Towards a frictionless IP market ? Philippe Quinio Group VP, IP - - PowerPoint PPT Presentation

Towards a frictionless IP market ?

Philippe Quinio Group VP, IP & EDA Sourcing and Strategy IP-SOC Conference, Grenoble, December 3rd, 2019

The ingredients of a well-functioning market

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Asset liquidity Trade Transparency Market Efficiency

Source: SHORTCOMINGS ON THE MARKET FOR INTELLECTUAL PROPERTY, FRAUNHOFER CENTER FOR INTERNATIONAL MANAGEMENT AND KNOWLEDGE ECONOMY, March 2016

Ability to buy and sell fast At low transaction costs What is sold and terms

• f sale are known to

market players

Real markets have friction

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Asset liquidity Trade Transparency Market Efficiency

Source: SHORTCOMINGS ON THE MARKET FOR INTELLECTUAL PROPERTY, FRAUNHOFER CENTER FOR INTERNATIONAL MANAGEMENT AND KNOWLEDGE ECONOMY, March 2016

Friction Friction

Sources of friction in real markets

• Imperfect information
• Asymmetric information
• Asset Specificity/Uniqueness
• Externalities combined with positive transaction costs
• Spillovers
• Uncertainty
• Indivisibilities (production economies of scale)
• Undefined and Poorly-Defined Property Rights

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Source: Market Frictions, Governance and Economic Rents: Taking Stock and Looking Ahead, Joseph T. Mahoney & Lihong Qian, University of Illinois at Urbana−Champaign, College of Business, 2009

Sources of friction in the Design IP market

• Imperfect information
• Asymmetric information
• Asset Specificity/Uniqueness
• Externalities combined with positive transaction costs
• Spillovers
• Uncertainty
• Indivisibilities (production economies of scale)
• Undefined and Poorly-Defined Property Rights

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Source: Market Frictions, Governance and Economic Rents: Taking Stock and Looking Ahead, Joseph T. Mahoney & Lihong Qian, University of Illinois at Urbana−Champaign, College of Business, 2009

IPs are often customized (eg Hard IPs) and become unique Concurrent engineering implies technical risks and uncertainty Large suppliers can leverage re-use

• f IP blocks, investment in validation

method and quality systems, etc. Threat of infringement claims blurs IP ownership IP buyers struggle to understand the real maturity and quality of IP designs

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IP Buyers aggregate market frictions into Sourcing Risks

Small size, family governance and potentially hostile shareholder ties implies higher risk in ability to technically support H/W and S/W deliverables throughout product life Market adoption (content ecosystem) risk higher with mkt challenger than with leader Ability to defend and indemnify ST in case

• f 3rd party IPR infringement claims is

limited by company resources and low contractual indemnity cap Ability to fix bugs in H/W and S/W deliverables throughout product life is limited by company resources and

• paque governance

Source: Assessing & Managing the IP Sourcing Risk, Ph. Quinio, DATE 2015

IP Buyers end-up making a call between sourcing risk and costs

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Aggregate sourcing risk Aggregate sourcing cost

Source: Assessing & Managing the IP Sourcing Risk, Ph. Quinio, DATE 2015

Consequences of market frictions for IP Sellers

• Small IP suppliers sometimes get disqualified by corporate IP sourcing teams due to

perceived risks

• Unless they can provide compelling evidence of IP maturity and design robustness/quality,

smaller suppliers must charge a lower price for their IPs

• Small IP suppliers should carry a strong-enough balance sheet to be able to honor

indemnification commitments

• Small IP suppliers should keep sufficient engineering resources to address unexpected IP

changes and support obligations

• Small IP suppliers must be generous with « evaluation » licenses so as to convince

customers of IP’s compliance to spec

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Towards a frictionless IP market?

• Can a web-based IP exchange platform and standard address concerns and

reduce IP market friction?

• Widely accepted IP maturity system
• Certification for IP quality and maturity
• Simple IP delivery system
• Lower transaction costs owing to mutualized services (eg. legal)
• Mutualized insurance policy backing indemnification
• More transparent specifications, prices and terms

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