IBM opens patent library, woos startups

IBM last week unveiled a cross-licensing program that would provide venture-backed companies with access to the entire IBM patent library.

The program has two different tracks, depending on annual revenue of the participating company. Companies with less than $10 million in annual revenue will pay $25,000 for a three-year cross-licensing contract, while companies above the $10 million threshold will receive a customized five-year cross-licensing deal in exchange for 1% of royalties. Companies will express interest through their venture capitalists, with IBM making decisions on a company-by-company basis.

“We formed a VC advisory council in late August, and asked them to think about what type of program would help us foster collaboration with their portfolio companies,” says Claudia Fan Munce, managing director of IBM’s venture capital group. “IBM has over $1 billion in annual licensing revenue, so we really were looking for ways to forge future partnerships, more than ways to make money today.”

If the IBM Ventures in Collaboration program sounds familiar, it might be because Microsoft Corp. launched a similar endeavor this year called Microsoft IP Ventures. There are, however, several differences between the two programs. First, IBM is opening up its entire patent portfolio to participating companies, whereas Microsoft opened up just a handful of technologies and signed patent-specific contracts. Second, Microsoft takes up to 30% equity stakes in participating companies, whereas IBM will not take any equity.

On the flip side, IBM is forming cross-licensing agreements, which means that IBM will have access to VC-backed company intellectual property over three or five years.

“This is great for IBM, but it is very difficult for a startup to decide that it wants to share its current and future IP,” says Venky Ganesan, a managing director with Globespan Capital Partners. “It will work for certain companies, and not for others.”

IBM will soon open the program up to more than 100 IBM “VC partner firms,” but also will simultaneously run test cases with members of its seven-member VC advisory board. Board members include 3i Group, Accel Partners, Darby Overseas Investments, Draper Fisher Jurvetson, Hummer Winblad Venture Partners, U.S. Venture Partners and Walden International.

IBM does not yet have an estimate for how many companies will participate on an annual basis.