotiate a
settlement through arbitration or mediation. Useful
information for entrepreneurs and SMEs on IP rights

enforcement can be found in the IP Disputes
Resolution section of WIPO: www.wipo.int/sme.

5.10 ROUTES TO COMMERCIALISATION
OF INTELLECTUAL PROPERTY

Any decision to protect IP is usually made on the basis
that it has some value in the marketplace. Whether a
patent, a design or any other form of IP, protecting and
exploiting it represents an investment from which the
entrepreneur expects to make a return. Costs of
protecting IP can be significant, so it is not something
that can be taken lightly.

In many cases, the inventor may not have the
resources or experience to exploit a patent fully, in
which case assigning or licensing the IP to a business
partner should be considered to exploit the invention
to its full potential.

Converting the commercial potential of IP into real
rewards is primarily the role of the technology
entrepreneur. The rewards are largely dictated by the
approach taken to its commercialisation and this
should be premised on a number of fundamental
principles, outlined in Table 5.2.

With the foregoing in mind, here we explore five
fundamental questions that, when answered, will
inform the route of commercialisation that is
ultimately undertaken:

• Why would an individual or organisation

consider commercialising IP?

• Which geographical market(s) and customer

segments should be addressed?

• When should they commercialise their IP?

• How should they commercialise their IP?

• Who should lead the commercialisation effort?

5.10.1 The Why of Commercialisation –
Reasons for Commercialising Intellectual
Property

When considering commercialising IP, it is important
first to consider the context in which the
commercialisation of the IP is sought, as well as the
underlying motivations for seeking to commercialise
the IP.

Table 5.2 Principal considerations in intellectual property
decisions

• Although invention should be separated from application,

technological development should not be undertaken in
isolation from market requirements

• IP creation and protection should be balanced by a strong

focus of resources on commercialisation

• Successful exploitation of IP requires competent people who

can manage at the interface of business and technology

• If the inventor or entrepreneur is not in a position to exploit

the IP fully, then there are several other methods that can be
used

• The inventor can assign or license the IP to a new start-up

company (and become a shareholder) or allow it to
manufacture and market products covered by the IP

• The entrepreneur can form collaborative agreements with

existing companies

• The IP rights can be licensed to an existing company that

has the expertise and capacity to exploit the IP

• The owner can sell the IP directly without any further

involvement in its commercial exploitation

For example, IP that was developed by an academic
researcher within a university may end up on a very
different commercialisation pathway than IP that has
been developed by an individual or team within a
company setting. Moreover, an idea or prototype,
which forms the basis of IP owned by an individual
outside of either of the formal industrial or academic
settings, may require yet another approach. Of course,
the potential commercial application of the IP will also
greatly influence the choice of commercialisation
pathway, with, for example, a technology that has
application in the biotechnology industry perhaps
following a very different route to market than IP
developed in the software industry.

At the same time, the motivation of the
inventor/owner of the IP may be very different
depending on context and circumstance. For example,
the imperative for companies to commercialise is
inevitably driven by a desire to increase shareholder
value. It is therefore likely that the requisite
commercialisation infrastructure (e.g. operations staff,
equipment, finance, sales team, etc.) will already be in
place, and thus the commercialisation pathway will
most likely be defined largely by the existing models
in operation (or variants thereof) within that company.

For IP developed within an academic setting, the
motivation to commercialise may be somewhat
different. At an institutional level, given the broader
remit of most universities in the areas of teaching and
research, there may be a desire to demonstrate to
funding bodies that the research being carried out has a
real commercial (and hence societal) benefit. While
seeking to realise some monetary return on the IP
itself, often the institution may view the wider impacts
as having an equal or greater level of importance than
purely the revenues directly generated.

For the individual researcher within the academic
institution, there is frequently an understandable
tension that exists regarding commercialisation. This
centres around the fact that tenure or promotion
metrics within the institution tend to be linked to
teaching and the publication of peer-reviewed journal
articles based on research. Thus, commercialisation of
IP can be seen by such academics as a distraction from
the traditional research and teaching activities against
which their performance will be judged. In institutions
where commercialisation/innovation is not used as a
metric against which tenure/promotion is assessed, this
conflict can serve as a major impediment to the
commercialisation of IP. This is particularly
highlighted when one considers that in many instances
the IP itself is inextricably linked with the know-how
of the inventor, and hence their availability and
willingness to involve themselves in its
commercialisation. Notwithstanding these perceived
drawbacks to an individual academic seeking to
commercialise their IP, there does exist considerable
potential for enhanced reputation and personal wealth,
as well as kudos and promotion within those
institutions that meaningfully value commercialisation
activities.

For an individual outside of formal industrial or
academic settings, the motivation to commercialise IP
is likely to be driven mainly by a desire to increase
personal wealth. Of course, as already mentioned, this
motivation will likely be common to previously
discussed cases in varying degrees, but perhaps not to
the same extent as that existing for an individual
without the supports/constraints of working within a
larger organisation.

5.10.2 The Which of Commercialisation –
Geographical Markets and Customer
Segments

Having established a sufficient underlying motivation
within an individual or organisation seeking to
commercialise IP, an obvious question that follows in
cases where the IP may have applications in a number
of markets is “Which market(s) should be addressed?”
This question needs to be considered from both a
geographical perspective (i.e. in which countries or
regions the market exists) and an industry
segmentation perspective (i.e. in which industries or
industrial segments the market exists).

The answer to this question will in large part be
dictated by the market research that has been
undertaken (discussed in Chapter 7) and will not
necessarily be as simple as “all of them” or
“whichever market is biggest”! Additional critical
factors to be considered that impact on this decision
will include (among others) the time and resources
required to meaningfully address each market, the
competitive landscape within each market, the length
of the sales cycle within each market, the growth
trends within each market, the accessibility and
geographical spread of each market and the ability to
sustain a competitive position in a particular market
using the IP in question.

5.10.3 The When of Commercialisation – Timing

In most instances protection of the IP in question will
be a prerequisite before commencing the process of
commercialisation. As discussed, this may be achieved
by way of patents, confidentiality agreements, material
transfer agreements, retention of key know-how and
trade secrets, or various combinations thereof.

However, beyond protection of IP, the decision of
when to commercialise can often be nuanced and
fraught with difficulty. Again, a number of factors
influence this decision.

One such factor, particularly with respect to IP that
forms the basis of a start-up company, is the
availability of funds to see the process through to the
point where the IP is generating sufficient revenues.
Similarly with respect to IP developed in a university
setting, the availability of grant funds to further
develop IP may influence the timing of
commercialisation.

The timing of commercialisation also impacts
critically on the nature and magnitude of revenue
generation. For example, if a technology were to be
licensed at an early stage of development, it is likely to
generate far less revenue than would be the case if it
were to be licensed in a more mature state. An obvious
illustration of this is in the area of drug development,
where drug candidates in Phases I, II and III tend to be
licensed for progressively larger sums, which increase
in orders of magnitude from early preclinical
development onwards. However, the costs associated
with taking candidates through each phase of
development also progressively increase by orders of
magnitude, and thus this example too is illustrative of
the point about the availability of funds influencing
when (and as will be seen in the next section, how) to
commercialise a given piece of IP.

5.10.4 The How of Commercialisation – Routes
to Commercialisation

On the assumption that there exists a sound rationale
regarding why to commercialise a particular piece of
IP, and that a market opportunity has been clearly

established, the obvious question that arises is how the
opportunity should best be addressed. The various
routes available for commercialisation have been
extensively explored by others (e.g. Hindel and
Yencken, 2004). The advantages and disadvantages of
licensing IP as well as a comparison with the option of
starting a new venture have already been outlined.
Again, there is no simple “catch-all” answer to this
question. A number of options may present themselves
and their degree of appropriateness will vary
depending on circumstances.

Factors such as the target market for the IP, the
resources available to the team of promoters, the “shelf
life” of the IP (i.e. how long the IP is likely to confer a
competitive advantage in the marketplace) will all be
important factors in deciding how to approach the
commercialisation conundrum. In a general sense,
however, there tend to be three main routes for
commercialisation (summarised in Table 5.3),
explored in more depth here.

5.10.4.1 Provision of a Service That Leverages
Expertise and/or Intellectual Property

To remain in business, most individuals and
organisations must have an inherent set of
differentiating competences and expertise that form the
basis of their market offering. In many cases they will
harness these to make products or technologies, which
they then sell to the market. However, an alternative
means of realising commercial benefit from this
expertise and competence is to offer it to the market by
means of a service. At an organisational level, for
example, many software “solution providers” go to
market on the basis of a range of services that provide
their customers with improved business performance.

Often this will be done solely on the back of the pure
expertise and skills of the staff of the solution
provider, as opposed to on the basis of any specific
piece of patented IP or differentiated technology. In
other instances, proprietary pieces of software or
technology may form the kernel around which a range
of services can be built and thus the business generates
the vast bulk of its revenues from the ancillary
services, rather than on the sale or licence of any
specific technology. See Case Box 5.4.

Table 5.3 Summary of routes to commercialisation

Routes to Pros Cons

commercialisation

Service provision Little or no investment Can be difficult
generally required to protect
Leverages experience market position
and know-how Can be difficult
Provides opportunities to scale
for insights into other
organisations/industries

Licensing Little or no investment Often
generally required once relinquishing
IP has been created control over the
Opportunities to revenue-
address multiple generating
markets Potential to capabilities of
generate revenues the technology
relatively quickly

Formation of a new Potential to capture Often capital
venture maximal value from the intensive with a
developed IP requirement to
source
investment
from third
parties

CASE BOX 5.4 PROTEIN ANALYZE LTD,
DENMARK

Case written by Martin Hannibal, University of Southern Denmark
(SDU), Denmark.

Founded in 2002, Protein Analyze Ltd provides a high-quality
protein analysis service to support the research, manufacturing
and clinical development of natural and recombinant proteins.
Protein Analyze was a university spin-out from the University of
Southern Denmark and was created to offer a standardised “off-
the-shelf” protein analysis service to public as well as commercial
research labs. This service includes a 72-hour result guarantee
on any request in Europe and Northern America. As a result of
the founders’ research expertise, a number of customised
products were developed in close collaboration with key
customers.

With offices now in the United States as well as the head office in
Denmark, the company started out with a small investment using
a lab facility at the university and some second-hand automated
lab machines to run the actual tests. In its first three years no
commercial developmental work was done, but still the spin-out
generated good cashflow through its standard services for protein
analysis. In 2005 the founders saw “large untapped potentials in
developing the services that we could offer”. By that time the
linkage to the parent university department had weakened
considerably. As a result, the founders “experienced that the
commercial market was the sole point of reference”. Due to this
they decided to keep ahead of their immediate competitors, which
had larger bulk capacity than Protein Analyze.

Optimisation of the standardised analysis procedures aiming at
large-scale advantages is still the main issue for Protein Analyze.
However, as the customer portfolio grew, so did the insight into
key customers’ work processes. This provided a solid basis for
developing a number of products tailor made to key customers.
This “return to the roots of the firm – to regain a focus on front line
research” is thought to facilitate long-term financial security for
Protein Analyze.

5.10.4.2 Licensing of Intellectual Property

Licensing agreements do not transfer ownership of IP
rights, but merely give the party receiving the
technology (licensee) permission to use the IP, through
a legal agreement, for commercial exploitation. The
company or person licensing the technology (licensor)
can place limitations and obligations on the licensee.
Licensing agreements usually take one of two basic

forms: a non-exclusive licence or an exclusive licence.
Companies like exclusive licences because they
restrict their competitors from gaining access. This
creates more risk for the licensor, because the
successful commercialisation of the technology
depends entirely on one company. Therefore, the
licensing terms are usually more restrictive. For
example, exclusive licensing agreements often require
the payment of minimum royalties and reasonable
efforts on the part of the licensee to commercially
exploit the invention, in order to maintain the
exclusivity of the licence. Where the licensee fails to
meet these requirements, the agreements usually
provide for termination, or conversion to a non-
exclusive licence. Licences can also be restricted to an
application of the technology or to a geographical area.
Advantages and disadvantages of this route are
summarised in Table 5.4.

The decision as to whether to license IP or
technology as opposed to pursuing another avenue of
commercialisation is often dictated in large part by the
resources available to the promoters. Thus, for
example, vast resources are generally required to take
a drug molecule through clinical trials and to
subsequently market and sell the final product. This
makes it extremely difficult for all but the very large
drug companies to undertake this full range of
activities. Therefore, commercialisation of drug
products by smaller players generally involves
development of the products to early-stage clinical
trials (e.g. Phases I and II), followed by a subsequent
licence to a larger industry player that has the
resources available to complete the clinical
development and bring the products to market.

The ability of a licensee to bring the product/IP to
market and generate significant revenue in a timely

manner is also an important consideration when
pursing the option of licensing. For example, from the
perspective of the time and money required to set up
their own infrastructure, it may be deemed more
prudent in some instances for promoters to license the
IP around their process/technology to an existing
product manufacturer, rather than seeking to set up
their own manufacturing, marketing and sales
operations from scratch. Similar considerations come
into play where the IP in question revolves around a
technology that forms the basis of a single component
of a larger product. An example of this would be
proprietary algorithms that underpin a piece of
software that serves as the operating system for an
electronic device.

Table 5.4 Advantages and disadvantages of the licensing route

Advantages of licensing Disadvantages of licensing

Instant and expert resources Lower financial return than
dedicated to commercialisation inventor-led commercialisation

Sharing and diversification of Difficult to find appropriate
risk licensee

Earlier financial reward Losing partial control of the
technology

Less resource intensive for Involvement of the inventor is
inventor reduced

In addition, in cases where IP has applications in
number of different markets (both geographical and
industrial), the promoters may seek to “slice and dice”
the IP (i.e. grant use to a licensee in one particular
region or for one particular industrial application, and
simultaneously grant another licence of the same IP to
a different licensee in a different region or non-
competitive industrial application).

Other considerations around licensing relate to
whether or not to grant a licence on an exclusive or
non-exclusive basis. Again, a number of factors will
impinge on this decision, including the nature of the
technology, the size and nature of the market and the
number of potential licensees. However, generally
speaking the promoters of the IP could expect to
receive a higher royalty rate in an exclusive licence
deal than could be achieved in a deal that is done on a
non-exclusive basis.

The licensing route can provide valuable cashflow
in the short term for relatively little effort and provide
for development of applications of the technology
outside a company’s core business. The technology
being licensed may have a number of applications in
industries that do not fit with the owner’s expertise.
Alternatively, the owner may not have the expertise or
resources to exploit all the potential applications of the
technology. They may wish to license it to a third party
to exploit new markets. It may also be more cost-
effective for a third party to manufacture the product
in a local market than for the owner to distribute it.
From the licensee’s perspective, licensing a technology
can provide an alternative to researching and
developing the technology from scratch. It can,
therefore, use licensing as a method to bring its
products to market much more quickly. An example of
licensing success is provided in Case Box 5.5.

CASE BOX 5.5 MASTER: A LICENSING

SUCCESS AT RRI, BAYCREST, UNIVERSITY

OF TORONTO

Case written by Gabriela Gliga, Marketing Discipline, National
University of Ireland, Galway.

Baycrest is a global leader in cognitive neuroscience and memory
research, developing and providing innovations in ageing and
brain health (CAHO, 2009). Headquartered in Ontario and fully
affiliated with the University of Toronto, Baycrest provides a
comprehensive system of care for ageing patients, while hosting
one of the world’s top research institutes in this area: the Rotman
Research Institute (RRI; www.baycrest.org/Baycrest/Research-
Innovation/About-Us/Rotman-Research-Institute). Baycrest has
successfully managed to leverage its remarkable complementary
strengths in innovative care delivery and research by pursuing a
unique commercialisation agenda.

For instance, researchers at RRI (Dr Terry Picton, Dr Sasha John,
Andrew Dimitrijevic and David Purcell) have developed and
clinically evaluated a new technology to allow hearing evaluation
of people who cannot communicate and cannot “tell” you whether
they can hear what you are saying. The technology, the Multiple
Auditory Steady-State Response (MASTER), has been
developed over more than a decade and it is now used in
hundreds of hospitals across the globe (www.mastersys-tem.ca).

The MASTER technology monitors brain activity directly, and
eliminates the need for patients to respond verbally. Equally, as
results are automatically evaluated by a computer, there is no
need for extensive training for medical personnel and errors are
less likely to occur.

Working together with Baycrest, the researchers at RRI have
successfully patented, licensed and commercialised the
technique as Bio-logic, today owned by Natus, a company that
markets and sells its products in over 100 other countries
(https://natus.com). In recent years, Natus has further developed
the technology and created new products, such as Bio-logic®
NavPRO ONE®, a small hand-held portable diagnostic platform,
with capabilities that match larger PC-based devices
(https://hearing-balance.natus.com/products-services/bio-logic-
navpro-one). This is ideal when testing is needed in remote
locations or at the patient’s location.

The revenue from the royalties on the licence for the technology
is used to cover the costs of the research division at Baycrest.

5.10.4.3 Formation of a New Venture

The third main commercialisation option available to
IP developers is to create a spin-out or spin-off venture
with the IP at the core of the new venture’s
product/service offering (see Table 5.3). This company
will be a stand-alone venture with a completely

independent legal identity to its parent organisation.
There are numerous reasons why a company might
choose to separate itself from the new venture to be
spun off. For example, the spin-off of a large
diversified business could enhance the total value of
the parent shareholder’s holdings, because it might be
valued at little or nothing as part of the current
corporate whole. In spinning off a more desirable unit,
management may see a stock market opportunity
where pure plays in specific sectors are highly prized
by investors. For IP developed in an academic setting,
a spin-out venture is often the route of choice for
commercialisation.

Regardless of the provenance of the IP on which
the new venture is based, in order to ensure its success
it will be important to ensure that it is properly
capitalised (i.e. funded). The sources of capital can
vary in nature and size but, among others, often
include funding from the parent organisation,
institutional venture capital funding and private equity
funding. Table 5.5 highlights some issues to consider
when choosing between forming a start-up company
and licensing the IP to an existing company.

Table 5.5 Licensing versus start-up

License Start-up

Single application Platform technology (multiple
applications)
Once-off opportunity
No management team Scalable business model

Finance difficult to raise Creators have skills to
Strong barriers to entry commercialise
Strong competition
Clear funding mechanism

Clear route to market

First-mover advantage

No desire of creator for IP creator has aptitude for
business entry entrepreneurship

Creators of IP, such as inventors, may consider
forming a company for the following reasons:

• The market potential for the opportunity is worth

the added risk;

• To participate in maximising the value of the

technology;

• To work with an experienced entrepreneur who

can lead the company; and

• They have contacts to create a business team and

access other resources.

Where a start-up company is desirable, the owner
typically licenses or assigns the enabling IP to the
company in return, for an equity stake in the company
at a point where it is capitalised sufficiently to pursue
its business plan. Building a successful new business is
very challenging and often requires a skill set beyond
the capabilities of those who created the IP in the first
place. The stark reality is that a very large proportion
of start-ups fail. Although creating a new company to
commercialise technology holds the highest risk
(Figure 5.2), it can also lead to the highest potential
reward.

The first hurdle to forming a start-up is often the
issue of seed funding. The process of creating a new
company has more to do with the market opportunity
than the quality of the science behind the technology.
It often comes as a shock to inventors or first-time
entrepreneurs attempting to promote a company that
funding is not readily available, and even when it is
they may be asked to put their hand in their own
pocket to fund the business. This is particularly the

case for private equity funds. Angels, for example, as
private investors will want to see demonstrated
commitment from the entrepreneurs.

5.10.5 The Who of Commercialisation –
Promoters

Finally (and perhaps most importantly), it needs to be
decided who should lead the commercialisation effort.
In relation to service provision, in the initial stages of
commercialisation this is generally led by the technical
experts on an individual or team basis. Conversely,
with respect to licensing or direct sales, although it
may appear strange to some, an intimate knowledge of
the technology itself is not necessarily a prerequisite to
this activity. Having this knowledge does not
necessarily confer on the knowledge holder the ability
to extract the maximum commercial benefit from the
IP. Knowledge of the markets in which the IP can be
applied, allied to commercial experience and a contact
base within these markets, is generally of far greater
importance. This is not to downplay the role of the
developer of the IP. Rather, it is to emphasise that there
is a particular set of skills that lends itself to successful
commercialisation, which is not always resident within
the individual or team responsible for the IP
development. Thus, the commercialisation effort
should be led by an individual or team with a
complementary set of technological and commercial
skills that can be used to communicate and discuss key
technical and commercial issues with potential
customers/licensees.

Figure 5.2 Risk profile of different commercialisation options

There is often a tension for the inventor or owner of
the IP in having to give up some level of control over
it. No matter which commercialisation path is
followed, the original creators of the IP will need to
collaborate and communicate with others with
different perspectives. For example, potential investors
are frequently less interested in the core technology
itself and are focused more on the market opportunity
and financial rewards that it can bring.
Commercialisation tends to be a collaboration between
people with different skill sets and motives, aligned by
common objectives.

Inventors need to be honest with themselves
(Croteau and Whitehead, 2005) and others about their
ability to commit to the commercialisation of their
technology, which can take several years. If inventors
are unable to commit to being part of a management
team, then a licensing path might be the most
appropriate commercialisation route. When creating a
start-up, inventors must recognise their limitations and
ensure that they appoint a well-balanced senior
management team. Sometimes inventors believe their
strengths as researchers can be equally applied to
business management, in which case they are often

most productive in the role of Chief Technology
Officer.

5.11 CHAPTER SUMMARY

The capture, legal protection and commercial
exploitation of IP are particularly relevant to
technology entrepreneurs. Whether their venture is
developing the technology itself or licensing the
technology from outside sources, understanding how
IP impacts the business model is a critical factor in the
likely success of their venture.

Investors often seek to understand the nature of any
IP underpinning a business as a means of ascertaining
its uniqueness and the barriers to entry that the IP
creates for the competition. Securing full IP rights can
be very expensive, however, particularly for start-ups
that may not necessarily have the necessary resources.
To offset this cost, entrepreneurs can deploy IP
strategies to help secure investment. Provisional
patents, for example, may be adequate to signal a
genuine opportunity to outside investors. The process
of capturing IP is something that should be developed
as part of the organisational culture from the early
stages of a venture. Invariably, when conducting due
diligence, investors will seek to ensure that the IP is
clean; that is, that there is documented evidence to
support any ownership claims. Any R&D or
innovation management functions within the
organisation, therefore, need to implement good
processes for capturing the creation of any IP. The
protection of IP and the pursuit of IP rights are best
done with the appropriate legal advice. Nevertheless,
entrepreneurs need to be aware of the various types of
IP rights and how they may apply to their business.

Even if the business model is not premised on the
creation of any new IP, entrepreneurs need to be aware
of any potential infringements. Similarly, they should

also be aware of the different routes that are open to
them to commercialise their IP. These vary
considerably depending on the personal circumstances,
ambition and funding environment in which
entrepreneurs find themselves. Thus, the chapter
concludes with an exploration of five fundamental
questions that entrepreneurs should consider: Why
would an individual or organisation consider
commercialising IP? Which geographical market(s)
and customer segments should be addressed? When
should they commercialise their IP? How should they
commercialise their IP? Who should lead the
commercialisation effort? Case Study 5.1 brings all
these elements together.

CASE STUDY 5.1 THE CHALLENGE OF
NANOTECHNOLOGY

Unlike emerging technologies of the recent past,
nanotechnology has far-reaching potential to impact our lives
and, according to some commentators, to alter the fabric of
society, even the very concept of humanity. Nanotechnology is
multi-disciplinary in nature, encompassing scientific fields and
industry sectors in chemistry, physics, materials, biotechnology,
pharmaceuticals and medicine. Nanotechnology also has the
potential to revolutionise how things are manufactured,
constructing them atom by atom rather than shaping and
assembling existing material into a final product.

Examples of commercial nanotechnology applications
include:

• In 2010, Intel announced it would invest $6-8 billion in

nanotechnology manufacturing capabilities for future
transistor and processor applications
(www.nanowerk.com/news/newsid=18597.php).

• Nancore Technologies recently demonstrated a flexible thin-

film photovoltaic solar cell using its patented liquid phase

deposition (LPD) process

(www.nanowerk.com/news2/newsid=31283.php).

• Bioni Hygienic is the first antibacterial and antimicrobial wall

coating as a substitute for biocides (which leak into the
environment). The product was developed by researchers at
the Fraunhofer Institute for Chemical Technology, Germany,
in collaboration with Bioni CS GmbH. It works on the basis of
nano-particles made out of silver.

What is interesting about nanotechnology is that many regard it
as the first research field in over a century where the outputs
are being patented extremely early in development. This makes
the task of finding relevant prior patents with which to compare
new applications very challenging. It is a new field, and most of
its patents are for basic inventions with wide applications, but
not linked directly to specific products. Adapting the patent
regime to nanotechnology is proving particularly challenging.
Innovations in nanotechnology can be especially complex due
to their multi-disciplinary nature, broad claims and difficulties in
fulfilling patentability criteria. IP laws covering products and
technology since the Industrial Revolution may not apply to
nanotechnology. How do you protect, for example, a molecule-
sized device from being illegally copied? Even coming up with a
precise definition for nanotechnology has proved problematic.
The USPTO classifies nanotechnology patents based on the
concept of a nano-structure where at least one physical
dimension is of the order 1–100 nm
(www.uspto.gov/web/patents/classification/uspc977/defs977.ht
m). The EPO’s Y01N code (now B82Y) defines nanotechnology
as “entities with a controlled geometrical size of at least one
functional component below 100 nanometres in one or more
dimensions susceptible of making physical, chemical or
biological effects available, which are intrinsic to that size”
(www.epo.org/news-events/in-focus/classification.html). One
hundred nanometres is about 1,000 times thinner than a human
hair.

Recall that for an invention to be patentable, it must be useful
(utility), novel (novelty) and non-obvious in light of the prior art.
Critical to this is the fact that a patentable invention must have
some known application. The current stage of development of
nanotechnology still provides for relatively low utility for four
main reasons: (1) nanotechnology often spans across
disciplines, complicating the application of patent law; (2) many
nanotechnology patent claims are potentially “inoperable”, such
as that for the perpetual motion machine, and patent examiners
frequently are not well versed in what is reality and what is
science fiction; (3) the useful of nanotechnology inventions is
often uncertain; and (4) much of the research in nanotechnology

remains relatively far removed from marketable products
(Almeling, 2004).

Perhaps one of the most high-profile emerging cases of the
commercialisation of nanotechnology has been the acquisition
of Innovalight by DuPont in 2011 (Ganguli and Jabade, 2012).
As part of the US Department of Energy Photovoltaic Incubator
Program, Innovalight developed ink that contains silicon nano-
particles for boosting absorption of solar energy, along with a
number of proprietary processing technologies. In 2008,
Innovalight initially planned to manufacture solar modules, but it
could not raise the $50 million financing to build a small
production plant. In 2010, it was awarded a US patent for the
manufacture of crystalline wafer solar cells with its proprietary
ink. As a result, it switched to being an IP company, adopting a
strategy to licence its ink to photovoltaic cell manufacturers to
improve solar cell efficiency. Since then, it has grown a huge
customer base in China and South-East Asia. Innovalight has
adopted a hybrid IP business model, both selling silicon ink
powders to its customers as well as collecting royalties under an
IP licence. This unusual model helps to solve two problems.
First, customers feel they are receiving something tangible for
their money; and, second, the combination of a sales contract
and an IP licence provides Innovalight with more legal clout.

Dupont’s acquisition of Innovalight highlights an unexpected
trend taking place in intellectual property; namely, the interest
among Asian manufacturers in commercialising IP generated in
the United States and Europe. Although US companies often
complain about the protection of intellectual rights in China and
South-East Asia, Asian conglomerates have become more
actively interested in US know-how than their Western
counterparts. Innovalight, for example, does not have US
customers.

CASE STUDY QUESTIONS

1. Identify the key challenges in protecting intellectual property
generated in nanotechnology. Do you think those challenges
are being alleviated as more and more applications of
nanotechnology are being commercialised?

2. Why do you think Dupont was particularly interested in
Innovalight?

3. Investigate the claims of US Patent 7615393. Do you believe
the claims to be broad enough to provide Innovalight and its
customers with a sustainable competitive advantage?

5.12 REVISION QUESTIONS

1. Briefly outline the requirements for a new invention to be
patentable. What are two critical steps in the inventorship
process?

2. What are the rights bestowed on the owner of intellectual
property?

3. What is the difference between a copyright and a patent?

4. What are the advantages of filing a Patent Cooperation Treaty
international patent application?

5. Briefly outline the complexities in protecting intellectual
property for software. What are the typical intellectual property
rights associated with software?

6. What are the main routes of commercialisation available to the
developers of intellectual property?

7. What are the factors that influence the choice of
commercialisation route?

5.13 FURTHER READING AND
RESOURCES

The Economist (2015) Intellectual Property: A Business Guide, London:
Profile Books.

Junghans, C., Levy, A., Sander, R. et al. (2006) Intellectual Property
Management: A Guide for Scientists, Engineers, Financiers, and
Managers. Weinheim: Wiley-VCH.

NUI (2016) Guide to Commercialisation at NUI Maynooth. Maynooth:
National University of Ireland, Maynooth.

https://documents.pub/document/nui-maynooth-commercialisation-
guide.html (accessed 15 July 2020).

Op den Kamp, C. and Hunter, D. (2019) A History of Intellectual
Property in 50 Objects. Cambridge: Cambridge University Press.

African Regional Industrial Property Organisation (ARIPO): Established
under the Lusaka agreement, ARIPO provides a number of
intellectual property protection services for member states. Its main
office is located in Zimbabwe. www.aripo.org.

European Communities Trade Mark Association (ECTA): ECTA was set
up to maintain and improve the professional standards and expertise
on trademark matters within the EU and concentrates on key issues
common to all members. www.ecta.org.

European Patent Office (EPO): Using a single patent application, the
EPO can grant a bundle of national patents from member states.
www.epo.org.

European Union Intellectual Property Office (EUIPO; formerly Office
for Harmonisation in the Internal Market): EUIPO is the official
trademark and design office of the EU. It registers the Community

trademark (CTM) and Registered Community Design (RCD),
covering the 27 EU countries.
https://euipo.europa.eu/ohimportal/en/home.
International Trade Mark Association (INTA): INTA is a not-for-profit
membership association dedicated to the support and advancement of
trademarks and related intellectual property as elements of fair and
effective commerce. www.inta.org.
United States Patent and Trade Mark Office (USPTO): Location in
Virginia, the USPTO issues patents and trademarks on behalf of the
US Government. www.uspto.gov.

5.14 REFERENCES

Almeling, D.S. (2004) “Patenting Nanotechnology: Problems with the
Utility Requirement”, Stanford Technology Law Review, 4.
http://stlr.stanford.edu/STLR/Articles/04_STLR_N1.

Carrol, J. (2001) “Intellectual Property Rights in the Middle East: A
Cultural Perspective”, Fordham Intellectual Property, Media and
Entertainment Law Journal, 11(3): 555–600.

CNN (2007) Two Ex-Coke Workers Sentenced in Pepsi Plot Deal.
www.cnn.com/2007/LAW/05/23/coca.cola.sentencing. Accessed 15
October 2013.

Council of Academic Hospitals of Ontario (2009) Research Return on
Investment: Case Studies from Ontario’s Academic Health Science
Centres. Available at http://caho-hospitals.com/wp-
content/uploads/2014/02/2009-Research-Return-on-Investment-Case-
Studies-from-Ontar-io’s-Academic-Health-Science-Centres.pdf.

Croteau, M. and Whitehead, G. (2005) Commercialisation Handbook:
An Introductory Guide for Researchers. The Intellectual Property
Management Offices of Ontario’s Post-Secondary Research
Institutions.

European Commission (2003) Intellectual Property: Good Practice
Guide, p. 10.

Ganguli, P. and Jabade, S. (2012) Nanotechnology Intellectual Property
Rights: Research, Design, and Commercialization. London: CRC
Press.

Graham, S. and Mowery, D. (2010) Intellectual Property Protection in
the U.S. Software Industry. Berkeley: University of California Press.

Hart, R., Homes, P. and Reid, J. (1999) The Economic Impact of
Patentability of Computer Programs: Report to the European
Commission. London: Intellectual Property Institute.

Hindle, K. and Yencken, J. (2004) “Public Research Commercialisation,
Entrepreneurship and New Technology Based Firms: An Integrated
Model”, Technovation, 24(10): 793–803.

IP Watchdog (2020) www.ipwatchdog.com/2015/04/18/patent-cost-
understanding-patent-attor-ney-fees/id=56970/. Accessed 24 April
2020.

McManus, J. (2009) Implementing and Managing an Intellectual
Property Policy. Dublin: Enterprise.

McManus, J.P. (2012) Intellectual Property: From Creation to

Commercialisation. Cork: Oak Tree Press.

NUI (2016) Guide to Commercialisation at NUI Maynooth.

http://commercialisation.nuim.ie Rev 5 01/04/11 2

COMMERCIALISATION PROCESS Rev 5 01/04/11 3,

https://documents.pub/document/nui-maynooth-commercialisation-

guide.html. Accessed 7 May 2020.

Patent Pilot (2020) www.patent-pilot.com/en/obtaining-a-patent/costs-of-

obtaining-a-patent/. Accessed 24 April 2020.

Quantify IP (2020) www.quantifyip.com. Accessed 24 April 2020.

The Economist (2012) “Intellectual Property in China: Shill Murky”, 21

April 2012.

Turrentine, L. (2012) Galaxy S3 Beats IPhone5 for Best Device 2012.

www.cnet.com.

UK Intellectual Property Office (2011) Copyright: Essential Reading.

www.ipo.gov.uk/c-essential.pdf. Accessed 15 October 2013.

USPTO (2019) United States Patent and Trademark Office, ‘Request for

Comments on Patenting Artificial Intelligence Inventions’ (26 August

2019). www.federalregister.gov/documents/2019/08/27/2019-

18443/request-for-comments-on-patenting-artificial-intelligence-

inventions. Accessed 5 May 2020.

WIPO (2013) Results of the International Survey on Dispute Resolution

in Technology Transactions.

www.wipo.int/amc/en/center/survy/results.html. Accessed 24 April

2020.

WIPO (2019) WIPO Begins Public Consultation Process on Artificial

Intelligence and Intellectual Property Policy. PR/2019/843.

www.wipo.int/pressroom/en/articles/2019/article_0017.html.

Accessed 15 July 2020.

WIPO (2020) Copyright in the Age of Artificial Intelligence. A

Symposium Co-sponsored by the United States Copyright Office and

the World Intellectual Property Organization, 5 February 2020.

www.copyright.gov/events/artificial-intelligence/. Accessed 5 May

2020.

5.15 GLOSSARY OF TERMS

Assignment Usually refers to the transfer of ownership of an
intellectual property right from one person to
another.

European Patent The EPC came into effect in 1977, facilitating
Convention the obtaining of patent rights in any one or more
(EPC) of the EU member states. European applications
can be filed with a National Patent Office or
with the European Patent Office.

Industrial Design Refers to the aesthetics or non-functional
aspects of a product. The design may comprise

Infringement 2D features, such as lines, patterns or colour,
and 3D features, such as shape or texture.
Intellectual
Property Refers to the use of someone else’s intellectual
Inventive Step property rights without having the necessary
Inventor right or licence to do so. The range of prohibited
Know-how activities differs according to the nature of the
Licence right. Patent infringement consists of the
Novelty unauthorised making, using, offering for sale or
selling of any patented invention. Copyright
Patentability infringement includes the unauthorised or
Patent Claims unlicensed copying of a work subject to
copyright.

The creations of the mind: inventions; literary
and artistic works; and symbols, names and
images used in commerce.

A prerequisite for the grant of a patent, which
requires that the invention, having regard to the
state of the art, is inventive and not obvious to a
person skilled in the art.

An inventor is someone who contributed to the
conception and reduction-to-practice of the
invention.

Closely held knowledge or skills required to do
something; usually such knowledge is difficult
to communicate by writing down or verbalising
it.

A form of contract that gives permission for the
use of one party’s intellectual property by
another party.

For an invention to be patented, it requires
novelty; that is, it must not be part of the current
state of the art. The state of the art comprises
anything disclosed to the public, such as a
previous patent, an oral presentation, an
academic paper, etc.

A measure of a patent application’s ability to
satisfy the legal requirements for a patent,
including novelty, inventive step and
application.

As part of the patent application, the claims
define the legal scope of the patent. Normally
written in technical terms, the claims outline the

Patent extent of the protection sought in a patent
Cooperation application.
Treaty (PCT)
PCT is an international treaty in operation since
Patent Pending 1978 and is administered by the WIPO. It
created a system whereby a single international
Phase I (Drug patent application in one of the contracting
Development) states allows for the designation of up to 153 (as
Phase II (Drug at July 2020) other contracting states in which to
Development) obtain patent protection.

Phase III (Drug Serves notice that an application for a patent has
Development) been filed and that legal protection may be
Prior Art forthcoming.

Priority A clinical trial on a few persons to determine the
safety of a new drug.
Provisional
Patent A clinical trial on more persons than in Phase I;
Applications intended to evaluate the efficacy of a treatment
Search Report for the condition it is intended to treat; possible
side effects are monitored.

A larger clinical trial of a treatment or drug that
in Phases I and II has been shown to be
efficacious with tolerable side effects.

A technical legal term encompassing anything
that has ever existed in the universe before the
invention was made. It refers to existing
technological data against which a patent
application or design can be assessed to
determine if it is novel.

Once an application is filed the applicant can
claim priority, 6 months for a trademark and 12
months for a patent. The filing date of the first
application is referred to as the priority date. The
initial application would have priority over all
subsequent applications made after the priority
date. Being first to file, therefore, provides
competitive advantage.

Provisional filings enable inventors to establish
an early effective filing date in a non-provisional
patent application, and allow inventors to attach
the term “Patent Pending” to their inventions.

Once a patent search is carried out, the search
report provides a list of cited published prior art
that could be used to determine the novelty of a
patent application.

State of the Art Everything previously available to the public by
means of description, use or in any other way
Technology before the filing of a patent or design
Transfer application.

Tenure Often relevant to academic and industry
Venture Capital collaborations, this refers to the movement of
technology, either by assignment or licence,
from its creators or owner to one or more third
parties for its development, commercialisation
or use.

A permanent contract in a teaching or research
post in an academic institution.

Money invested in a project in which there is a
substantial element of risk, typically a new or
expanding business.

BUSINESS Chapter
MODELLING:
VALUE 6
CREATION
IN LEAN
START-UPS

6.1 LEARNING OBJECTIVES

This chapter presents business modelling as a strategic tool
for developing the business and for systematic learning
throughout the venturing process. It emphasises that
developing a technology venture happens within a strategic
context. Therefore, the entrepreneur needs to understand
how value is created and how the business is related to its
environments, including the competitive landscape. First, the
chapter seeks to explain that opportunities need to be
developed into business concepts consisting of
products/services and the value they will create in the market
(value proposition). Second, it argues that the iterative
development of a viable business model helps configure the
available resources in order to create unique customer value,
and to capture economic and other value from this; in other
words, it helps to organise the business in order to meet
customers’ needs and make money. Finally, the chapter
addresses how to develop metrics for measuring growth and
business model performance, as well as how to make
business models scalable.

After reading this chapter, you will be able to:

1. Understand the value configurations of different
businesses and industries;

2. Describe, develop and test business models for your
business;

3. Understand the challenge of moving from testing to
scaling business models;

4. Develop relevant growth metrics for systematic testing
and learning of your business model.

6.2 CHAPTER STRUCTURE

The core elements of this chapter are as follows:

• Introduction
• The Vision
• Creating Value
• Business Modelling
• Industry-Driven Business Models
• Business Modelling for Competitive Advantage
• Growth Metrics – Measuring Learning
• Scalable Business Models
• Chapter Summary
• Case Study – Spotify
• Revision Questions
• Further Reading and Resources
• Notes
• References
• Glossary of Terms

6.3 INTRODUCTION

Many technology entrepreneurs are “in love” with
their idea or invention and forget to think about
how to build a business around it. It is important to
note that not even the greatest ideas are likely to

sell by themselves. In technology environments, it
is common to see business plan presentations with
very convincing technology and product
descriptions, but with little sign of how the idea
will create value for customers and owners, be
adapted to the existing business landscape, or
capture economic value in order to create a profit.
Research shows clearly how companies with very
similar products within the same industry may
have very different abilities to capture economic
value from their business models.

This holistic – or strategic – picture is important
to keep in mind when starting the work of
developing a new business. The practical toolbox
for entrepreneurs has grown considerably through
the last couple of decades, enabling systematic
experimentation and learning under uncertain
conditions. What is sometimes called the “lean
start-up movement”, emerging out of Silicon
Valley entrepreneurship practices, represents a
strong shift from planning to iterative and
experimental learning. Often popular tools and
models, such as business modelling (e.g.
Osterwalder and Pigneur, 2010), agile engineering
and product development (e.g. Ries, 2011) and
customer development (Blank, 2013), are
combined by entrepreneurs to facilitate lean (rapid,
cheap, effective through continuously improving)
ways of developing different aspects of their
business. Common to all lean start-up tools are
their philosophy of exploration and
experimentation through multiple small and rapid
iterations rather than long-term analyses and plans.
This makes good sense in light of the considerable

and unavoidable uncertainty in technology
entrepreneurship, enabling testing, learning and
continuously adjusting direction before
committing too many resources. Sometimes start-
ups learn that more fundamental change, a “pivot”,
is needed, enforcing a strategic reorientation of the
business. This tends to require skilful work on
managing stakeholders, through storytelling and
alignment of interests (McDonald and Gao, 2019).
However, entrepreneurs working with these tools
and models sometimes lose their view of the
strategic context within which the business is
developed. The “value proposition” needs to be
rooted in relevant logics of value creation, and the
choice of business model needs to be informed by
the historically shaped business models of the
relevant industry, as well as the current
competitive landscape. In this chapter we focus on
value creation and business modelling in a
strategic context, while we go more in depth into
methods for prototyping and testing in Chapter 7,
and for developing and testing value propositions
in Chapter 8.

6.4 THE VISION

Visionary entrepreneurs typically want to change
something in society, to solve a problem or
improve the lives, work conditions or
environments of certain groups of people. The task
of the entrepreneur in this respect is to focus and
configure the limited resources of the venture in
order for them to work as effectively and
efficiently towards realising the business
opportunity as possible.

The entrepreneur captures the purpose of the
business in the business idea and the vision. The
vision relates to a future state, a situation where
critical needs of users/customers are served better
than today. When it comes to the business idea, it
is more concrete; it relates to how things are now.
It is the current state that is in question. It outlines
a principled attitude to what should happen in the
business. Vision is an important source of business
opportunity and often inspiring visions grow out of
the desire to resolve frustrations (Spinosa et al.,
1997). The vision should be changed as the firm
achieves the goals implied in the vision. However,
often visions have utopian aspects that are not
likely to change much over time. For example,
innovative transport company Uber’s “We ignite
opportunity by setting the world in motion” or
pharma company Pfizer’s “Breakthroughs that
change patients’ lives” will always be able to lead
these companies further in their development of
products and customer value – universal and
utopian ideals where they can always continue
innovating new solutions based on the same
vision.

6.5 CREATING VALUE

How a start-up company creates value can be
described in two ways: the value proposition,
which is a suggestion to customers on how a new
product or service will meet their needs and create
value; and the configuration of value, which tells
how resources and activities need to fit together in
order to create and sustain value.

When developing a business concept, the aim is
to develop a novel technology or a creative idea of
some kind into something assumed to create value
for the customer. Stated another way, a business
concept should be based on a “value proposition”.
A basic definition of a value proposition can be
“an offering that helps customers more effectively,
reliably, conveniently, or affordably solve an
important problem (or satisfy a job-to-be-done) at
a given price” (Johnson, 2010, p. 28). “Job-to-be-
done” is used as a metaphor for why a customer
would hire or buy your product. Customers are
generally not interested in your product per se;
they hire it to get something done. It may sound
banal, but in fact many technology start-ups forget
about this. Professor Theodore Levitt once said
that “people don’t want a quarter-inch drill. They
want a quarter-inch hole.” In our time, this may
translate into end users being less interested in
your machine learning algorithm or blockchain
than in making better decisions and agreements, or
less interested in how you optimise a green energy
system than in getting cheaper and cleaner energy.
While such in-depth understanding of customers’
real everyday challenges and needs may be hard to
get, it is a necessity for the innovative startup
(Christensen et al., 2016). Johnson (2010) further
recommends that start-ups critically examine how
important this problem is for the customer, how
satisfied they are with current solutions and how
much better your product can solve the customer’s
problem. The basis for this idea is that economic
value is created by satisfying customers’ real needs
(Kaplan and Norton, 2004).

A company may find it necessary to create
several value propositions: one for each customer
segment it wants to serve (Hamel, 2000). Every
value proposition may consist of a bundle of
products and services that together help to solve
important problems for targeted customer
segments (Osterwalder and Pigneur, 2010). This
implies a view of innovation based on deep insight
into the targeted customer segments to create new
value. For new customers, entrepreneurs may
develop “value innovation” (Kim and Mauborgne,
2005, pp. 12–13). The focus, then, is not so much
on competing with other firms as on opening up
“new and uncontested market space” (ibid.),
thereby getting ahead of potential competitors.
Kim and Mauborgne argue that such value
innovation occurs only when companies make sure
both to drive value for the customer
(differentiation) and drive down cost for the
company at the same time. The value proposition
is often a key starting point for building the
business model (note that Chapter 8 examines
value proposition development in more depth).

6.5.1 Value Configurations

But what do companies do to create value? This is
a strategic question, bringing the start-up’s
resources and activities into the picture. Porter
(1985) developed the idea of the value chain for
analysing value creation and profitability. Input
resources are gathered, transformed into products
and brought to customers through the value chain.
If the cost of doing this is lower than the resulting
value when the product reaches the end consumer,

then you have a profitable value chain. Stabell and
Fjeldstad (1998) expanded on this by arguing that
the value chain helps to explain only some types of
businesses, while other businesses are not easy to
analyse through this model. What about service
providers or platform companies? The value chain
configuration does not explain what happens or
how value is created in those kinds of businesses,
such as technology consulting firms or social
media platforms. Stabell and Fjeldstad therefore
added two new value configurations: the value
shop and the value network. Value shops deliver
value by resolving unique problems for customers.
The value network delivers value by facilitating
direct and indirect exchange between customers.
Fjeldstad and Snow (2018) argue that managers
need to understand how value configurations affect
their business model, including how they increase
the firm’s collaborative capacity (see Table 6.1).

Table 6.1 Value configurations

Value Key Examples Why it is
valuable
configuration characteristics

Value chain The sequential Product Increasing
Value shop and manufacturers scale and
interdependent maximising
process of capacity
transforming lead to
inputs into decreasing
products production
costs and
greater
profits

Solving Hospitals; Focusing on
customer consulting customers’
problems unique