Vancouver, B.C. -- Experts are calling for a new openness in intellectual property. In place of today's patent thickets, full of fears of unknown licensing and litigation costs, they envision more open pools for collaboration, linked into new tools emerging on the Net.
Many companies see patents as a way to keep competitors from entering a market, Marshall Phelps, senior vice president of intellectual property at Microsoft Corp., said in a keynote at the annual Licensing Executive Society (LES) meeting here last week. A better perspective is to look at the company's know-how as a way to open the door to co-development deals that expand markets--even for traditional competitors.
"I'm suggesting we broaden our view. The world has changed, and mutually beneficial relationships will count for more than money," said Phelps, a 28-year IBM veteran who is credited with building the company's IP unit into a billion-dollar operation.
"That really resonated with me," said a senior NASA engineer at the keynote. The space agency is seeking design collaborations under its new mandate to go back to the moon and then to Mars, leveraging off-the-shelf technology from industry on a budget smaller than it had for the Apollo mission.
Proctor and Gamble was held up as an example of a company with a broader view, winning an award at LES for increasing the share of external IP used in its products from 15 percent previously to 40 percent today. "We used to say we invented 'not invented here,' " said Jeffrey D. Weedman, vice president of P&G's external business development, who accepted the award. Last year, P&G shipped more than 100 new products that included some form of IP from external sources.
Collaboration is also high on the list of options when Hewlett-Packard's IP team negotiates deals, said Albert Torrenssen, a director of IP licensing at HP.
"You look for different ways to get value from the deal. You want to use your patents to a good end," he said.
In his keynote, Phelps also said: "The great ideas in technology will increasingly come from outside corporate labs.
"To me, it doesn't make a difference if you got your portfolio through R&D or through buying it," he said in an interview.
Reviewing patents on the Net
The Net is resurfacing as a prime avenue for collaboration in IP. The number of patent portals has dwindled from as many as 60 in 1999 to only a handful today, but at least three new efforts emerged at LES.
The most promising of the arrivals may be peertopatent.org, launched four months ago by Beth Noveck, a professor at New York Law School. The site provides a structured format for reading new patent applications, and finding and evaluating prior art for them.
"The theory is that more eyeballs make for a stronger application," she said. "Inventors don't always have the resources or incentives to do good searches."
Applicants who use the service as part of a trial with the U.S. Patent and Trademark Office get an expedited review that can cut waiting time from a typical 44 months down to seven, Noveck said. Participants hone their skills and get an early look at pending patents. So far, 1,500 registered users have reviewed 15 applications and found 88 pieces of prior art. Companies including HP, Microsoft, Oracle, Red Hat, Sun and Yahoo are participating in the project, which is backed by foundation grants.
Separately, Taeus International Corp. (Colorado Springs, Colo.) and startup SparkIP launched respective online services last week, open to those looking to post IP to buy or sell. Taeus plans to add a facility that enables third parties to pay those who want to help review selected IP posted at the site. SparkIP is focusing on novel tools that let users map clusters of related patents.
"No one has been able to make a business of this yet," said Matt Troyer, a marketing director at Taeus and an entrepreneur who has created other high-tech trading sites. "I want to convince people we need to set up a single clearing house, one database that we can all tap into; otherwise, a 'Patent-eBay' may emerge, controlled by one company."
Taking an even more ambitious step, merchant bank Ocean Tomo LLC plans to launch an IP stock exchange in January 2010. Chicago IPX will let people buy and sell stocks of companies chosen on the strength of their patent portfolios. The exchange also will let users define and invest in baskets of related patents in areas ranging from hybrid vehicles to Blu-Ray DVDs. Chicago IPX also hopes to let users buy and sell licenses to use patents in limited volume runs of products.
"This exchange will unlock a vast amount of value in intellectual property people currently have trapped in a very inefficient market system," said James Malackowski, chief executive of Ocean Tomo.
Last week, Malackowski hired Robert Cresanti, U.S. Under Secretary of Commerce for Technology, as chief executive of Chicago IPX. The choice of Cresanti is timely because the company is tackling regulatory issues in preparation for the exchange. "Beyond our plans for equity listings, no one really knows the regulatory implications of some of the things we hope to do, so we are still working through these issues," said Malackowski.
Perhaps the thorniest problems lie in patent litigation. In a sometimes-heated panel at LES, Acacia Technologies Group (Newport Beach, Calif.), one of many growing firms that license and litigate patents on a contingency basis, faced off against Intellectual Ventures (Bellevue, Wash.), a startup assembling patent pools in core technology sectors.
Some panelists argued that Acacia uses litigation to win exorbitant settlements from big companies for patents that were languishing on the shelf. Acacia countered that big companies ignore smaller firms and individual inventors because they lack the clout to enforce their patents.
"When you assert a patent against a lot of big companies, they just say, 'Go away, your patent is invalid,' " said Dooyong Lee, executive vice president of business development at Acacia. "We believe an individual inventor has as much right as a company doing patents for decades. This is not a privilege given only to the Fortune 500."
There are so many interrelated families of patents, big companies lack visibility in how much they might have to pay, making it impossible to reach rational settlements, countered John Amster, vice president of licensing for Intellectual Ventures. He pointed to licensing settlements ranging from a few hundred thousand dollars to as much as 2 percent of an infringing product's revenue over five years.
Amster suggested his company is attempting to create a set of broad patent pools as a one-stop shop to address the problem. "We think we can make licensing transactions much more efficient for inventors and product companies. Our focus is on licensing an aggregate of large portfolios," Amster said.
Lee called the so-called patent stacking problem a non-issue. "Personally, I haven't run into a situation where patent stacking was such an issue that a company could not function," he said.
"Given the incredible patent thicket in some areas such as MP3 players, if you want freedom of operation, how can stacking not be an issue?" asked Allen Baum, a patent attorney with Hutchison Law Group (Raleigh, N.C.), who moderated the panel.
"People just don't know" the economic impact of IP litigation and licensing costs, said Iain Cockburn, professor of finance and economics at Boston University. An LES survey found that only a third of respondents had some interactions with licensing firms such as Acacia, and only 6 percent of those felt a significant impact due to those encounters. The figure rose to 20 percent among respondents in the electronics field, however.
Such figures have prompted some academics to call for separate patent systems for different industries, Cockburn said. Separately, recent court decisions, new rulings at the U.S. patent office and pending legislation aim to address such issues.
"One of the hardest things to understand at the policy level is the impact of these changes," said Cockburn.