Thursday, April 27, 2006

The story behind Microsoft opening up its IP

With the formation of Wallop out of Microsoft Research, Microsoft's IP Licensing Group is again in the news. Read about it here, here and here. A year ago, Mary Jo Foley reported on the fact that Microsoft has established a new division charged with licensing Microsoft-Research-developed technologies to startups and venture capitalists. This is the next step started over a year ago. My former colleague Bryan Mistele based his new company (Inrix) on Microsoft Research's predictive traffic technology and received one of the largest seed rounds in Seattle in some time (interview here). I'm going to reach out to a friend in that department to learn more. Stay tuned...Here's a list of what they are making available so far.

David Kaefer is the Director of Business Development for Microsoft’s IP Licensing group. The Seattle area’s largest A round in the last year went to the first licensee of this new effort (Inrix) to more broadly license Microsoft’s broad base of under-utilized IP. It’s worth taking note when something as significant as that happens so thought it was worth sitting down for a chat with David. The technologies they are making available tend to be "pre commercial" in that they aren't quite ready for primetime in terms of a final product form in areas that are getting funding. They tend to be standalone products or at least a substantial feature of a bigger product.

Chase Market Velocity (CMV): How are you going to measure the success of the program?

David Kaefer (DK): Success of this program is indicated in many ways, but in the short term it is shown with every licensing agreement we sign. Because of the nature of these agreements, the ultimate success and benefits from this program will be borne out over the long term.

CMV: The first licensee (Inrix) was all ex-MS people? While I assume you don’t have to be an ex-MSFTie to license the technology, why would an ex-Sun person (as an example) consider licensing your IP?

DK: Inrix technically wasn’t a part of this IP Ventures program, but rather that agreement occurred as a result of the kinds of inquiries we received on a regular basis and is an example of some of the impetus for the creation of the IP Ventures program. This program is open to all comers, and we hope that it is interesting to all parties regardless of their former employer. The program offers rich, stand alone technology that is best utilized by a party who has the capability of taking it from the prototype phase into the production phase and ultimately to market. We want to talk with any interested party who has those capabilities.

CMV: What's a typical deal structure? Equity? Royalty? For how long?

DK: Each agreement is negotiated on an individual basis. We can accept cash or up front payments, but we recognize that many start ups need to conserve cash. Equity or royalties or any sort of creative combination of the two are what we expect to see on a regular basis in these agreements. The length of each agreement will also vary on an individual basis and will depend on the parties, the technology, the perceived market for the technology and other relevant factors.

CMV: You have 20 technologies listed on your site that are available. Why these 20? How many others will come out? Are you going to be focused in particular areas?

DK: We started with these twenty based on feed-back we received from the venture capitalist organizations we spoke with. They helped us identify the technologies that are most marketable and the ones that are receiving the most VC backing right now. We expect many others to be unveiled over time, but it’s impossible to predict exactly how many or when or even the particular technology focus of the innovations added to the IP Ventures program in the future.

CMV: What makes these technologies something MS wants to share vs. other R&D that isn't shared externally? Which do you think are most valuable of what they are licensing? Why?

DK: The main reason these technologies are being shared is that we see a market opportunity for them. They are not currently being used by Microsoft in the manner in which another company could use them. We think that all of the technologies available under this program are valuable.

CMV: What kind of assurances do your licensees get that the IP is defensible? If there's a dispute where a 3rd party claims infringement, how is that handled?

DK: Each agreement will be negotiated individually to the mutual satisfaction of the parties. There are many ways that the potential liabilities can be borne and distributed amongst the parties and each agreement will factor in the unique indemnities and assurances necessary for the parties involved.

CMV: Has any form of market validation or input taken place for these technologies? Do you know what markets are likely to be interested in the various technologies? Is there an objective person/team providing that validation?

DK: Right now, the primary form of market validation has been the input of the VC’s and entrepreneurs we have been talking with in the last few months. For example, we have had discussions with VC’s like 3i plc, Advanced Technology Ventures, MDV-Mohr, Davidow Ventures, OVP Venture Partners, and Insight Venture Partners. The true test will occur when the technology is released to the market, but we feel confident that the outsiders we’ve spoken to represent a broad cross-section of the market place with a sophisticated business sense about which technologies are best to pursue right now.

CMV: What's the process once someone sends a mail to the team expressing interest?

DK: The complete details about how to take advantage of this program are available at

CMV: With corporate VC investment on the rise, will MSFT ever be a financial backer of these companies in addition to providing IP?

DK: That is not how we envision our participation in these agreements but it isn’t something that we would necessary rule out.

CMV: How will the researchers who developed the technology be available to the startup?

DK: To operate this program successfully, we recognize the need for a high-touch approach. We intend to work with the licensee to provide them with what they need to implement this technology into their products. Access to Microsoft researchers may be important to transfer basic know-how about the products that isn’t well documented in some other form. Access to these researchers will be a consideration for a number of the deals.

CMV: How do you plan to reach out to the entrepreneurial and VC communities to make them aware of what has been developed?

DK: Our outreach has already begun. We have been meeting with VCs and entrepreneurs over the last few months. We have spoken to large groups of VC’s at the NAVC conference in New York last week and the VC summit in the Bay Area this week. Our IP Ventures team is going to Europe next week to continue the engagement we’ve begun with venture groups like 3i plc. Additionally, we’ve issued a press release and conducted many media briefings on this program roll-out.

CMV: Are there any upcoming events where people can learn more?

DK: To this point, we have done 1:1 meetings with VCs as well we are included in forums Microsoft puts on that target VCs. We have also had meetings with established companies looking for specific IP. What often happens is we share some of what we have and they indicate specific areas they are looking for. In some of those cases, we have technologies that are applicable.

CMV: Have you reached out to angel alliances or individual angel investors?

DK: We are experimenting with a variety of different groups to reach out to. While we have spoken with individual investors, it's an interesting idea that we'll consider.

CMV: Do you have any technologies applicable to the emerging Smart Energy arena?

DK: The technology behind Inrix is focused on "machine learning" and has been applied in areas ranging from anti-spam to traffic (Inrix) where there are repetitive and predictable outcomes. It's entirely possible that the same technology could be applied into Smart Energy. In addition, a Utility could use a technology that we call "Zone Zoom" that would allow a utility to drill down on problem areas on the grid. We have also done work in battery cell technologies.

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