Large companies are now exploiting their extensive back portfolios, writesJamie Smyth
Patents that were originally taken out as a defensive measure are increasingly being seen as source of valuable revenue by large technology companies as their core earnings come under pressure.
Hewlett-Packard (HP) is the latest giant to develop a programme to leverage its extensive patent portfolio in an attempt to generate new revenues. The US company has set up a new division to focus specifically on licensing its intellectual property to other firms in the latest example of a broader trend in the global technology industry.
"HP has done some of this in the past but the centralised management of the process is new," says Mr Shane Robison, HP's chief strategy and technology officer, on a visit to HP's Irish operations which employ more than 4,000 employees. "We are now looking at new ways to more efficiently capitalise on that (patent) resource with other parties."
HP holds between 19-20,000 patents worldwide and every six months adds up to 2,000 new patents building on research work completed at its technology labs in the US, Bristol and Galway.
Much of this technology is funnelled into the firms own proprietary technology for software, services and PCs. But even the printer manufacturing operation in Leixlip has created some patents in the manufacturing arena.
"I'm not sure people realise the complex innovations that are required to make some of our consumer products," says Mr Robison. "We launched a $99 printer last year which required 47 patents to get the quality and price points to meet. Recently we launched a $49 printer in the US which took about 100 patents to manufacture that product."
But it is HP's decision to licence its technology to third parties that could really add some fizz to the company's corporate earnings in the long term.
IBM currently generates close to $1.5 billion from the licensing of patents and other technologies to firms, according to Mr Muhammed Hussain, director of IBM's Intellectual Property Licensing & Alliances division.
"For the last 10 years or so we have been building an IP portfolio and looking to generate income from third parties... We have a portfolio of about 30,000 patents worldwide currently."
IBM now has in excess of 1,000 patent deals with companies worldwide. Most of the deals are for five year terms and many of them have been extended into third terms, says Mr Hussain.
This is definitely a growing trend among companies and more and more are looking to do it, says Mr Philip Coyle, a patent lawyer with the Dublin-based legal company FR Kelly & Co.
"Patents were traditionally seen as a defensive mechanisms to prevent competitors copying ideas but more and more firms are looking to use them aggressively to generate revenues."
Mr Coyle says the cost of undertaking research and development to create patents means companies are now looking for a way to return their investment.
"The commercialisation of patents really began in the telecoms and computer sectors with companies like BT, Lucent and IBM and is now spreading to other sectors," he says.
Firms that decide to go down this route often set up teams to investigate which companies are already in breach of certain patents that they hold, often unkowingly. They can then ask the companies for a licence payment or take them to court for breach of a patent and seek a legal payout.
In the midst of its recent debt crisis, British Telecom sought to enforce a 15 year patent which it held on hypertext links - the illuminated text on a web page that enables users to surf from page to page with the click of a mouse.
It took a US case against Prodigy, the oldest online access service, which dates back to 1984 and is now a unit of SBC Communications, the second largest US local telephone company. But the test case was thrown out preventing the firm from cashing in on a patent that was granted before the internet even existed as most people know it today.
But BTExact, British Telecom's R&D arm, has had considerable success licensing patents from the group's patent portfolio, which numbers about 14,000. To help it mine its patent portfolio BTExact hired an outside consultant firm ipValue, which specialise in patent licensing. It has subsequently struck licensing deals worth millions of euro, boosting its top line revenues.
In fact, the telecoms sector has been one of the earliest proponents of patent licensing programmes with Lucent, formed from the break up of AT&T particularly active in the area. The firm does not disclose the exact amount of revenue generated though this activity but a recent report in the journal Intellectual Asset Management estimates it to be worth up to $500 million.
A majority of this revenue is generated by assertive licensing - when Lucent chases firms which it believes are breaching patents in specific technology areas. With 25,000 patents in its portfolio Lucent can spread its gaze far across the telecoms sector.
But it is not always such an aggressive process and competing firms will often cross licence different patents in particular areas and share their technology, says Mr Hussain of IBM.
This has been a particularly popular phenomenon in the semiconductor arena, where silicon process technologies tend to be highly sophisticated. He cites collaboration between IBM and the German firm Infineon in the development of processes to manufacture DRAM chipsets. But while firms may share skills in developing the process technology, they compete against each other in the market, he says.
Mr Hussain says people are getting excited about the growing trend towards licensing IP to firms because it is pure profit as long as you mine the portfolio right. "If you have good patents and the time to mine them correctly it can be very profitable."
