Ownership and Governance models in FP7 projects

Daniel Field
Internet of Services Collaboration event, Brussels

17/10/2012

Agenda

17/10/2012 Daniel Field

Introduction & Synopsis The role of an ownership and governance model in project exploitation The Baseline: Grant Agreement and Consortium Agreement 6 standard ownership models 3 standard governance models How to identify the right one(s) for your project Examples Conclusion

Introduction
About me

17/10/2012 Daniel Field

Business Consultant at Atos Spain, 5 years experience working in R&D Focused mainly on IoS: Cloud, software engineering, Grid etc. Chair of exploitation workshop in 2011 IoS meeting Heading a team of business analysts working in exploitation, involved directly or indirectly with more than 15 R&D projects ranging from large IPs to CSAs

About this work

Techniques developed over course of many projects (SMARTLM, Cloud4SOA, Aladdin, etc.) Recently formalized during the sustainability analysis for the BonFIRE project (IP in the obj. 1.7 (FIRE) unit). Acknowledgements to co-authors in BonFIRE: Kostas Kavoussanakis (EPCC); Michael Boniface (IT Innovation); John Barr (the 451 Group), Carmelo Ragusa (SAP), Frederick Gittler (HP).

The synopsis:

17/10/2012 Daniel Field

Exploitation uses a business model to generate value from IPR which is generated and claimed by partners. Exploitation needs a business model, an ownership model and a governance model. Certain combinations of these three models are untenable The basic options and process for determining these are common to all projects.
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The synopsis

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+
Business Model

A lot of practice

Whitepaper

A bit of theory

Knowledge sharing

The role of ownership and governance models

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Project Idea

Market Analysis

Business Modelling

Feasibility Analysis

Business plan

Exploitation

The role of ownership and governance models

17/10/2012 Daniel Field

Project Idea
Technical results & innovation

Market Analysis
Partners Business models

Business Modelling

Feasibility Analysis
Existing Synergies Ownership & IPR Governance

Business plan

Exploitation

Ownership and Governance

Ownership model:

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Essentially: WHO gets WHAT.

Governance model:

Essentially: How to manage the joint exploitation

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The legal Baseline:

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From experience, in many projects the consortium is left with the following issue to resolve:

Foreground is owned by the partner that generated it.

but
How to breakdown the foreground and how to quantify the generating work is left unspecified.
Which means consortia must tackle this issue internally. Failure to address this issue will result in uncertainty over the right to exploit the results and prevent further investment.
Disclaimer: Not professional legal advice. Consortia should consult their own legal experts to interpret the relevant agreements.

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6 models for ownership

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Six standard Ownership models

Models to distribute ownership

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1. Lines of Code The partner that wrote the code owns the asset. Joint ownership is assigned according to lines of code. Easy to implement Grounded in Grant Agreement legal framework Open to manipulation and deliberate code inflation Penalises efficient programmers over inefficient code writers

Disregards other inputs: requirements specification, design, testing, review etc.

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Six standard Ownership models

Models to distribute ownership

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2. Technical Input All technical input (requirements, design, programming, review, testing) are summed to give contributions Fairer definition of generating work. Grounded in Grant Agreement legal framework. Absence of objective and quantifiable measures of input. Subjective decision required to weight different types of input.

Beyond the largest level of granularity this process becomes excessively complex.
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Six standard Ownership models

Models to distribute ownership

17/10/2012 Daniel Field

3. Non-technical Input Here one selects a proxy for technical input choosing from: time-input (e.g. MM) or financial input (funding, own investment, cost) and potentially also including weightings of different activities Simple, fair, objective and quantifiable Grounded in Grant Agreement legal framework. Issues in practice: Are specialist hours equivalent to nonspecialist hours? Do we penalise efficient organisations for having a low overhead? Again complexity can be the killer if asset granularity is too fine.
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Six standard Ownership models

Models to distribute ownership

17/10/2012 Daniel Field

These three models can be termed Bottom-up. They start with an agreement on how to do it, and then see what the result is. However: the result may not be ideal for exploitation: Assets may be co-owned by partners with wildly different exploitation paths Multiple owners of assets can lead to profit sharing and a disincentive for further investment Dominant ownership of key assets by one partner may result in them becoming kingmaker (or demanding a kings ransom).

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Six standard Ownership models

Models to distribute ownership

17/10/2012 Daniel Field

An alternative approach is based on deciding on the desired outcome and working backwards to see what agreement the partners must reach. We can term these top-down. We propose three top-down approaches

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Six standard Ownership models

Models to distribute ownership

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4. Musketeer Model
Here all partners effectively become full owners of all assets regardless of input - with the right to act independently of each other.
No need to negotiate with other partners to deliver the full value chain. No need to share profits, increasing ROI of further investment. Collaboration is based on capabilities not IPR leading to more synergic joint ventures. A level playing field Legal and bureaucratic barriers are minimised. Some partners may be left marginalised due to their profile Partners could compete on identical basis if exploitation contract does not prevent this. Not grounded in Grant Agreement legal framework requires additional contract.
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Six standard Ownership models

Models to distribute ownership

17/10/2012 Daniel Field

5. Mutual Granting of Access Rights

This has a similar effect as the musketeer model, but falls short of providing ownership (merely access rights). Advantages as per the Musketeer model, plus: Contractually simpler due to no transfer of ownership Disadvantages as per the Musketeer model, plus: Partners cannot relicense work generated by other partners Is actually superimposed on another ownership model as only the original owners can 1) grant the access rights and 2. have the right to sublicense the asset.

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Six standard Ownership models

Models to distribute ownership

17/10/2012 Daniel Field

6. Open Source free-for-all

This works similarly to the previous model, but effectively extending the access rights to the public through a permissive open source schema. Advantages as per the Musketeer model, plus: Very simple to set up due to no transfer of ownership Opens up the consortium to competition from outsiders (possibly with existing capacity (provider or client networks for example). As per the previous model, it s actually superimposed on another ownership model as 1) OS software still has an owner although intraconsortium negotiation should be easy as ownership has little benefit.

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Three standard governance models

Buyer-seller supply chain

Joint Venture

New legal entity

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Three standard governance models

1. New legal entity

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A new company is set up with participating consortium members as shareholders

Strong central management Strong hierarchy leads to efficiency and agility Bureacratically and legally challenging to set up Requires up front investment for salaries and offices, branding etc.

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Three standard governance models

2. Joint venture

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A participating consortium members form an official venture to continue collaborating, short of a new legal entitiy but acting with some autonomy relative to parent organisations Shared benefits, risks Flexibility Low initial investment Hierarchy can be strong conferring benefit of new legal entity Easy exit route for partners can lead to instability Can require quorum on key decisons Difficulties aligning JV strategy with partners Profit sharing mechanism not clear

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Three standard governance models

3. Supply Chain

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Consortium participants interact as per standard buyer-seller relationships, each providing a product or service in return for a fee (business as usual). Low initial investment Bureaucratically easy All partners incentivized to remain competitive Responsibility and profit sharing clear Underperforming partners can be swapped for competitors Without central control the overall value chain may not be optimised With too many links the chain will become unwieldy. Where switching costs are high, profits may be absorbed by a dominant partner Will favour some partners over others.

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Assessing combinations of the models

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Choosing a model

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We suggest that choosing the right model for ownership and governance are decisions which must include the business model. Some combinations simply will not work.

Business Model
We must analyse each potential combination in the context of the project

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Choosing a model

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Combining a Supply Chain with our ownership models The supply chain is based on each partner fulfilling a role in the value chain. Under top-down models this is not necessary as any partner can provide the full value chain. With bottom-up models, each partner has a role protected by their ownership of the assets required.

In the former, partnership is based on capabalitiy synergy. In the latter, there are risks relating to the bargaining power of partners and the complexity of the chain (dependent on the number of partners.

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Choosing a model

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Combining a new legal entity or joint venture with our ownership models Top-Down

The top-down models potentially provide all partners with all assets so collaboration is not required to gain control of the value chain: any partner could do so Again any partnership is based on capability synergies

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Choosing a model

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Combining a new legal entity or joint venture with our ownership models In a new legal entity IPR is either transferred or licensed to the new legal entitiy by the owners
All partners are in the NLE/JV & transfer Ownership All partners are in the NLE/JV but merely transfer access rights

Bottom up approaches

All partners are in the NLE/JV but only some transfer ownership (others license)
At least one co-owner of each asset is in the NLE/JV and can license or grant access rights Few partners are in and not all assets are covered

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Choosing a model

17/10/2012 Daniel Field

Combining a new legal entity or joint venture with our ownership models bottom-up
All partners are in the NLE/JV & transfer Ownership
All partners are in the NLE/JV but merely transfer access rights All partners are in the NLE/JV but only some transfer ownership (others license)

Not practical for large consortia

IPR simple but NLE/JV is weak without assets Difficulties in valuing assets Fewer partners aids agility but profit may leak to other owners More manageable but weakened company*
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At least one co-owner of each asset is in the NLE/JV and can license or grant access rights
Few partners are in and not all assets are covered

Choosing a model
- example results of the first stage analysis
New legal entity and joint venture Individual ownership Musketeer model Mutual Granting of Access rights Open Source model
Supply chain Individual ownership Musketeer model Mutual Granting of Access rights Open Source model

17/10/2012 Daniel Field

Viability

*
Viability

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Choosing a model
- Combination with the business model

17/10/2012 Daniel Field

Questions to be asked for each business model include (inter-alia): Level of capital investment required. Level of operating investment. Value of the IPR transferred or in use, its uniqueness, resale value and exclusivity. Specific partners required (competencies, asset owners, etc.). Legal & bureaucratic hurdles Complexity of the system and differing partner objectives. The bargaining power of the endeavour (or supply chain link). Potential income & income distribution for each governance model The potential competition to each business model.

By its nature this is very project specific

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Choosing a model
- Final outcome
Taking Ownership and Governance into consideration as part of the exploitation roadmap will: Allow the project to design an ownership structure adequate for the intended exploitation Eliminate theoretically promising business models which are impractical at an early stage. Give direction to the project regarding establishing the governance structure and morphing the project to that structure.
Governance and Ownership model

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Possible Business Models

New Legal Entity Bottom-up ownership Musketeer model Mutual Granting of Access rights Open Source model Joint Venture Bottom-up ownership Musketeer model Mutual Granting of Access rights Open Source model Supply chain Bottom-up ownership Musketeer model Mutual Granting of Access rights Open Source model

N/A N/A N/A N/A

N/A N/A N/A N/A

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BM #n

BM #1

BM #2

BM #3

BM #4

Examples
Pioneered musketeer model

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Bottom-up Joint Venture Has used this process to identify 4 possible combinations (from 60)
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Open Source, mix Alliance + supply chain

Conclusions

17/10/2012 Daniel Field

Ownership and Governance are aspects which should be tackled early in exploitation. A number of Ownership and Governance models exist and are well known.

Ownership, Governance and Business models must be complementary.

Exploitation plans should not merely describe possible models but focus on analysing the feasibility of combinations Such analysis will shed light on the practical options open to the project A free whitepaper describing the options and process in detail is available.

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Further reading

17/10/2012 Daniel Field

This powerpoint and the whitepaper are available free (CC-BY-NC) at: Dropbox:
https://dl.dropbox.com/u/43532760/WHITEPAPER%20%20Ownership%20and%20governance%20models%20in%20collaborative%20I T%20projects%20-V10%20Oct%202012.pdf

IoS Agenda page

http://ec.europa.eu/information_society/events/cf/ios12/streamitems.cfm?id=184&parent=8728

Scribd: http://www.scribd.com/doc/110190223 http://www.scribd.com/Field_Daniel

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Thank you

Atos, the Atos logo, Atos Consulting, Atos Worldline, Atos Sphere, Atos Cloud and Atos WorldGrid are registered trademarks of Atos SA. June 2011 2011 Atos. Confidential information owned by Atos, to be used by the recipient only. This document, or any part of it, may not be reproduced, copied, circulated and/or distributed nor quoted without prior written approval from Atos.

17/10/2012

License terms

17/10/2012 Daniel Field

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Under the following conditions: Attribution You must attribute the work in the manner specified by the author or licensor (but not in any way that suggests that they endorse you or your use of the work). Noncommercial You may not use this work for commercial purposes.

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