Baseball Book Spurs Microsoft Patent Model

IDG News Service — Microsoft's Intellectual Property Group is building a financial model designed to value and predict prices for technology patents, allowing the company to better forecast and budget for intellectual property-related costs -- all inspired by a best-selling book about baseball.

Infringing a patent owned by another company can be extremely costly, as Microsoft discovered in 2007 when a jury ruled that Microsoft infringed on MP3-related patents owned by Alcatel-Lucent and awarded US$1.5 billion in damages. That ruling was thrown out on appeal and the two companies later reached a settlement that resolved all patent litigation between them. But the case underscores the significant expense and high level of uncertainty, and therefore risk, that technology companies face when fighting over intellectual property.

When it comes to mitigating this risk, companies have several tools at their disposal. They can develop their own technology and file a patent to protect it, they can buy an existing patent, or they can license a patent from a third party. The pricing model is designed to help Microsoft managers determine which one of these options is the most effective choice.

"If you're going to do that, you need to reduce those options to economic units that you can compare with each other, so you can do an apples-to-apples comparison," said Horacio Gutierrez, the corporate vice president of Microsoft's Intellectual Property Group, during an interview in Singapore.

"This is where we get really funky and we have all of our finance people totally excited that we're looking at the business of IP in a way that can be analyzed in the context of a financial structure," he said.

For Gutierrez, who formerly served as Microsoft's associate general counsel in Europe and once worked in corporate finance at an investment bank, the inspiration to build a pricing model for patents sprang from an unlikely source.

"I got this idea from reading 'Moneyball,'" he said, referring to a book about baseball written by Michael Lewis, author of "Liar's Poker."

Gutierrez was inspired by the book's description of the approach used by Oakland A's General Manager Billy Beane to choose players for his team, while still operating within a limited budget.

"While everybody was going through the discussion of talent selection the way they traditionally do it, which was with the old scouts who've been around the business for 50 years or so, saying 'This kid's got a good arm,' 'He looks like a ballplayer,' and 'He's got a cannon,' and all of these qualitative things, they started to have people come in and start to crunch numbers and realized that a lot of the things they were measuring, and taking as measures of success, were the wrong things," Gutierrez said

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