Local sustainability of IP-centered industries

By

Alève Mine

Let us investigate the implementability and implications of the pledge: “I’ll structure my ventures so as to keep local IP’s and local resources’ returns local.”

By IP-centered industries I mean high-budget and with delayed uncertain returns, in tech as well as creative areas. Presumably in most countries, just like in Switzerland, local projects and talent are, along with their intellectual property, systematically acquired by foreign investors. Let me know of any exceptions.

You may wonder why I care. It is because I work in forms of art that make use of technology, and I think of the tech used for creative work as, well, instrumental in the shape of the result, and both aspects are loaded with IP. Furthermore, my projects and work tend to be more appropriate for global than local markets, while I am in a region that is touched by this issue. Meaning: this touches me as well as my projects quite directly indeed. Not to mention that I’ve introduced the above as part of the pledge of the VR meetup I lead. Be it only because of this fact, I must at least attempt to find out to which extent, or how systematically, it is possible to implement that pledge in practical terms.

That having been clarified, let us look into the subject matter. The causes and exacerbators are:

• a low risk-appetite of local investors;
• local cultural value of modesty;
• international relations constraints;
• successful image of a very few industry epicenters worldwide as the-place-to-be-and-sell (and buy: I hear that the few local investors who are ready to take risks do it abroad, although that should add further risk);
• for comparable startups, valuations may apparently be up to about 4-fold higher in these epicenters than elsewhere;
• the lack of an applied method for internationally/interregionally fair sharing of intellectual property in corporate transations.

The consequences are:

• a higher dependency on foreign goodwill: the willingness of the acquirers to keep local branch offices;
• and a lack of leverage: no participation in revenue upside. In other words: a growth roadblock.

Arguments against seeing this as something that needs to change are – along with counterarguments:

• if the local region is nevertheless innovative, that is not an issue – it is if the innovation, often financed via local education, research and development funds, immediately leaves local hands;
• the owners, and for that sake the production, may be foreign, but the engineering / creative part is local – possibly originally, but not currently then;
• foreign companies create local jobs – which can be removed at any point, without any income inertia that would come from IP returns. This raises dependency;
• it is nationalism (regionalism) – quite to the contrary, this aims for fair collaboration and an “exportable” concept;
• talent with global understanding is missing locally – there exists local talent with international origins or experience, and steps can be taken to encourage the acquisition of such experience as well as languages early in life;
• the local market is too small to invest in – this is a fallacy: the market is fundamentally global.

The questions that remain open are:

• Which risks would overcoming this issue create? How would that change local dynamics specifically in each region?
• What are the alternatives? To which area would that move the economic competition? To attracting and retaining talent, with tax cuts for employees instead of employers? Or a dismantling of IP administration organisations and the return to a production-centered, material imports-dependent economy?
• What should and shouldn’t governments do in this regard, and how can they strategically manage their international relations in order to keep a certain degree of self-determination in the long term?

Answers are welcome. Meanwhile, let us look for a method that would enable reasonable IP ownership distribution in transactions.

So. An equitable matching is sought between territories, whereby the distribution of the attributes below as relating to the creation of IP and of value in general is the reference. Matching can be sought on a per-business, per-industry or other grouping basis, and specific reasons to pick the one over the other arrangement should be determined.

For each person and entity that invests or manages, here some attributes:

• Keyness: dependency of this enterprise and other businesses on this person / entity;
• Territory: geographical region of impact, to be determined for each Impact;
• Impact: impact categories (tax, economy (essentially where and how much of what they consume or sell), environment, society, risk), types and extents thereof;
• Strategic motility and agility: likelihood and probable speed of change of K, T, I, M;
• Management decision power: decisional power in this enterprise and other businesses (depends on position and percentage of ownership).

For the attributes above, a new target distribution is to be determined at each new

• valuation,
• reporting period (keeping in mind that depreciation of intangibles apparently tends to be larger near write-off) and/or
• planned HR change

to balance out the risks and impacts

• at that time,
• with a new hire or
• after the next fundraising

due to an

• investors- or
• Human Resources restructuring.

This means that potential investors and managers or majority shareholders would be screened out of candidates on that basis, and a process to push sales and purchases by the then qualified people or entities is in question, possibly changing the dilution of shares, depending on how much of a delta (between ideal and actual) is tolerated and on the criteria by which any compensation to make up for past untouched delta is considered.

Needless to say that implementing this in private transactions or on stock exchanges is hardly feasible. Not to mention that it greatly limits businesses and administrations. In that sense, the above merely offers some things to cogitate about.

A bit more risk-taking in local investments may be an easier way to go after all. Who would have thought.

I welcome your reactions, proposals, and live and other focused discussion platforms you’d make available to dive into this together and re-emerge with solutions.

Alève Mine

(photo by Magda Nowak and Leszek Andzel)

“Science fiction author: “The Premise“. EPFL MSc. in microengineering: robotics, nanotech and more. The only multilingual female scifi/action actor and director with serious martial arts experience to whom the above applies. Founder and lead of the Zurich VR/AR meetup group. Speaker for scifi, and further for the arts in a tech framework. www.alevemine.com“