Whose technology is it anyway? A growing number of patent disputes and cross-licensing agreements has muddied the waters. But few designers question the value of protecting their intellectual property (IP).
Ask IBM, which collected an estimated $1 billion last year in licensing revenue. Or Texas Instruments, whose royalties averaged around $100 million a quarter in 2004. One 10-year cross-licensing deal inked in 1999 between TI and Hyundai Electronics Industries is expected to generate more than $1 billion in royalty payments.
"Patents reward innovation," says Derek Meyer, vice president of marketing at ARC International, a specialist in low-power, high-performance, 32-bit configurable CPU/DSP processor cores and application subsystems. "You can give it away, but if you don't have a patent in the first place, you wouldn't have anything to give away. There's still a business objective here."
"From a Silicon Valley point of view, entrepreneurs are going to innovate irrespective of what's going on in the patent world," says Kent Richardson, vice president of IP at Rambus Inc., a designer of high-speed computer memory chips. Rambus recently lost a five-year patent-infringement case against chip maker Infineon Technologies, but it plans to appeal.
"The patent process and its impact on innovation is a yin and yang thing," according to Navi Radjou, a consultant with Forrester Research and a specialist in corporate innovation. "Patents are an important incentive for creative entrepreneurs to come up with new product ideas that they can 'own' and profit from."
But Radjou believes patents also can inhibit the process if they restrict other people's creativity. "The key challenge today is defining what is patentable. In other words, what invention is worth a patent, or deserves a patent?"
"In boom times, there's much less litigation because people are busy actually doing their jobs," says Ralph Albrecht, an IP patent attorney with Venable LLP, a firm based in Washington, D.C. Albrecht is a specialist in computer and communication technologies who worked in IBM's patent department for 12 years before becoming a lawyer.
"In bust times, people who didn't succeed may own patents, and maybe that's all they have to show for the $10 million in venture capital they invested in some business. Now they're sitting with a property right," says Albrecht. The only way they can monetize that, he notes, is to license it to someone, which means they must make a credible argument that someone is infringing on their patent.
"If they refuse to take a license, you have to sue them for infringement," he says. "That's why many investors like to get patents. It's a hedge position against the business not executing, or maybe the market is soft, or the economy is down."
U.S. companies are by far the most litigious when it comes to protecting their IP. European companies typically are slower to sue in IP cases. And, technology companies in the Far East have tended to be even less litigious. But according to Albrecht, Japan is now beginning to feel threatened by companies in South Korea and China. "It's starting to assert itself in IP matters," he says.
Cambridge Display Technology, based in the U.K., recently won new patents in the U.S., Europe, and Canada, expanding its already extensive IP portfolio in the field of organic light-emitting diodes (OLEDs). Stephen Chandler, CDT's legal and IP vice president, says patents are critical to his company, even though the process is slow and expensive, particularly in the U.K. and U.S.
"This doesn't deter CDT, but if the process were cheaper, there would be more to spend on innovation," he says. "It is just a huge burden on emerging businesses."
Is the high cost of filing and protecting patents worth it? Most industry executives believe so. But a survey sponsored by the Lemelson-MIT Program found that most filed patents have little commercial value. (The Lemelson-MIT Program, which began in 1994, was established to raise the stature of inventors and to inspire invention and innovation among young people.)
For instance, patents filed by European researchers have increased 10% per year since the late 1990s. Yet less than 10% of those patents have commercial importance, and less than 1% have seminal importance.
"You can understand why the recently passed European Union laws on software patents is generating mixed responses and polarizing opinions in the electronics industry," says Forrester's Radjou.
IP POOLING
Radjou says one of today's major trends is that firms like IBM and Dell redefine IP—from intellectual property to intellectual partnering—by sourcing more IP from external partners and by licensing, or even giving away, more of their IP to third parties. IBM calls this "collaborative innovation."
IBM recently announced that it would offer free access to 500 of its software patents to anyone working on open-source projects. IBM will hold the rights to its patents, but it will encourage other companies to follow its lead by placing no restrictions on anyone using the technology from the now-available patents.
The company isn't planning to curtail its patent activities. IBM was granted 3248 U.S. patents in 2004, which is 1314 more patents than second-place Matsushita Electric Industrial of Japan (see "IBM Tops U.S. Patent List—Again," p. 52).
Forrester refers to this collaborative or partnering approach to sharing as innovation networking. "Most companies face an innovation double whammy," Radjou said in a study published last year. While demand for technology-enabled innovation is exploding, he says, companies' ability to meet the demand is declining.
And the traditional mechanisms for innovation sourcing and commercialization, which were put in place to solve this imbalance, have actually created the problem. To meet the pressures from customers, competition, and regulations, Radjou says leading companies are replacing their rigid and restrictive approach to innovation by "adopting a fluid market ecosystem that matches global demand for innovation with worldwide supply."
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