Intellectual Property

Cactus
On Monday and Tuesday of this week a number of analysts and consultants gathered with IBM at an intellectual property briefing in Greenwich, Connecticut. Not as glamorous as the meeting in Rome but exceptionally interesting. The term intellectual property reflects the idea that the subject matter is a product of the mind and that legal rights to the "IP" are protected in the same way as any other form of property. IP is a vital issue for many companies but probably no company has as much influence in this area as IBM. IP is a broad and deep subject but one of the key elements is patents.
The United States granted the first patent to Samuel Hopkins of Pittsford, Vermont in 1790. Mr. Hopkin’s idea had to do with making potash which in turn was used in making glass and in various industrial processes.Two other major patents granted the same year were related to making candles and milling flour. Earlier this year the United States Patent and Trademark Office (USPTO) announced that for the thirteenth consecutive year, IBM received more patents than any other private sector organization in America. No company, other than IBM, has yet been granted 2,000 patents in any year while IBM exceeded 3,000 four years in a row and last year had 1,100 more than anybody else. IBM has a portfolio of more than 40,000 patents globally and has another 21,000 U.S. patent applications pending. Potentially more significant than IBM’s leadership in creating inventions is the fact that it is giving away thousands of patents. See Patent Commons (January 2005).
The industrial age focused on proprietary innovation and patents became the key differentiator for technology companies such as IBM. In the 1970’s and 1980’s there was a lot of cross-licensing to provide freedom of action; e.g. IBM cross-licensed with many other technology companies so that it could be able to ship it’s products without any concerns about patent infringement. Since IBM’s inventiveness created a lot more patent licensing income than licensing expense, the IP business became a major source of income — to the tune of a $1 billion per year and mostly profit. Now that the industrial age has given over to a knowledge economy based on collaborative innovation, IBM has begun to re-evaluate it’s IP strategy and begin to leverage IP as a new source of business growth.
Since IBM has a very large group of engineers and scientists who are prolific inventors, the patent portfolio is sure to grow and the income from it will be significant for quite some time. The company has more than 1,000 active licenses whereby companies pay IBM to use it’s patents — that represents about a third of IBM’s IP income. Another third comes from joint development; e.g. with Sony, Toshiba, and Samsung where the companies work together on a project and then share the results. A prominent example was the development of the Cell processor which is used in the new Sony PS3 game console. A final third of IBM’s IP income is from the assignment of patents for things that IBM invented but does not want to pursue on it’s own — digital cameras, liquid crystal displays, the laser used in eye surgery, setup boxes, and many other things.
Technologists working in healthcare and education cheered the move by IBM to allow them royalty-free access to its patent portfolio for the development and implementation of selected open healthcare and education software standards built around web services, electronic forms and open document formats. If new application software is developed in these key industries, society is better off and IBM will get it’s fair share of the hardware, software and services opportunity. Very smart. To leverage internal ideas, IBM has created ThinkPlace — a next generation suggestion program where employees don’t just submit an idea and hope to get an award but where they tee up an idea and enable others to build upon the idea and collaborate to take it to the next level. IBM is also leveraging it’s IP by using it to solve problems for it’s clients through services engagements. For example, a group of PhD’s from IBM Research helped a limousine company optimize the routes of it’s cars to minimize wait time and fuel costs
The world of patents has become ever more complex across the spectrum of collaboration and competition as the world has moved from proprietary to open — as the world has gotten flat. Patents issued have skyrocketed in the past dozen years — more than 150,000 patents issued in 2000, and so have patent suits. The thousands of suits are taking a huge economic toll and in many cases are stifling innovation. Patent reform has become urgent. IBM is not waiting on the sidelines. It is taking a leadership role and encouraging progressive changes. For example, it has launched initiatives to improve the quality of patents by developing and proposing an index to evaluate if a patent meets the standards of patentability — in other words, to test if the patent is really legitimate. These efforts are not just for IBM but for the entire economy. Hopefully the politicians, many of whom have links to trial lawyer associations, won’t kill the pending patent reform legislation.