Source: www.rizomatica.net

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The main MOOC providers started up with funds provided by venture capitalists and/or universities. For example, Coursera raised more than $22 million in the venture capital market while both Harvard and MIT have each granted $30 millions to edX. With the forthcoming expansion of these platforms and the desire of these investors to get some return on their investment (for an example, see here), a business model will need to emerge in order to at least cover the costs of these MOOCs, without discouraging their users nor their content providers.

The major costs faced by the platforms are the bandwidth used to provide the course contents, the software engineering and the instruction costs. The instruction costs are very peculiar as they allow scale economies ad infinitum. If the course and the system provider are well designed, enrolling a new student is always possible and the cost is close to zero. Compared to a traditional university, there is no limited capacity due to the fixed size of the aula, and no congestion takes place when enjoying the videos of the classes taught. In addition to this, some of the platforms give out a share of their revenues to the universities providing classes.

So far, MOOC providers used different sources of revenues. These sources differ from institution to institution, and are far from allowing them to cover their costs, until now at least. They range from the possibility to pay to receive a certification, to have a secure assessment system, to get access to recruitment services and to make potential employers/advertisers pay to have information about students.

Which of these channels are the most promising in order to monetize this business? Right now, no clear monetization strategy seems to be able to bring enough revenues without creating major issues (even the leading provider Coursera has questions around this issue).

As for other multi-sided platforms, the main challenge faced by MOOC providers is to find the financing model that help them to encourage students, course providers and eventually other third parties (advertisers and/or employers) to join their educative platform.

The certification model

This method is already used by most of the MOOC providers. While it is true that MOOCs have impressive enrollment figures, they have at least as impressive drop out rates. As shown here, there are only few courses with drop out rates bellow 90%. It therefore shrinks considerably the base of potential fee payers. The same issue holds for a system where students have access to a secure examination system (i.e. have their exams be proctored). While private certification systems like TOEFL are profitable, their core business is to certify. On the contrary, the core business and main costs of MOOCs is to teach. Another issue related to this financing mode, and not the least, is the credibility that employers give to these certificates. In addition, as argued by Cantillon et al. (2011), a higher education financing system based on output (graduates) might also have a negative impact on the quality standard of classes in order to increase revenues. This can be problematic especially in the absence of a good accreditation system.

Julien Jacqmin

The premium model

This financing approach would make MOOCs turn into MOCs by making them less open. This could be done by asking all students to pay a fee or by offering a premium access (with a one-to-one tutoring, assessment grading, etc.) only for those who want to pay. Several questions arise from this model. First of all, in a context with many MOOC platforms competing for relatively similar services and where the cost of switching from one provider to the other is small, competitive forces are likely to be fierce and make it difficult to sustain profits. Prices would also need to be important enough to compensate for the direct costs created by the additional service provided, as this would decrease considerably the scale economies of MOOCs. Another unknown is how it would impact the student decision to take part to these courses without knowing how their learning outcomes are valued on the job market.

The partnership model

Under this model, the platform sells services to traditional higher education providers. Two main types of collaborations could be used. In the first, MOOC platforms would sell their technologies to universities in order for them to complement traditional classes via blended learning methods. In the second, MOOCs would substitute traditional, tutoring or remedial classes. This would not substitute the whole traditional teaching program but only targeted parts where MOOCs are more effective, financially and pedagogically speaking. The main difficulty with this model is that universities need to be convinced enough such that it brings enough cash in for MOOC providers to be profitable…

The advertising model

Thanks to the huge amount of information transmitted on these learning platforms, potential advertisers could be interested to pay in order to put forward some of their products. It is rather difficult to assess how advertising could disrupt the learning experience of students and how it might make them reluctant to participate. However, too much corporate advertising would probably discourage professors to invest their time to design and teach classes without direct retributions!

The job matching model

These could be earned from both the students and the potential employers sides. The aim is to improve the information asymmetries between potential employees and employers, in exchange of a fee. As for certification fees, the high drop out rates and the market credibility of MOOCs are not important enough now to make this approach profitable. These services would also be limited to fields with high job prospects and very specific skills. I also wonder which help MOOC providers could give to students who have followed classes such as “Sports and Society” or “About Science & Cooking: From Haute Cuisine to Soft Matter”. Are there many employers looking for people who have acquired skills taught in these classes? I doubt so. This job counseling activity seems to me very different from the one pursued originally by MOOC platforms.

Looking at this typology, it is difficult to say precisely which of these models will emerge or if it will be a mixture of some of them. In my opinion, the one which stands out the most and which would help MOOCs sustain in the higher education landscape is the partnership model. Due to the quickly evolving environment of 2.0 technologies, higher education institutions don’t have the size, nor the knowledge, nor the flexibility to keep up with the educational possibilities that they can offer. It makes it too risky to produce this in house. MOOC platforms circumvent this problem. However, several conditions will have to be respected in order to make these partnership profitable for both parties in the long term. The main concern is the added value brought by these new technologies on the student’s learning outcomes.

Another issue of concern will arise when MOOC platforms will bypass universities and directly deal with professors for them to provide course contents (Udacity does so already). Until now, they have mainly dealt with partner universities who then asked professors whether they wanted to teach a MOOC. The reason is to be able to attach the credibility of the university to the course offered. Will MOOC providers still deal only indirectly with professors when their business will be more mature and their credibility proven? It is difficult to tell now but this could create tensions between universities and MOOC platforms as well as between professors and their alma mater!

(Read Julien’s related posts on MOOCs here and here.)

(Updated in November 2014)

As we have already argued a couple of times on this blog (see here and here), markets for patents are typically difficult to organize. There are three main reasons as to why markets for patents work badly:

1. Many uncertainties surround the value of patents. This is mainly because patents are idiosyncratic (and escape thus any type of metrics) and because they often need to be combined with other patents to create any value (so-called “portfolio effects”).
2. Search costs are very high. That is, potential buyers and sellers have a hard time to find the right trading partner on the other side of the market.
3. The fear of future litigation puts a heavy weight on patent transactions and bias their valuation.

Any market failure creates economic opportunities for intermediaries. By proposing solutions for solving market failures (or at least for alleviating them), intermediaries can indeed create and extract value. It is therefore no surprise that an increasing number of “IP intermediaries” have emerged over the last decade. These intermediaries share a common objective: make the market for patents more liquid and more efficient.

To achieve this objective, quite a large number of different business models have been tested, with diverse success rates. To have a clearer view of this diversity of approaches, several scholars have proposed typologies (see Yanagisawa and Guellec, 2009 ; Hagiu and Yoffie, 2013 ; Millien, 2013).

As part of a research project on markets for technologies in Belgium (PATLICINFO), I have endeavored to unify the existing typologies within a common framework. I summarize here the structure of the typology and I list the various categories of intermediaries (for the full typology, see this powerpoint presentation).

INTERMEDIARIES FOR “PRE-PATENT” IDEAS: (1) Innovation portals
INTERMEDIARIES FOR PATENTED IP
* Patent intermediaries
–>Transaction facilitators: (2) Online IP platforms, (3) IP auction houses, (4) IP (patent) brokers / Licensing agents, (5) IP transaction exchanges & trading platforms
–>Merchants
Aggressive attitude: (6) Patent Licensing and Enforcement Companies (PLECs), (7) IP acquisition funds, (8) Litigation finance/investment firms
Defensive attitude: (9) Defensive patent aggregators, (10) Privateers, (11) Super-aggregators
* IP management & support services: (12) IP-based M&A advisory firms, (13) IP-backed lending firms, (14) Royalty stream securitization firms, (15) Analytics software and services firms, (16) Technology/IP spinout financing, (17) IP insurance carriers, (18) University technology transfer intermediaries.

Source: www.elushika.com

Researchers at Fraunhofer MOEZ have done a very similar work (but in a much more exhaustive way): they have built a typology for all services that are provided by IP practitioners (the current version can be consulted here). When you click on the headlines of the several service descriptions, you will find a larger number of companies that are already providing the corresponding service.

An important research question that these typologies may help addressing is the following: How much social value, if any, do these various types of intermediaries contribute?

On this blog (see here and here), we have already questioned the social contribution of some of these intermediaries, namely the so-called “patent trolls” (which belong to the category of ‘Patent Licensing and Enforcement Companies (PLECs)’ in my typology).

What I ask you to do is to carry out the same analysis for other types of intermediaries. What kind of social value do they bring?

Plain packaging is not a new issue of public interest in the field of intellectual property, and I already posted some comments on this topic here and here again. There are, however, some new developments over the last months: national courts and international dispute settlement bodies are now asked to rule on the compatibility of such rules with constitutional principles either at national level (the protection of property guaranteed by a Constitution) or at international level (the WTO rules, including TRIPs, which are the backbone of the international economic order).

A first court decision on plain packaging was released on August 15, 2012 but the reasons are contained in the judgment of Oct. 5, 2012 issued by the High Court of Australia (see: JT International SA v Commonwealth of Australia [2012] HCA 43). The Court confirmed that the law does not infringe section 51 (xxxi) of the Australian Constitution which empowers the Parliament to make laws with respect to “the acquisition of property on just terms”. Considering that registered trademarks, as well as designs and copyright are attracting the protection under section 51(xxxi), the High Court nevertheless found that the Tobacco Plain Packaging Act of 2011 does not result in an acquisition of property, as there was no gain of a proprietary nature on the part of the Commonwealth of Australia (The resulting space caused by the absence of the trademark was not an accrual of property).

But the plain packaging case is also moving at international level. On September 28, 2012, the WTO decided to establish a dispute settlement panel at the request of Ukraine to study the complaint against measures taken by Australia concerning trademarks and other plain packaging requirements (see here). (Two other complaints against Australia respectively made by Honduras and by the Dominican Republic are still under consultations, see here and here).

In its request for the establishment of a panel, Ukraine said that Australia’s measures “erode the protection of intellectual property rights” and “impose severe restrictions on the use of validly registered trademarks”. Ukraine’s statement also said that “Ukraine considers that governments should pursue legitimate health policies through effective measures without unnecessarily restricting international trade and without nullifying intellectual property rights as guaranteed by international trade and investment rules”. Ukraine’s arguments are summarized in a request of August 17, 2012. Basically Ukraine claims that TRIPS gives tobacco companies a positive right to use trademarks.

It would be interesting to review the TRIPs rules that Ukraine puts forward (Articles 1, 1.1, 2.1, 3.1, 15, 16, 20 and 27)  to support the view that Australia’s laws on plain packaging are not in line with the WTO framework, and to assess the validity of Ukraine’s claim. This is what you are (t)asked to do!

You have to take a clear position and to advocate either that Ukraine’s claim is valid or that it is not supported by the TRIPs rules. Of course, you could also bring additional arguments (in favor or against Ukraine) if you think they are relevant (those arguments might be based on IP or non-IP rules).

Enjoy your trip within the international IP rules!

The regulation of Internet therefore must cover those intermediaries. The safe harbour notice and takedown procedures adopted in various countries, for example in Europe by the 2000/31 e-Commerce Directive, represented the standard for assessing what can be required from technical intermediaries in order to regulate the online exchange of information (By the way, the e-Commerce Directive is really a model for intermediary liability as it is not limited to copyright violations, but covers infringements to privacy, reputation, etc. contrary to the much narrower U.S. Digital Millenium Copyright Act.) Under this model, as summarized by Y. Benkler (see here), “providers of caching, web-hosting, and search engines and web directories were required to have a procedure in place for receiving notices regarding specific offending materials, and for taking down those materials; but they were not required to search out such content themselves or to block entire sites”. Whether this was enough or not to have a balanced government of what technical intermediaries should undertake remains to be demonstrated. There are signs that more — but not much more — should be required from some intermediaries who refuse to cooperate when their revenues can be negatively affected, but do not hesitate to  zealously follow official instructions when this has no major impact on their sources of revenues.

Since the 2011 WikiLeaks saga and the more recent Megaupload cases, attention has shifted towards other intermediaries, in particular  towards online payment systems. Money is the sinews of war — it is the blood of online conversations and dealings too. The U.S. indictment of the “Megaupload Conspiracy”, comprising the now famous Kim Dotcom, its accolytes and several companies who together were running several websites (Megaupload.com, Megavision.com, etc.), describes the group as “a worldwide criminal organization whose members engaged in criminal copyright infringement and money laundering on a massive scale” — where large money laundering is involved, it is difficult to ignore the role of payment intermediaries. In the case of Megaupload.com, income came primarily from two sources: premium subscriptions and online advertising, which respectively generated $150 million and $25 million (I follow here the description made in the instructive 72 page long indictment). Premium subscriptions have been available for online purchase for a few dollars per day or for around $260 for a lifetime. In exchange for the payment, the cyberlocker site offered a fast distribution of copyrighted works. The revenues from the online advertising on the Mega sites were important thank to the popularity of the infringing materials. In addition, the Conspiracy had an “Uploader Rewards” Program which promised premium subscribers transfers of money and other financial incentives to upload popular works to the Mega computer servers. This could only be managed on a global scale thanks to the services of PayPal, a U.S.-based global e-commerce business involved in approximately 15% of global online payments. The indictment further states that the Megaupload Conspiracy’s PayPal account had been used to receive the premium subscriptions and to pay the U.S. (Carpathia Hosting) and Dutch (Leaseweb) companies operating the servers. Over the last 5 years, the PayPal account of the Mega Conspiracy “has received in excess of $110,000,000 from subscribers and other persons associated with the Mega Conspiracy” (p. 19 of the indictment). It was probably difficult for PayPal to completely ignore the situation… Apparently, PayPal was not really ‘proactive’ in this case (at least, the company was much more prompt to express its concerns against the PIPA and SOPA bills than to tackle the Megaupload issue!).

This conduct is worth to compare with the way PayPal acted in the WikiLeaks case — although the law did not prohibit the publication of the leaked documents in this case. As summarized by Y. Benkler, the constitutional privilege allowed WikiLeaks to publish the documents; nevertheless, several American political figures denounced the disclosure. A letter of the State Department to WikiLeaks did not claim that WikiLeaks had infringed the law, but vaguely asserted that the law had been broken (by someone). This insinuation was enough to have PayPal discontinuing its service to WikiLeaks. This denial-of-payment decision (followed by the similar moves of Visa, MasterCard, etc.) immediately put WikiLeaks under a strong pressure as its operations depended on the continuing small donations by Internet users (nothing compared to the $110,000,000 transiting on Megaupload’s PayPal account). It is strange to see that a simple insinuation of illegality has created a fast denial-of-payment in one case — a denial that affected an Internet tool for democratic transparency –, while quite a clear breach of the law, including on money laundering, has apparently not resulted in any responsible reaction in another case…

By the way, I do not agree that the recent legal developments in Megaupload show that no improvement of the legal framework is needed to fight online piracy. The indictment of Kim Dotcom and his co-accused was probably made possible because they were in New Zealand and because Megaupload had servers in Virginia, U.S. and the Netherlands (see also the 28/1/2012 FT article: US in mega battle to bring in Mr Dotcom). Would the case involve countries where copyright piracy is blended with a mafia-type of culture, or reinforced by an anarchic situation or a form of State authoritarianism, the outcome would probably have been very different (on this, I respectfully disagree with M. Lambrecht’s view presented in his otherwise very interesting and well-informed article published on ipdigit here). This is why new rules at international level such as those of the Anti-Counterfeiting Trade Agreement (ACTA) are probably needed so as to ensure a level-playing field in the countries where the rule of law, and its inherent safeguards, need to be reinforced.

PayPal itself is well aware of the changing legal environment. In its recent filing before the U.S. Securities Exchange Commission (SEC), eBay (the parent company of PayPal) states that the legal climate is “becoming more adverse” (probably eBay has in mind the recent decision of the Court of Justice of the EU in the L’Oréal v. eBay case about secondary liability for trademark infringement):

“We are continuously seeking to improve and modify our efforts to eliminate counterfeit and pirated items through ongoing business initiatives designed to reduce bad buyer experiences and improve customer satisfaction and by responding to new patterns we are seeing among counterfeiters and others committing fraud on our users. Notwithstanding these efforts, we believe that the legal climate, especially in Europe, is becoming more adverse to our positions, which may require us to take actions which could lower our revenues, increase our costs, or make our websites less convenient to our customers, any of which could materially harm our business. In addition, a public perception that counterfeit or pirated items are commonplace on our sites, even if factually incorrect, would damage our reputation, lower the price our sellers receive for their items and damage our business.

Content owners and other intellectual property rights owners may also seek to bring legal action against entities that are peripherally involved in the sale of infringing items, such as payment companies. To the extent that intellectual property rights owners bring legal action against PayPal based upon the use of PayPal’s payment services in a transaction involving the sale of infringing items, including on our websites, our business could be harmed. Several jurisdictions have adopted new laws in these areas, and others are considering imposing additional restrictions.

In addition, new laws have been proposed regulating Internet companies with respect to intellectual property issues. For example, SOPA, which has been introduced in the U.S. House of Representatives, and PIPA, which has been proposed in the U.S. Senate, would give rights owners and the government broad powers to bring lawsuits against websites accused of enabling or facilitating copyright infringement, and such lawsuits could result in, among other consequences, payment providers such as PayPal being precluded from doing business with allegedly infringing sites, as well as search engines being precluded from linking to, and Internet service providers being required to block access to, such sites. In addition, the European Commission has reopened the Intellectual Property Enforcement Directive, which could potentially increase our exposure to enforcement actions from rights owners. Implementation of these or similar laws could require us to change our business practices, increase our compliance costs and harm our business.“

SOPA and PIPA are now off the table in the U.S. On the other side of the Atlantic, the revision of the Enforcement Directive remains on the agenda. We hope that new legal incentives can be found to induce a pro-active role for payment intermediaries when they benefit from obviously illicit trade run by third parties, while reassuring them they should not immediately bow when some politicians are just blaming websites which, as WikiLeaks, only contribute to the transparency of government. No double standard please! Please act in a consistent way if you do not want your reputation to be damaged!