1.
©2022—Frédéric Le Mauff 1
Willingness-to-pay and Intellectual Property in digital
products
Frédéric LE MAUFF
Sr Corporate IP Counsel
bioMérieux
• Digital products have a specificity that shall be taken into account when designing
an IP strategy: the scale of the ecosystem and of the frequency of innovation.
• Both ecosystem and frequency of innovation are part of the Willingness-to-pay of
digital customers.
• Because of this typicity, Intellectual Property Rights (IPRs) and Contracts on IPRs
are of equal importance.
©2022—Le Mauff Frédéric
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2.
©2022—Frédéric Le Mauff 2
1. customers’ need of high frequency of innovation
Use case:
• You (company X) and your competitor market fully substitutable software products at the same price.
• None of you have patent. The only IP rights are the software copyrights.
• But you innovate rapidly.
A powerful WTP driver in software industry is the frequency of innovation. For instance:
• Gaming industry with the content and DLC cycle.
• Customer Relationship management application (CRM): to quicky adapt to intern process-
es and changing needs (for instance to track legal change or innovation in revenue stream).
• Smartphone ecosystem: to fulfil, via App Store, the ever changing customer needs.
• Any sensitive application (e.g: medical application) that shall be update very frequently for
cybersecurity issue, law and standard changes, being up-to-date of new discoveries...
• When designing an IP strategy involving digital assets, one shall always consider frequency of innova-
tion as an item of the value proposition curve, and by default as a main driver of the WTP.
• To fulfill innovation frequency need, one may use:
• R&D (IP generation side): modifying the soft-
ware and thus the IPRs.
• Complementarity (IP exploitation side): allow
third parties to develop products fulfilling this
need on the top of your own software.
• Innovation ecosystems are regulated by IPRs agree-
ments, i.e. agreements on what to share, how to
create value and how to share the created value.

3.
©2022—Frédéric Le Mauff 3
2. Ecosystem as a main driver of the WTP
Value of the company X’s software depends on an ecosystem:
• direct networking effect: the value depends on the number
of its users.
• indirect networking effect: the value depends on the number
of independent entities complementing or supplementing
your software.
Ecosystem are often an important driver of the customers’ WTP:
• Without an appropriate ecosystem density, customers often
do not “buy” a software product.
• Many companies locks the ecosystem through IPRs.
• Do not “forget” this item of the value proposition when de-
signing an IP strategy.

4.
©2022—Frédéric Le Mauff 4
Use case:
• You (company X) and your competitor market fully substitutable software products at the same price.
• None of you have patent. The only IP rights are the software copyrights.
• But you have an ecosystem.
Value of the company X’s software depends on an ecosystem:
• direct networking effect: the value depends on the number of its users.
• indirect networking effect: the value depends on the number of independent enti-
ties complementing or supplementing your software.
• Apple locks in the ecosystem by specific IPRs provisions.
• Member of the ecosystem shall use the IPRs to be part of it.
• Other famous examples: Microsoft Windows, Salesforce , Sony PlayStation,
Windows Xbox ecosystems.
3. Scope of an Intellectual Property Right
• Even if the competitor market an equivalent OS , it cannot enter the ecosys-
tem since it does not use Company X’s IPRs.
• IPRs license is not the only way to lock in an ecosystem.
• The mere existence of an active community is also a powerful lock.
• Basically, software development in the world does not exist without the
Stackoverflow ecosystem ... and at this stage no alternative offer can suc-
ceed in replacing this software service (in left, actual famous meme from
developer community).

5.
©2022—Frédéric Le Mauff 5
The Willingness-to-pay scope of an IPR comprises two components:
• the exclusive scope: the ability of an IPR to protect, directly or indirectly, the WTP by using IP mono-
poles. Using IPRs excludes from market by infringement action.
• the inclusive scope: the ability of an IPR to monopolize an ecosystem. Not using the IPRs excludes
from the ecosystem. The corresponding customers/users segment is thus not accessible to competitors.
The IPRs are used to set the rules that are to be followed by any entity part of an ecosystem.
• Users/customers may be divided in un-substitutable ecosystems (e.g. Apple vs Android).
• In un-substitutable ecosystems, the IPRs may organize monopoles, including in areas where they are not pre-
sent.
In software business, scope of IPRs are often larger than their mere ability to exclude competitors.
Applications “gravitate” around iOS:
• Some does not comprise any part
of iOS (at the exception of APIs)
and thus may not embed any OS
copyright (IPRs exception for
APIs). But a user can only use the
applications if and only if he/her
uses iOS .
• Other applications embed OS cop-
yright, in particular copyrighted
libraries, and are in direct depend-
ance of iOS copyrights.

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©2022—Frédéric Le Mauff 6
The WTP scope of innovation contracts is also composed of two components:
• an exclusive scope relating on the exclusivity of the generated IP
• an inclusive scope when exploitation of innovation is done in and for the ecosystem.
Main categories of innovation:
• close innovation : the whole PI is generated internally and exploitation controls
very tightly the IP exclusivity.
• cluster innovation: IP from third parties are used to create products and services
and exploitation controls very tightly the IP exclusivity. The most use type of innovation:
use of open source components, development outsourcing, partnerships with IP exclu-
sivity,...
• network innovation : IP from third parties are used to create products and services. The created IP is
shared with the ecosystem. Well-known example: Linux OS development under GNU GPL V2 license,
Depending on the level of exclusivity and contract typology, divers typologies of innovation emerge.
The “inclusive property” is linked to common goods and buddle of rights. The owner “gives” a com-
munity rights over an object of property (generally access and management rights) and the commu-
nity organizes itself to manage this object as a common good. Rise of inclusive property coincides
with free software development, software development communities and software user communi-
ties. Some big techs decided it was more efficient to use inclusive property than exclusive property to support
innovation, such as Google with its TensorFlow artificial intelligence toolbox. Other famous example: competi-
tors pooling patents, Open data directive or EU Data governance Act...

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©2022—Frédéric Le Mauff 7
4. Interim review
The complete full picture useful to design IP strategies in digital thus comprises the following parame-
ters, of equal importance:
• 5 stock parameters: patents, copyrights, trade-secrets, industrial designs and trademarks. They are
related to management of static driver of WTP through license to use existing IPRs.
• 2 flow parameters managed by innovation contracts: R&D innovation contracts and exploitation in-
novation contracts. They are related to management of dynamic driver of WTP (frequency of innova-
tion, ecosystems).

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©2022—Frédéric Le Mauff 8
5. Exclusivity by Resource costs
Use case: You cousin Didier have some cash and has identified three software markets in which investing. Which
piece of advice can you give him?
The OS and the Diabetes application are out of Didier’s league!
• Developing an independent OS requires tremendous resources, almost infinite from a market standpoint as
the war on Android between USA and China showed.
• Cluci-Chek is a medical application, thus heavily regulated, which requires specific firm capabilities. For
startups and SMEs, the resources are very high, explaining why a lot of medical startups look for M&A.
• When designing an IP strategy, one shall contextualize IPRs: they are one imitation barrier amongst multiple
barriers: R&D, HR resources, mandatory firm capabilities to support the value chain, procurement and distri-
bution channels,...
• Regarding R&D in software development, the concept of critical mass and source code optimization are key.
RESOURCE COSTS: cost of marketing an equivalent solution that does not infringe IPRs or
breach ecosystem contracts.
• Once a software has a source code critical mass, has been heavily debugged and optimized,
developing a free-to-operate alternative software is highly costly.
• In most circumstances, as a competitor, a better way is to get a license and position oneself
as a complementor/supplementer.
• The resource costs are often as important as IPRs to guarantee market exclusivity.
• Likewise, setting up an efficient innovation ecosystem may be very costly: “war on talents”
is one example.

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©2022—Frédéric Le Mauff 9
5. Illustration
Use case: Customer relationship management application (CRM).
A. Current situation
• company X develops, distributes and sales a cloud-based SaaS CRM solution.
• company X has an extensive Intellectual Property strategy based on three folds:
• close core assets: the source code of the CRM “engine” is kept secret.
• extensive patenting policy: any invention from its internal R&D is protected.
• a lot of trade secrets relating to optimization of the CRM.
• a powerful image protected by trademark and copyright on logos.
• company X has an active community users, which developed a collective intelligence around the CRM (many
contents on the Internet, notably through fora, Q&A, blogs,...). The users also express their needs frequently
to company X.
• the main drivers in WTP are :
• easiness to use: the menu, interface and processes carried out by the CRM are great and ease everyday
life of customers.
• the CRM is easy to set up in many customer's Information ecosystems. Plus it is highly adaptable to cus-
tomers’ internal processes.
• CRM price is set higher than traditional CRM because of high resource costs of R&D and exploitation (private
cloud infrastructure).
B. Shift in the WTP
• one of the rapidly rising drivers of the WTP is frequency of innovation. Indeed, legal framework is rapidly
moving (GDPR, Data Act...) and marketing departments propose brand new revenue equations the CRM shall
manage.
• company X’s and its competitors are engaged in this area but company X is behind its competitor.
C. Reaction of company X
• C-suites want to explore a more open innovation ecosystem based on its strong user community.
• They ask the IP department the consequences on IPRs.

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©2022—Frédéric Le Mauff 10
Gap 3 exists because of the active user
community.
• the direct network effect is mainly sup-
ported by collective intelligence around
the CRM. No particular contract for man-
aging this effect, except trademark and
copyrights on the graphical chart to keep
consistency on internet.
• No indirect network effect as company X
is the sole developer on its solution.
• Resource costs for competitors to set up
such an active user community is already
high.
A. Review of the current situation
Gap 4 : innovation is mostly sustained by intern R&D, and is thus exclusive and subjected to company X innova-
tion cycles. R&D contracts are here optimal for this type of innovation ecosystem (employee contracts). Since
the R&D is not efficient enough per se, whatever the optimality of contract, the final scope is weak.
Gaps 1 and 2: scope of IPRs and innovation contracts are optimal according the market (ground truth: no com-
petitors succeeded in doing as well as company X). High exclusive scope but low inclusive scope (user communi-
ty with no particular innovation contract managing the flow of innovation).
B. Projected situation
Gap 3
• Indirect network effect: sufficient IPRs to open for development and/or complementation. The IP depart-
ment expects a tight control of the ecosystem on that item through IPRs and specific contracts on IPRs to sus-
tain rise of inclusive scope.
• Direct network effect: if company wants to rise this effect, in particular by enabling direct interactions of us-
er in the software itself (intermediation feature), the IP department is ready to propose contracts to protect
user interactions.
Gap 4
• C-Suites want to open innovation by adopting an ecosystem of the network type, in which open innova-
tion is done based on a fully proprietary close core asset.
• For the IP department, it implies:
• doing an audit to figure out which may be the IPRs scope regarding the open part and the close core,
and identifying frictions (e.g. intern license regime on a component incompatible with opening this
component to the ecosystem);
• picking the contracts with the ecosystem to achieve what company X wants in terms in IP in-flow and
out-flow, in particular regarding the level of exclusivity, the level of freedom-to-operate of the new
developments,...
• regarding the ownership of new developments, the IP department may organize the transfer from the
ecosystem to company X. But if the exclusive scope of IPRs contracts raises substantially, the ecosys-
tem may disagree on this terms, which may in turn substantially block the inclusive scope.
• IP department understands that C-suites favour inclusive scope over exclusive scope for new develop-
ment. The IP department proposes (among other scenarii) the following pattern.

11.
©2022—Frédéric Le Mauff 11
• Linux community is certainly the most well-known and the most efficient innovation community.
• Red Hat markets a industrial version of the FEDORA project developed under GNU GPL V2 by the commu-
nity. An important task of RedHat is industrializing best innovations from community while still doing in-
ternal R&D.
This model of innovation shall be adapted to a close core. Part of the close core becomes open.
• Company X will have to “give” the community the mandatory tools for software development: pieces of the
CRM for interoperability, libraries, software development environment...
• The piece of software developed by the community is likely to embed third party components, in particular
open source components. The final legal regime of the new pieces of software shall be compatible with com-
pany X license policy. In particular re-coding and component replacement is likely necessary.
• Company X shall have the freedom to operate the new developments while proposing a win-win position to
the community, in particular complementors.

12.
©2022—Frédéric Le Mauff 12
For illustration purpose, the author proposes the following scenario among other possible scenarii: a tri-
ple license framework.
A. Software Development Kit license: any one may use company X’s material for development pur-
pose. Commercial use forbidden but no other use restriction. The material is available for down-
loading on a Github with the license.
B. A dual licensing for redistribution of the company X material embedded in new developed soft-
ware. The developers has the choice between:
i. a “free” redistribution under “Server Side Public License” like license with the goal of any
development be in open source and free to operate for any one, and thus for Company X.
SSPL license is a hard copyleft license that contaminates any piece of code and contains the
mandatory patent and Trademark license.
• Only internal use of development mutes this license.
• Any other use obliges the developers to “transfer” the developments to the community
with all the right attached thereto.
ii. a commercial license with the goal of enabling complementors to generate their own exclu-
sivity on their developments while guaranteeing ecosystem rise. This commercial license
comprises:
• license to use any IPRs scoping company X’s material
• obligation to “transfer” to the community the development of company X’s material to
sustain ecosystem consistency over time.
• obligation to use the company X’s e-store to market the developments.
• no other obligation whatsoever.
• Complementors are expected to have a close approach to protect their business.
• The main bet lies in the customers’ behavior: will they embrace community development and “give back”
to the community a sufficient amount of development.
• high likelihood for developments around easiness because it is very incremental
• real wonder regarding other topics for which there is no IPRs (e.g. a new “data insight” menu).
• Internal R&D, eventual co-development with customers and/or acquisitions, shall thus go on to sustain
centricity through IPRs.

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©2022—Frédéric Le Mauff 13
• The main bet: the customers’ own developments! Igniting a community of innovation is a delicate task and
object of many papers and books. It is up to the CTO, helped by IP, legal, communication and marketing de-
partments, to set it up wisely!
• But this bet looks reasonable as CRM users, among which there are a lot of software developers because of
the CRM high technicity, show a strong will to develop solutions, not necessarily ownership.
• The expected outcome: be as innovative as the competitor (projected situation 1), even far better (projected
situation 2), while being far ahead in ecosystem density.
• The expected scope on ecosystem density is high:
• even if it may not generate additional IPRs ownership for company X, users/customers will increase un-
substitutability of company X’s ecosystem with competitor’s one. It is expected a high inclusive scope.
• In addition, if the ecosystem density is high enough and ecosystems un-substitutable, the resource costs
for competitors to create its own equivalent ecosystems will be very high.
• The expected scope of frequency of innovation :
• exclusive scope: moderate since there will be no exclusivity on generated IP and no exclusivity with the
community of innovation
• inclusive scope: moderate to high if the ecosystem becomes un-substitutable.
• resource costs for competitors: high.