Dr. Gruetzmacher
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Dr. Gruetzmacher is the Director of Intellectual Property and Licensing in DuPont´s Center for Collaborative Research and Education. During his 27-year career with DuPont, his responsibilities have included research, development, manufacturing, and marketing in the imaging products and medical diagnostic businesses. He managed DuPont´s infectious disease diagnostics research group in Boston, co-managed a food quality assurance business venture, and helped lead development of DuPont´s intellectual assets business.
He holds a B.A. degree in chemistry from Hope College, a Ph.D. from Case Western Reserve University, and was the recipient of a National Institutes of Health Postdoctoral Fellowship where he spent two years conducting research in the field of biomaterials.
Bob is a LES USA/Canada Trustee and Chairs the LESI Industrial Sectors Committee. He serves on a number of committees dealing with professional development, licensing in the chemicals and allied industries (Past Chair), intellectual asset strategy, valuation and pricing. He is one of the co-founders of ICM Gathering, a group of intellectual capital managers representing large, diverse international companies.
Licensing at DuPont
An interview with
Robert R. Gruetzmacher, Ph.D.
Q: Please describe your experience in licensing. How long have you been involved?
A: My involvement in the industry began in approximately 1989. At that time, there were about five of us assigned to start a business within DuPont´s Development Division. It involved developing a business around some core technology we had in involving DNA diagnostics, which had applications in automated systems for bacterial analysis. The initial thrust had been to attempt to take this technology and aim it at human clinical microbiology, but we decided for a number of reasons not to move in that direction. However, we thought that there might be a home for this technology in the food pathogen diagnostics business, in particular in the food processing industry. That became the basis for this venture.
Like most venture managers, each of us involved with the project took on one or more assignments. I did some of the R&D management, as well as the patenting and IP strategy work -- without knowing a whole lot about either. We had no idea at the time -- though we should have -- about the additional IP rights that would be needed to build and market an automated instrument and consumables based on the concept we had in mind. While we had an exclusive license to the core technology that formed the basis of the system, we didn´t have legal access to a number of the other technologies that were needed to make the whole system workable. This was basically a question of rights; we didn´t really need to know how to do it -- we knew, but we didn´t have the freedom to operate. So, working with our legal counsel, we identified the patents that we needed to in-license and began negotiating with the patent owners. That was my introduction to licensing.
Subsequently, I transferred out of that group and moved into the whole of DuPont´s Development Division where I managed the intellectual property and facilitated licensing-out for that organization. This organization was responsible for incubating new businesses for the company. For me, that largely involved out-licensing. Since that time, my licensing responsibility has grown. I was one of the founders of what became the DuPont Intellectual Assets Business, and recently moved to the Center for Collaborative Research, where I am trying to create broader business opportunities with universities.
Q: Have you seen a lot of changes in regards to licensing at DuPont? What were conditions like when you first got there?
A: With the exception of a healthy polyester licensing business (I´m not sure exactly when that began), licensing-out was scattered and reactive. Licensing volume varied from business to business. When someone came to DuPont requesting a license to a patent and/or know-how, it was considered on a case-by-case basis. Licensing opportunities were addressed almost as a courtesy to the party requesting the license.
...licensing was simply not part of our culture...
Proactive licensing efforts were inhibited by the fact that licensing was simply not part of our culture. There was no central organization that would help facilitate the sharing of best practices or the benefits of building and maintaining a network of potential licensees, and there was really no network inside Dupont that allowed people involved in licensing and technology transfer to communicate amongst themselves. Given that we´re a company made up of so many diverse, separate businesses, sometimes the lines of communication were brought to a halt by simply not understanding who should be contacted if a licensing issue were to arise.
Over time, this changed. Efficient networks were created -- we certainly are not at an end point, but are still progressing upwards on a curve. More of our businesses are now receptive to considering licensing as an activity that they´re willing to support. There is a lot of variation still, but the overall level of support seems to be rising. We´re working more in the direction of licensing, and are in the process of taking a closer look at our technology portfolios across a number of our businesses as an attempt to identify where there are practical licensing opportunities. This activity is a first of its kind in our company.
...the donor can take a tax deduction...
Whenever it makes sense to do so, we´re also donating intellectual property to universities. This has several benefits. It provides an outlet for undeveloped technology which is not aligned strategically with DuPont´s goals, and for one or more reasons may not be practical to license. For instance, the resources to do so may not be available. The university benefits by having access to the technology, the development of which provides a learning experience for students and a potential business opportunity that may take the form of a licensing program or a start up venture. Under certain circumstances the company, the donor, can take a tax deduction equivalent to the fair market value of the technology as determined by an outside appraiser.
Going forward, I see more and more opportunities for DuPont to license technology. We´re in the process of developing an overall strategy to facilitate licensing by helping businesses understand their inventory of technology and prioritizing what makes sense to license or leverage by other means. This program can have great benefits for Dupont; given the limited resources and costs that a licensing program entails, most pundits in this area would suggest that licensing revenue is almost like gravy, because there´s no additional capital investment in manufacturing the assets (they are already made) that are being licensed. It´s unlike traditional business, where you have manufacturing, developing, and selling costs, as well as all of the other expenses that contribute to reducing the margin. With licensing revenue, everything invested in development up to that point can be considered a sunk cost. This is not to say that there aren´t still resource and cost issues associated with licensing, especially if know-how transfer is a component of the license. In many respects there might not be a cost benefit to try and license everything -- you need to prioritize where you going to put your money and people resources.
Q: Looking at the industry, have you seen a lot of other companies undergo the same sorts of changes that Dupont has seen?
A: Of course. Most of the companies that yet2.com is associated with, either as founding members or subscribers, all began at about the same time rising up the licensing curve. Companies are at different stages -- some companies are very much at the beginning phase, others have been licensing for a number of years and it´s a key part of their business. But licensing is clearly on the rise. Let me put it this way -- I don´t know of any company that has curtailed its licensing program. Most companies are either considering licensing, trying to develop a process to kick off a licensing program, or trying to improve what they´re already doing.
Q: Can you make any generalizations by industry in terms of licensing practices?
A: It´s generally a case-by-case situation, but there are some generalizations. Licensing arises as a result of several situations. First of all, there are instances where a company´s intellectual property is being infringed. As a result of that, these companies can see an erosion of market share or revenues, often a significant threat to their business. And so, they need to attempt to coax the infringer into taking a license, and as a last resort, settle in a courtroom.
Some industries, because of the nature of their business, in addition to the crowded patent field, often need a singular platform to be operable in the global community for competing products. Companies in these industries can find themselves in a very healthy licensing environment. Some of these companies aggressively seek either likely or actual infringers who are stepping over (or are likely to step over) the line; these companies can have a very healthy business doing what we call "stick licensing." No one wants to sue for the heck of it -- these companies will try to license to these infringing parties as a way of abating infringement.
The pharmaceutical industry is very much into in-licensing...
I think that the electronics and computer industries very much fall into this category. It has almost become an operating paradigm that it is easier to take a reasonably-priced license to get the necessary freedom to operate rather than to have to deal with a possible lawsuit downstream. I should also say that in these industries, cross-licensing is a very common way to do business.
The pharmaceutical industry is very much into in-licensing, and places great importance on forming collaborative relationships with biotech and other types of companies as well as with universities. As you´re aware, the cost of developing and commercializing a new drug is enormous. It´s important for pharmaceutical companies to populate their pipe lines, which explains, in part, why collaborative relationships are enormously important.
It´s a different story in other industries. In the automotive and aerospace industries, I understand that out-licensing is a rather new concept. Some representative companies are ramping up in this area; others prefer not to or are studying the possibility. Perhaps the latter will change with time.
Now consider the chemical industry. There is certainly some straightforward patent licensing. However, if you´re talking about licensing chemical technology, you´re often talking about a combination of patent rights and know-how. In some instances, the know-how component of the license is more important than the patent rights. I´m thinking in terms of a portfolio of process technology that provides the basis of building and running an entire chemical process facility. I don´t want to diminish the importance of patent protection, but the know-how and trade secrets go a long way to get the licensee up and operating in a commercial mode. Licenses of this nature are resource heavy. This means that people resources are necessary to gather and deliver the knowledge to the licensee. A company must make the decision to deploy resources in this direction or retain them for use in other strategic areas. Most chemical companies thus are choosy as to what and how many licenses of this nature they will engage in at any given time.
Q: What do you feel marketplaces like yet2.com are able to offer to companies?
A: I don´t think all of the data is in yet, because, as I said earlier, the whole business of licensing is on a curve moving upwards. So, there are still uncertainties as to how various tools can be used effectively. However, even at this early stage, the valuable attributes of tools like yet2.com are becoming clear.
Clearly, one of the hurdles in either finding technology or proactively licensing out technology is trying to select the broadest and most cost-effective way to find potential partners, technology seekers, and owners. In most cases, when you´re licensing technology you don´t know exactly how a technology is going to perform in different and various settings. So, you, a technology owner, might believe that you have a viable innovation, perhaps protected by a patent, that has provided your firm with some decisive advantage in terms of cost savings or enhanced market share, but application outside this setting remains unclear. One doesn´t know to what extent other acquirers are going to be able to utilize the technology to their benefit.
...the premier Internet site for making matches between licensees and licensors...
This means that you have to broadly make available the knowledge that a technology is available for license. Certainly the Internet is one avenue for this to occur. And, if I had to assign one particular advantage of the Internet to this whole scheme of licensing, I would say that it allows you to broadly shop it across the widest array of potential customers with the least amount of effort. I also see an advantage if an Internet site offers selective services and tools which can help either a prospective licensee or licensor identify and evaluate the potential for a particular technology to have a fit in a company or to understand better what the marketability of a given technology might be. I think in certain instances, one could envision situations where you could at least have links off the site to other consulting services that could help clients complete deals or act as a mediator to facilitate communication between the parties.
I think the model that yet2.com needs to focus on is being the premier Internet site for making matches between licensees and licensors and extracting value through commissions. I think it is difficult to say at this point, but to the extent that the site could offer services, those services should be geared for the purpose of working with companies to accelerate the posting of solid marketable technology, either indirectly or directly -- or perhaps a service that could help facilitate communication between two parties evaluating concepts leading to a licensing deal. The effectiveness of the latter service is speculation on my part at this point. I do not think it would be a good idea if the site became a "one stop shop" for all intellectual asset management consulting services, unless these services were specifically aimed at a customer base to help them identify solid technologies to go on the site.
Q: With Dupont, you´ve completed the first deal on yet2.com´s marketplace. Do you discern any differences in deals generated online and offline?
A: The deal-making process itself was "standard" in form, which was largely due to the character of the two parties involved. In this particular case, Battelle Labs identified the availability of the technology from the site. Once that contact was made the process leading to the deal took its normal course. I think the issue here was that the match would not have been made as rapidly if it weren´t for the site. Regarding the negotiation and ultimately completing the deal, both Battelle and DuPont are well experienced at this.
Q: What can an organization do to prepare themselves to make the best use of an online marketplace like yet2.com?
A: First of all, the company must embrace the concept of licensing. If they don´t buy into the concept of leveraging their intellectual assets for value through licensing it will be difficult for them to justify engaging yet2.com. Top-down support is helpful, but not a guarantee unless lower-level managers also buy in to the concept. To be really effective, all leadership should adopt the vision that licensing will enhance the "bottom line." Some companies elect to carry out pilot studies with one or several of their business units, and pending the results, will expand the activity further.
With respect to engaging yet2.com, one must work on several fronts. Of course, the company needs to begin thinking about what it has that is licensable and of that what it is willing to license. This should be in the back of leadership´s minds before they commit to investing in a substantial licensing organization or re-deployment of resources to carry out the same. Naturally some resources will be needed to get the ball rolling. Once they sort out what assets they want to hold as core, they need to take a closer look at what is left; not core, but useful technology that they believe has a reasonable chance of finding use outside their setting. That is what should go on yet2.com. If they embrace yet2.com as a vehicle to shop technology, the firms need to set up the internal mechanics to make the process work.
The company needs to develop their own internal process to make sure that, number one, taking stock or mining of the technology takes place in a cost-effective way, that the results of these exercises are codified and cataloged for later purposes as well as forming the basis for TechPaks.
They need to develop an approval system to make sure that what they license is not contrary to the rest of the organization´s best interest. They need to have the legal people involved. They might even want finance people involved to help estimate the market opportunity of certain technologies -- it´s too early to price, but you could possibly prioritize. You need to develop the lines of communication so that when introductions come in, the yet2.com administrator can get those to the right people to give a reasonable answer in a timely manner.
As suggested earlier, the first thing that has to happen in these organizations as soon as they have embraced the concept of licensing is to begin taking stock of their existing inventory of technology to begin looking for stuff that can be leveraged externally without jeopardizing their business. Advanced players in this area will go the next step and begin looking at their core technology to try and understand how that can be leveraged in a way that wouldn´t be contrary to core interests. That sort of process is not for the faint-hearted, or beginners.
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