VANCOUVER, B.C. High tech CEOs are failing to manage their companies' intellectual property portfolios properly at a time when that business is increasingly about building collaborative relationships and less about selling patents for revenue. That was the view of Marshall Phelps, senior vice president of intellectual property at Microsoft Corp. in a keynote at the annual Licensing Executive Society meeting here Monday (Oct. 15).
"IP is not centrally managed in most high tech companies, but it needs to be," said Phelps in an interview after the keynote.
"Other than Bill Gates, I don't know of any high tech CEO that sits down to review the company's IP portfolio," said Phelps, who ran IBM's IP business before joining Microsoft four years ago. "Most turn that work over to an IP counsel and only pay attention to it when they become involved in litigation," he added.
"You either believe you are in a knowledge economy or not, and if you don't you have no business being a leader in a high tech company," he told the audience of some 1,200 lawyers and business managers.
During his 28 years at Big Blue, Phelps helped build IBM's IP business which now includes more than 35,000 patents and generates more than $1 billion in annual revenue. By contrast, Microsoft, a late comer to the field, now has about 15,000 patents, files about 3,000 applications a year and generates less than $100 million in annual IP licensing revenues.
The purpose of IP programs is to spawn collaborative relationships not amass patents and sell them, according to Phelps. "The vast majority of companies can not do what IBM did nor should they even try," he told the audience.
"I'm suggesting we broaden our viewThe world has changed and mutually beneficial relationships will count for more than money," said Phelps.
Many companies see patents as a way to keep competitors from entering a market. A better view is looking at the company's know how as a way to open the door to co-development deals that expand markets—even for traditional competitors.
IBM's biggest licensing deals involved sharing its novel copper interconnect technology with Motorola and Intel, deals Phelps suggested were worth nearly $3 billion.
"IBM basically got a free fab and Motorola and Intel got a year advance on their competition. More importantly, every time chip generations changed, the first people knocking at IBM's door were Motorola and Intel," he said.
By contrast, another top tech company he did not name asked its business unit managers to define their top patents suitable for licensing as part of a so-called five-diamonds campaign.
"The result of this campaign was a big flat zero. It only alienated the business managers," Phelps said.
Many observers suggest Phelps was hired to help Microsoft establish an IP war chest to raise revenues and fight the open source software movement. That's not the case, Phelps said.
"Licensing will probably become no more than a half to one percent of Microsoft's revenues," Phelps said. "As for open source, it is here to stay and my job is to find ways to work with it because most of our customers use heterogeneous systems," he added.
Microsoft has struck six deals with open source companies, the biggest a recent deal with Novell, and more such deals are yet to come. In the past 18 months, Microsoft has spent a whopping $1.4 billion acquiring intellectual property of various sorts, Phelps said.
"The great ideas in technology will increasingly come from outside corporate labs," he said. "To me it doesn't make a difference if you got your portfolio through R&D or through buying it," he added.
Separately, Phelps set up two years ago a small group that tries to spin out technologies Microsoft has developed but cannot immediately use. The so-called Intellectual Property Ventures group which has less than ten people has struck 30 deals so far, he said.