IP Factory seeks its place in CT R&D

Photo | United Technologies Corp. At the United Technologies Research Center in East Hartford, engineers and others work to develop technologies for all of the company's businesses. Pictured above is Simon Evans, an aerodynamics engineer.

Submitted photo UTC engineer Justin Alms and Ellen Sun, manager of research engineering and advanced materials.

Submitted photo Andrew Smeltz, a UTC senior engineer in environmental science.

Chris Kalish, founding member and CEO, IP Factory

Bruce Carlson, Chairman, IP Factory

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By Matt Pilon

How many commercially viable projects are sitting on the proverbial shelves of Connecticut companies? The IP Factory hopes to find out.

The East Hartford startup, which was founded in 2011 with the goal of helping companies monetize patents and old projects that haven't been commercialized, has been a little-known entity to date, though it has received more than $600,000 from the state's quasi-public venture capital arm, Connecticut Innovations. Now IP Factory is looking to elevate its stature with the help of a new leader, revamped bench of volunteer entrepreneurs, some tweaks to its business model, and a shiny new not-for-profit status.

The group's mission is to churn out new startups from mothballed technology or ideas founded by Connecticut companies, which could add jobs and wealth to the state's economy. They also want to help companies envision new markets for successful technology.

But the group faces significant challenges, including funding uncertainty and a tall task convincing the state's largest R&D companies to play ball with a young organization pitching a novel business model.

Chris Kalish, a founding member of the IP Factory who recently took over as CEO, acknowledges the challenge.

“We're still an early-stage company for incubating companies,” Kalish said. “Everything we're working on is designed to get us to the next level — get more staff, spin more projects off.”

Kalish said he's confident about IP Factory's future and much of that has to do with his own background. He's versed in mining patent portfolios for potential gems, after spending 12 years working for General Electric's edgelab, a Stamford-based product development collaboration with UConn. He also worked for Pepsico and NBC.

IP Factory Chairman Bruce Carlson, who stepped down as CEO earlier this year to lead the Connecticut Technology Council, said Kalish is perfect for the job. The duo spent the summer redefining IP Factory's business model.

“By virtue of his background, he can come in and [say] 'I know you've got this stuff in here, so how can we pull it out?'” Carlson said.

From shelf to lab

IP Factory's business model is relatively simple: It works with companies that have projects or patents that management isn't investing in, either because the technology wasn't considered profitable enough or it was outside the business's core market.

IP Factory's team of volunteer entrepreneurs assesses the project, considers other markets or uses for the technology, and, if it seems worthwhile, spins out a company dedicated to selling the technology.

If successful, both sides get paid through revenue or equity sharing arrangements.

Kalish said there are plenty of projects in Connecticut waiting to be mined. Starting this month, he'll be asking tech companies and manufacturers with R&D budgets to ready a new round of potential projects. Its IP Factory's first such mission in about a year.

One challenge the group faces is funding. Connecticut Innovations invested $610,000 in IP Factory over the last two years, but that money has run out. State lawmakers considered allocating more funds in 2011 but it didn't happen.

Carlson said the company hopes to ask CI for more money, but wanted to build a stronger business plan to make a convincing case.

Kalish said IP Factory wants to use its newly minted nonprofit status to attract state and federal grants and donations; build a profitable spin-out company to demonstrate its effectiveness; and rebuild its advisor and mentor bench.

First out of the gate

IP Factory has created one company so far, Signitsure, and has three more in the works, but attracting additional funding will be crucial, Kalish said. Even if IP Factory hits on a gem, it may be months or longer before any startup turns a profit or even generates revenues.

Signitsure is the result of the IP Factory working with a team of UConn students to envision a new market for postage meter technology developed in the 1990s by Stamford's Pitney Bowes and used in many countries. The system protects pre-paid postage, zip code and other personal information using encryption technology that aims to prevent mail fraud. With the help of UConn students, Signitsure repurposed the technology for drug prescriptions. Pharmacists scan a bar code to verify painkiller prescriptions and combat fraud.

“The amount of unlawful dispensing … is just awful,” said Leon Pintsov, Signitsure's CEO. “People just abuse it left and right.”

IP Factory tapped Pintsov, who is one of its founding members, in July. He is Pitney Bowes' former chief scientist and he developed Signitsure's technology during his 30 years at the company. The challenge the startup faces, Pintsov said, is convincing pharmacies, doctors, insurers and other market players that their product is worth the investment.

Signitsure doesn't have any revenue yet, but Pintsov said he is designing a test run of the technology for a major pharmacy chain and other partners.

Keeping tabs

Of course, most companies that invest in research and development don't ignore their patents. They are, after all, assets with value.

The IP Factory is just one avenue for companies to choose from, though it's relatively cheap. A company that partners with IP Factory can expect to pay an up-front $25,000 assessment fee, and may have to kick in more money down the line, Kalish said.

The state has invested $172 million to make UConn a more integral part of technology development collaborations with industry partners.

Construction crews will break ground this month on the first building in the UConn Technology Park, which will eventually house collaborations with major companies like Pratt & Whitney, Cigna, Northeast Utilities and GE, among others.

Lawrence Silbart, UConn's vice provost for strategic initiatives, said it remains to be seen what types of projects emerge from the collaborations, but companies could certainly try to revive some mothballed technology.

“Certainly we wouldn't exclude that,” Silbart said. “There's often times things that haven't been commercialized that are really good ideas.”

Companies with non-producing patents have several other options: they can sit on the patent; seek out buyers or licensees for their intellectual property; or engage in litigation if they think someone is infringing.

One of Connecticut's biggest R&D spenders, United Technologies Corp., has done all of the above over the years, but it recently developed an internal team to squeeze as much value as possible from the its massive portfolio of more than 35,000 patent assets.

David Parekh, UTC's vice president of research and director of its East Hartford research center, said UTC formed the R&D team of six in the wake of selling off several businesses, including its fuel cell holdings. Those divestitures left UTC holding patents in a number of markets that are now outside of its aerospace and building materials focus areas. “As we change and evolve, we often might have IP that may be more useful to pursue in partnership with others,” Parekh said.

The company has licensed some of its technology to suppliers, who use it to more efficiently manufacture parts. That helps the supplier, and UTC receives licensing revenue as well as cost savings on parts.

“It's not just an activity on the side,” Parekh said. “It hits on more than one objective.”

So does UTC have any patents “sitting on a shelf?”

Parekh doesn't prefer the terminology, but he admits UTC's vast portfolio does include patents that haven't resulted in a product. UTC doesn't ignore those patents, he said, but they aren't a focus either, because the company sees more value in other technology.

“There's a lot of work to make an invention useful and valuable,” Parekh said. “We have an advantage because we're able to have the resources to set up our own team to do this.”

So what does IP Factory offer in this landscape? In Pintsov's opinion, a pretty compelling business case.

Developing technology in-house isn't always a smart decision, he said, because the economics may not make sense. And finding a buyer or licensee often isn't a walk in the park either.

“Selling a patent or finding an entity that would be willing to license your technology is an excruciatingly difficult task,” he said.