Joff Wild explores how companies can go about putting successful procedures in place to make the most of their hidden assets.

Even corporations that bring in over US$70 billion worth of revenue each year need to find new sources of income. So when Hewlett-Packard (HP) announced it had formed a central intellectual property-licensing corporation in January 2004, the only real surprise was that it had not happened sooner.

Designed to manage HP’s overall IP strategy and to increase its revenue, the new business will be run as a separate holding company responsible for HP’s entire portfolio of patents, copyrights, trademarks and trade secrets. In putting in place such a strategy, the hope is that HP – which increased its worldwide patent portfolio from 17,000 to 21,000 in 2003 – will begin to reap the dividends enjoyed by other businesses such as IBM and Lucent Technologies.

IBM and Lucent Technologies are among a select group that has been generating hundreds of millions of dollars annually from profit-generating IP programs for a number of years.

‘Historically, HP’s intellectual property has provided value to the corporation in the form of innovative products and protection from competitors,’ explained Joe Beyers, vice president, intellectual property licensing, on the day the HP scheme was launched. ‘This approach served us well, but we missed out on the opportunity to gain additional value from HP’s inventions beyond product revenue.’

Owning the right IP
Setting up IP asset management programs and making sure that they work are two entirely different issues. A desire to make money from the IP you own does not automatically mean that you are going to be able to. The most important thing is to ensure you hold the IP Rights that other people want. Dan McCurdy, formerly president of the Lucent Technologies’ Intellectual Property Business and now, president of the licensing consultancy Thinkfire is in no doubt that focused innovation is the key to profitable IP procedures. ‘Inventiveness is the essence of licensing success,’ he says. ‘Mediocre technology results in mediocre licensing programs at best. No clever licensing program, no methodology and no team of licensing experts can exploit a patent portfolio that does not make a fundamental contribution to the art at which it is directed,’ McCurdy concludes.

In the late 1990s, IP professionals talked a lot about so called ‘Rembrandts in the Attic’ – valuable items of IP that were not being properly used. Since then corporations have come to understand that lucrative patents have the value they do precisely because they are used on a daily basis to help develop and build successful products. IP asset management is less an issue of mining deep into portfolios for unexploited rights you own that you know have value. Do you keep them to yourself or, as more and more companies are deciding, share them with others in return for a handsome licensing fee and/or access to rival technologies?

This applies to all areas of IP. The ownership of a trademark or a copyright does not in itself guarantee the possibility of a successful exploitation program – people have to want to pay money to get their hands on it. Companies such as Coca-Cola and Harley-Davidson both generate huge sums annually from licensing their brands to third parties to use on anything from lottery tickets to clothing. They can do this because their brands are well known and possess certain qualities that resonate with consumers.

Beyond that, even, there is debate about whether companies should just license patents or provide the means to make such patents work. In the UK, British Telecom (BT) instigated an active global IP asset management program at the beginning of 2002, in conjunction with Silicon Valley based corporation IP Value, which looks after BT’s interests in North America. As part of its strategy, BT not only licenses its patents but also the know-how surrounding them – so making it easier and quicker for licensees to work the technology. Lucent, by contrast, has until now only made its patents available; although it is understood the corporation is in the process of reviewing this policy.

A desire to make money from the IP you own does not automatically mean that you are going to be able to. The most important thing is to ensure you hold the IP Rights that other people want.

Getting support from the top
Getting these decisions right is crucial to the future viability of IP-owning companies. As such, they need to be taken at the very highest level. Which brings us to the second crucial requisite for a successful IP commercialisation procedure: buy-in from the board.

If you look at any of the world’s great IP revenue generating corporations, there is always a common thread. The process has been championed from the start at the very top; the major roles played by CEOs such as Jerry Junkins at Texas Instruments (TI) and Lou Gerstner at IBM bear testament to this. Both are credited with initiating the licensing machines that TI and IBM have now become. When Lou Gerstner joined IBM in 1993, the corporation generated US$30 million a year from licensing its IP Rights. Gerstner saw the corporation’s IP portfolio as a significant corporate asset and drove through a policy making all its patents, trademarks, trade secrets, copyrights and other rights available to licensees. Within a decade, licensing revenue had reached over US$1.5 billion, most of which went straight to IBM’s bottom line.

Last year Marshall Phelps, vice-president of IP and licensing at IBM from 1992 until 2000, was hired by Microsoft. His brief was to rework the corporations IP strategy to make it more inclusive and focused more on asset management opportunities. It was a job, Phelps said, that he took only after being clear about one thing: ‘If I didn’t know that Microsoft believed at the highest level that it was at an inflexion point and needed to do things differently, then I would not be here,’ he explained. In other words, he joined Microsoft only after ascertaining that Bill Gates and others at the top were supportive of what he wanted to achieve.

The message, therefore, is clear: IP exploitation can be a highly successful way of raising revenue and generating additional profits. However, it is not a path open to all IP owners. First of all, they need to own something to which others attach a value; second they have to ensure that those at the very top understand this and the leverage it brings. Only when these two factors are found together is there any chance of success.

Joff Wild is the editor of Intellectual Asset Management.

This article first appeared in IP Review, issue 7

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