 |
|
 |
By Michael Kenward
Originally Published: July 3 2001 18:24
By: The Financial Times
Companies used to ignore ideas that they could not use,
now they realise others may pay for them, says Michael
Kenward
Each year the US Patent and Trademark Office issues an annual league
table of corporate patent filing. International Business
Machines has topped the table eight times in succession. For
many years, companies in the USPTO's top 10 saw the year's
numbers as an excuse to issue a press release proclaiming
their technological prowess. Recently, however IBM has seen
it as an increasingly important part of its business
strategy.
In 2000, according to the USPTO, IBM filed 2,886 patent
applications, twice as many as Lucent, the next US-based
company. IBM does not sit on its hands when it comes to
turning those patents into profits. "We think about a third
of our patents that were issued last year are already in IBM
product," explains Jerry Rosenthal, vice-president,
intellectual property and licensing, at the computer
company.
But it is the remaining two-thirds of patents that have
caught analysts' attention. The income from licensing
intellectual property is one of the company's
fastest-growing sources of profit. In 2000, licensing
contributed about $1.7bn in profits to IBM, according to Mr
Rosenthal, compared with the total net income of $8.1bn.
During the year, the computer supplier invested $5.6bn in
research, development and engineering.
IBM is not alone. Across industry, large companies are
realising that they are sitting on ideas that could be of
value to someone somewhere, even if they are of little use
in house. Those ideas are increasingly being put up for
sale.
"The growth is quite phenomenal," says Ken Gray, chairman
and chief executive of Scipher, one of a growing number of
specialist companies built around the trade in licensing.
Estimates suggest that licensing activity is increasing by
about 25 per cent a year.
In Europe, Philips, the Dutch electronics company, has
pursued licensing for many years. Initially, this was
through such industry "standards" as the audio cassette and
the compact disc. In recent years, however, Philips has
sought to license more of its intellectual property and now
has what Ruud Peters, general manager of corporate
intellectual property, believes to be one of the largest
corporate licensing operations in the world.
"We are active in research in a broad range of
technologies," says Mr Peters. To get a return from this
research, he says, the company can sell products or make
patents available to third parties.
Philips does not disclose its earnings from licensing. Mr
Peters will say only that "income has been significant in
the past few years". The company's latest annual report
reveals that revenues from licensing increased by 45 per
cent last year. Philips also filed almost 2,100 new patents,
35 per cent more than in 1999.
British Telecomunications is a more recent convert to
licensing. Once a big researcher into telecommunications
technology, BT has amassed more than 13,000 patents
protecting more than 1,700 inventions. In the first six
months after embarking on its new strategy for licensing its
intellectual property rights the company generated income of
about £10m ($14m) by systematically "mining" its patent
portfolio.
There is scope to achieve much more. Professor Graham
Davies, general manager, international development and
exploitation, with BTexaCT, estimates that BT uses only a
quarter of its patents in its own existing products.
This is by no means an abnormally low proportion. Philips
says that it uses only between 35 and 40 per cent of its
intellectual property portfolio. At Siemens, Horst Fischer,
corporate vice-president responsible for intellectual
property activity, points out that although the German
industrial conglomerate is active in more areas of
technology than Philips or IBM, its internal use of patents
is similar to theirs and in line with the numbers uncovered
in industry-wide benchmarking exercises.
It is one thing to identify under-exploited intellectual
property and quite another to find someone to license it.
Among the patents that BT hopes to exploit is one that, it
claims, covers the world wide web's ubiquitous hyperlink.
Less controversially, BT holds significant patents in such
areas as optical communications, speech, video processing
and conferencing and mobile telecommunications.
Partly to find a market for its intellectual property, BT
created BTexaCT. The standalone research and technology
business also operates the BrightStar incubator near Ipswich
in Suffolk alongside BT's laboratories, once known as
Martlesham laboratories and now called Adastral Park. Thus
BT is creating new venture-backed businesses as well as
licensing IPR to other companies.
The fruit of this approach can be seen in companies such as
Kymata, which is based at Livingstone in Scotland and works
on the optical equivalent of integrated circuits. Another
example is fSONA, in Vancouver, Canada, which is exploiting
research into laser telecommunications carried out at
Martlesham in the early 1990s. fSONA is making laser systems
that can bridge short gaps in telecom networks without
having to lay optical cables.
However, few companies, even those as large as BT, have the
in-house expertise needed to mine a complex patent mountain.
Thus, says Professor Davies, it makes sense to work with
businesses that specialise in managing and licensing
intellectual property.
That is where companies such as British Technology Group,
Scipher and Generics Group come in. BTG, the oldest of the
three, sets out to be a company that "acquires, develops and
licenses intellectual property rights covering innovative
products and processes in the diverse fields of life
sciences and high technology". Unlike BTG, Scipher and
Generics also operate their own research and development
operations, generating their own intellectual property.
While the growing trade in intellectual property licensing
is international, the rise of listed intermediaries such as
BTG, Scipher and Generics has been a UK phenomenon, says Ian
Harvey, the chief executive of BTG.
"There aren't many lookalikes in the USA," he explains. This
has an effect on the perception of investors. In the USA,
says Mr Harvey, "fund managers still don't know what box to
put us in. In the UK, analysts and shareholders have given
us the time of day. It says a lot about the City of
London."
BT turned to Scipher and Generics when it set out to assess
its IP portfolio. It has also worked with Yet2.com, the
internet brokerage. Prof Davies says the forum for buying
and selling technologies over the internet helped the
company to describe and categorise its technologies.
Dr Michael Edelman, Managing Director of Yet2.com Europe,
describes companies' approach to IP according to a taxonomy
devised by Arthur Andersen. At the bottom of the chain is
the "defensive" company. These are businesses that, Dr
Edelman says, "protect their invention and/or block
competitors from working in a certain space for commercial
reasons".
Companies then evolve. First they conceive of intellectual
property as a way to control costs, then as a profit centre
in its own right, and ultimately they become what he calls a
"visionary" company. These are, he says, "companies whose IP
strategy is well integrated into the strategy of the
corporation. Often these companies are willing to consider
licensing any and all of their technology to the correct
partner, including core technology."
IBM is an obvious case. And there are reasons to think that
its approach will spread. One is the example it and other
pioneers are setting.
Another is that smaller companies are also demonstrating the
power of pure intellectual property. Arm Holdings, Arc Cores
and Imagination Technology Group are among a growing number
of companies that design chips, or parts of them, that other
companies then churn out by the million.
It is the intellectual property - not the products - of such
companies that ends up in devices such as mobile phones,
set-top boxes, personal computers or anything else that
needs some built-in "intelligence". These electronics
companies have, in effect, set the technical standards for
their sector. Manufacturers have little choice but to
license their chip designs. "That should be the goal for any
IP company," says Hossein Yassai, chief executive of
Imagination, "to have IP that becomes the industry
standard."
The emergence of ARM, Imagination and other IP companies
provides a third reason to think that the licensing of
intellectual property will continue to grow: investors have
begun to understand that it can be an important source or
profits. "IP has become a new business driver," declared a
report on technology licensing produced this year by Patrick
Yau and Nataliya Das, of Credit Suisse First Boston.
It is hard to overstate how novel a view that is. "Ten years
ago, IP was a cure for insomnia," says Mr Harvey.
|
 |
