Kauffman Fellows Report
volume 3, 2012www.kauffmanfellows.org © Kauffman Fellows Press
IP and VC: A Framework for FundingDisruption of the IntellectualProperty Markets
Jorge M. Torres
For most of the last decade, I have been helpingcompanies deal with intellectual property (IP),initially as technical advisor to the law firmSkadden, Arps, Slate, Meagher, & Flom LLP andmore recently representing clients in complexpatent infringement lawsuits as an IP attorney.As I entered the Kauffman Fellows Programin the summer of 2011, I began developing aframework for thinking about venture investmentin
emerging companies whosebusiness models have thepotential to dramatically improvethe ways in which IP (including itsassociated risks) is priced,bought, and sold
. In this article, Idevelop the conceptual details of ventureinvestment in these IP-based businesses, explorethe contours of the major trends shaping theevolution of IP markets, and identify the waysthat venture-backed IP-business of the futurewill disrupt IP markets over the next decade.
During the early part of my career, there weretwo events that, in retrospect, did much toshape the way companies manage and mitigateIP risk today. The first was a landmark decisionby the U.S. Court of Appeals for the FederalCircuit, and the second was the publication of ahighly influential book on IP strategy by HarvardUniversity Press.In 1998, the U.S. Court of Appeals for theFederal Circuit decided
State Street Bank &Trust Co. v. Signature Financial
In that case,the court held that the U.S. patent lawspermitted the patenting of business methods.Prior to
, there was some doubtregarding the legal status of business methodpatents. Serious legal opinion consideredbusiness methods to be no different fromalgorithms or laws of nature—outside the scopeof patent protection. The Federal Circuit’s
decision was game-changing not onlybecause it placed the court’s imprimatur onbusiness method patents, but also because thecourt’s timing was impeccable. Business methodpatents existed before
, but theFederal Circuit issued its decision in the midst ofthe dot-com boom—just as entrepreneurs werelearning how to use the internet to remake theway business itself is done.
transformed thepublic’s perception of the U.S.Patent and Trademark Office froman Executive Branch backwaterinto the Land of Milk and Honey.
Aflood of patent applications followed thedecision, many claiming exclusive rights inbusiness methods: In 2010, the Patent Office
State Street Bank & Trust Co. vs. Signature Financial