The (strategic) implication of the shift in the value of patents from defence to offence and the lessons for leadership for AI thinking.

Overview

The role of patents has evolved significantly since the 1950s, shifting from protecting individual innovations to serving as strategic defensive tools. Companies began building large patent portfolios to deter lawsuits and enable cross-licensing, introducing the concept of “mutually assured destruction” in patent litigation. The 1990s saw the rise of “patent trolls” and increased use of patents for licensing revenue.

Directions are often hidden until they are obvious.

Simultaneously, a parallel shift occurred in business acquisitions. The idea that small startups could acquire larger companies primarily for their customer base gained traction during the dot-com boom and has been reinvigorated by digital business models and data-driven strategies.

Intentions can be unclear until they are obvious.

Looking ahead, #AI could accelerate this trend, potentially changing acquisition dynamics across various sectors. AI will broaden this trend from vertical industries to a sector-wide phenomenon, reshaping traditional business acquisition models and blurring lines between startups and established corporations in the race for market dominance.

Can we learn from the obvious?

The shift in the role of patents from protecting individual innovations to serving as a broader defensive tool through portfolios occurred gradually.

The 1950s-1980 saw industries like pharmaceuticals, electronics, and software began to grow rapidly after World War II; companies increasingly recognised that holding multiple patents across a range of innovations provided a competitive edge. In particular, tech companies realized that a large portfolio of patents could prevent competitors from challenging their products, even if they held similar technologies.

During the 1980s, companies in industries like semiconductors, telecom, and electronics (e.g., IBM, AT&T) started building large patent portfolios as a form of strategic defense. Rather than using patents solely to protect innovation, they used them to deter lawsuits by competitors. If one company sued another, the target could counter with its own patents, making litigation riskier and more expensive for both parties. I know I got embroiled in this mess.

The concept of "mutually assured destruction" (MAD) in patent litigation started to emerge. This meant that companies with large portfolios could cross-license with competitors or negotiate favourable settlements.

Then came the Patent Trolls and Licensing Models in the 1990s. With the rise of the "patent troll" (non-practising entities that acquire patents not to use them for innovation but to sue companies for infringement), the importance of defensive patent portfolios increased. Companies needed to build large patent portfolios not only to innovate but also to defend themselves from these non-practising entities.

In the same period as the trolls, Microsoft and other tech companies began heavily using patents to license technology to others, turning their portfolios into a significant source of revenue. As software and technology patents became more valuable, the emphasis shifted from protection to defence and monetization.

Post 2000, companies started accumulating international patents to protect their products across various markets. This was particularly true in high-tech sectors like telecommunications, where standards (e.g., 4G, 5G) required cross-licensing among competitors. Companies like Qualcomm and IBM became leaders in building patent portfolios to license their technology and to create leverage in negotiations. This created the Patent Wars in Tech

High-profile patent litigation between tech giants (e.g., Apple vs. Samsung, Google vs. Oracle) showcased how patents had become tools for waging corporate warfare. These battles were often less about protecting individual innovations and more about blocking competitors, gaining market share, or negotiating favourable settlements. So completed a shift from defence to offence.

Anyone outside of the patent world did not really notice this shift. However, the same journey has been emerging, and AI is about to accelerate a trend that has been a growing threat since the dawn of digital-first businesses. When the small start-up is not the acquired but the acquirer.

the small start-up is not the acquired but the acquirer.

The idea that small companies or startups could acquire larger companies primarily for their customer base started to gain traction during the dot-com boom of the late 1990s and early 2000s, and it came back into many funders' thinking as a real possibility with the rise of digital business models and data-driven strategies in the 2010s, but with AI, it looks like its timing may have arrived.

The rise of internet-based businesses introduced the notion that users or customers could be as valuable as the products themselves. Startups in this era, especially in tech, began emphasizing rapid user acquisition as a way to attract investment or to enhance their value in mergers and acquisitions. Some smaller, fast-growing internet companies acquired others during this period, not for their physical assets or infrastructure but for their customer base and market reach.

As the digital economy matured, particularly with the rise of social media and online services, user data became a crucial asset, driven by the desire for viral growth and user data. Investors realised that acquiring an existing customer base could jump-start their growth. This period saw the increasing importance of "network effects", where the value of a service increases as more people use it.

Enter big data,?and analytics became more central to business strategies, especially in tech and retail. The ability to extract value from customer relationships, purchasing behaviour, and engagement data became a core competitive advantage. Smaller, tech-savvy firms could leverage this data better than older, larger companies.?

Then came the early signs of teh shift as tech startups could acquire large customer bases from more traditional or slower-moving companies driven by the rise of platform-based business models. Tech startups began targeting acquisitions of larger firms with established customer bases to integrate and scale their own platforms quickly.

FinTech and digital banking are on the cusp of changing everything. Smaller, more agile companies are beginning to see larger firms as opportunities for customer acquisition rather than traditional mergers. These deals are focussing on integrating a customer base into digital-first platforms.

Lessons and Questions for Leadership

Artificial intelligence could accelerate this trend, potentially changing acquisition dynamics across various sectors. As we move forward, AI will broaden this trend from vertical industries to a sector-wide phenomenon, reshaping traditional business acquisition models and blurring lines between startups and established corporations in the race for market dominance.

is AI about to change this from thinking in a vertical to sector wide.

The question for leadership is: Do you think AI is about to change your sector's positional strengths??