Feature

posted 17 May 2002 in Volume 5 Issue 8

Intellectual property and the knowledge economy

Towards a more proactive approach to IP management

Recent events have highlighted the importance to businesses of recognising and actively managing their intellectual property. Richard Poynder outlines some of the most important issues surrounding IP, and describes a number of emerging technologies that can help organisations cope in an area in which the rules are constantly changing.

The FBI’s arrest last year of a Russian computer scientist underlined how valuable intellectual property (IP) has become in the knowledge economy.

Charged under the new US Digital Millennium Copyright Act (DMCA) with illegally distributing a computer program able to break the encryption system used in Adobe’s electronic books, Dmitry Sklyarov faced a prison term of up to 25 years if found guilty.[1]

While critics complain about the draconian nature of the DMCA, copyright owners argue that in a world where content can be flawlessly copied and distributed to millions of others over the internet, heavy sanctions are vital.

As Business Week technology editor Alex Salkever says: “Copyright holders can hardly be blamed for trying to save their business models and stave off what they fear will be a rising tide of piracy.”

Cost centre to profit centre

Legal sanctions, however, can only achieve so much. In today’s competitive environment, IP also requires active management. And many companies could do better.

While music companies have been quick to rebuke file-swapping services like Napster for facilitating mass infringement, for example, critics have pointed out that the music industry conspired in that infringement by failing to place copy protection mechanisms on the 10 billion music CDs sold over the past 19 years. Likewise, they add, in omitting to protect their trademarks by registering internet domain names in a timely manner, companies have encouraged the practice of cybersquatting.

They also claim that bad management means that many companies are failing to exploit the benefits of patent ownership. The Harvard Business Review estimates that US companies alone are currently wasting around $1trn a year in patent assets.

Until recently, of course, the notion that intellectual property could be wasted would have puzzled many. Historically, IP was viewed as simply a necessary cost of protecting a company’s products. Today, however, intellectual property is viewed as a product in its own right. As such, it is expected to produce a revenue stream and competitive advantage, much like any other product.

In short, a company’s IP assets are now expected to be a profit centre, not a cost centre. And to achieve this, active management is essential. But what exactly do we mean when we talk of managing intellectual property?

The patent audit

In June 2000, BT announced that it had ‘discovered’ that it owned a patent on the hyperlink technology that lies at the heart of the web – eleven years after it had been granted. Given the significant potential royalties such a patent might be able to generate if successfully asserted, it was striking that BT had ‘lost’ it in the first place. But BT’s experience is not unusual. Since patents were traditionally viewed as a form of defensive protection, they were often locked away in a filing cabinet, only to see the light of day if infringement was suspected.

Moreover, responsibility for intellectual property was generally vested in the business unit. This decentralised approach meant that managers rarely sought applications for the technology across the company as a whole, or indeed outside the company.

The BT patent, for instance, grew out of work on Prestel, the online Viewdata system developed in the 1970s. Only when BT decided to review its portfolio of 15,000 patents did it realise that the patent might have a wider relevance.

This proactive approach, however, is now being adopted by a number of patent-rich companies. “What we are seeing in a number of corporations is the creation of a cross-organisational team focused on IP management,” explains Gary Bishop, CEO of web-based patent licensing service, pl-x.

A cross-organisational team will typically start by auditing the company’s IP assets, including subjecting all its patents to a competitive technical assessment aimed at identifying their usefulness (or not) to the core business. In order to leverage any untapped sources of new revenue, or new market opportunities, patents may then be licensed, sold or otherwise re-deployed.

The process can be eye opening, says Tova Greenberg, executive vice president of specialist IP consultancy EKMS. “It is not unusual to find that a large percentage of a company’s patents don’t cover any product. Alternatively, some of the company’s top products may have no patent coverage at all.”

This managed approach can reap significant financial benefits. IBM, which has been actively managing its IP for a number of years, earned $1.7bn in IP revenue in 2000, with a 98 per cent profit margin.

Intellectual property asset management systems

Intellectual property, then, is no longer confined to the legal department, but has become the responsibility of business managers too.

Patents, however, are complex documents, written in highly technical language. To help the non-specialist, a number of desktop tools have been developed that are able to present patent information in a user-friendly way.

Utilising a range of visualisation and topographic mapping tools, these intellectual property asset management (IPAM) systems are able to present corporate patent portfolios in a highly visual manner, enabling business managers, marketers and strategic planners to better understand their value and potential.

As such, these tools can mine corporate patent portfolios in ways that can reveal previously overlooked market opportunities and gaps in coverage that would otherwise remain invisible. And by mapping the company’s portfolio against those of competitors, valuable competitive intelligence can be revealed.

“We’re not talking here about mapping one patent and deciding whether to litigate on it, or whether you can work around it,” says Kevin Rivette, co-author of Rembrandts in the Attic, Unlocking the Hidden Value of Patents and former CEO of IPAM system developer, Aurigin Systems. “We’re talking about being able to show exactly what the market looks like. We’re talking about helping companies decide whether they should buy a company for $1bn. We’re talking about real, honest-to-God business decisions.”

And today a new generation of web-based services such as PatentCafe and Delphion have begun offering online analytics tools for as little as $100 a month.

“Allowing a broad range of knowledge workers within the organisation access to patent and prior art information will allow enterprises to turn innovative ideas into revenue-producing intellectual assets or IP more quickly, efficiently and reliably,” argues Debra Logan, senior analyst at Gartner.

Managing trademarks

The management issues associated with trademarks are similar to patents, and some IPAM systems cater for trademarks, too. However, the major challenge for trademark owners today lies with the web.

First, there is the problematic relationship between trademarks and domain names. Many companies, for instance, have fallen victim to cybersquatters, who register well-known trademarks and brand names as domains, and then seek to sell them back to the company at inflated prices.

While the creation of the World Intellectual Property Organisation’s domain name dispute procedure has helped, the release of new, top-level domain names has again raised concerns about cybersquatting. Active monitoring and management of domain names is, therefore, a vital component of an effective IP strategy.

Second, the internet has created a whole new landscape for those seeking to abuse trademark rights. Fraudsters, for instance, will use well-known logos or brand names to sell counterfeit products and services over the web. This can involve using third-party product names to pass off as the originals, as well as inserting hidden tags into web pages to fool search engines into routing customers to fraudsters’ sites, rather than those of legitimate brand owners.

Many companies now outsource the policing of this to specialist technology companies. US-based Cyveillance, for example, claims to be able to scan the entire web for trademark and brand infringement.

Digital rights management

Unlike patents and trademarks, copyright has historically been generally better managed as a corporate asset. Again, however, the internet presents new challenges; in particular, the need to create secure and effective means for selling content over the web. To this end, a number of new digital rights management (DRM) technologies are being developed.

“A DRM system is made up of two components,” explains Chris Barlas, a senior consultant at London-based consultancy Rightscom. “One is the technology to encrypt the content. The second contains the business rules determining how the content can be accessed, and by whom.”

These software-controlled ‘business rules’ can be time-based rights, allowing for instance the user to access the content only for 24 hours; access-based rights, where the user can perhaps view the content, but not copy or print it; and, price-based rights, where the type of access available is determined by the price paid.

Since no DRM system is foolproof it is also essential to police the network for infringement. Third-party suppliers like UK-based Envisional, for instance, claim to be able to detect copyright infringements on the web.

The size of the problem is formidable, says Envisional CEO Brian Earle. “In a recent survey we discovered more than 10,000 copyrighted books currently available online for illegal downloading.”

Individuals’ rights

It is not just companies that can have their intellectual property misappropriated. Prominent individuals are also at risk, as Madonna discovered when New Jersey businessman Dan Parisi bought the domain name www.madonna.com, and began using it as a pornography clearing house.

Madonna successfully claimed the domain name as hers. Pop singer Sting, however, had less luck. His attempts to obtain ownership of the previously registered www.sting.com were rejected, on the grounds that the word ‘sting’ was a common English word.

Tellingly, the important difference was that where Madonna had trademarked her name, Sting had not, highlighting the need for individuals who trade off a brand name to take a proactive approach to their IP, too.

In fact, argue Stan Davis and Christopher Meyer, authors of Future Wealth, the knowledge economy will see responsibility for intellectual property falling more to individuals, as they increasingly retain the rights to their work.

This trend is in fact already evident. A few years ago, for example, rock star David Bowie floated a personal $55m bond issue – secured against future royalties from his portfolio of albums. This would not have been possible if Bowie had not had the foresight to retain the creative rights to his albums.

Beware: the rules can change

Today, then, intellectual property has a value and importance much greater than in previous eras. But as companies and individuals scramble to acquire ever more IP, some fear the system may become a victim of its own success.

Last year, for instance, there were over 345,000 US patent applications, up from 177,000 ten years ago, and the number of patents issued annually has nearly tripled in the past 20 years. Globally, the overall demand for patent rights between 1995 and 1999 rose from under three million to over seven million, representing an increase of 156 per cent.

Similar rises can be seen in most forms of IP. Trademark applications in the UK in 2000, for example, were up 22 per cent, at over 100,000. And US copyright applications were up 16 per cent to 600,000.

Unsurprisingly, patent and trademark offices are struggling to cope, causing a lengthening in the time taken to issue rights, and growing concern that a shortage of examination time is seeing many IP rights awarded on dubious grounds.

“Today it is questionable whether a patent is indeed a patent, since nobody can guarantee its validity,” says Willem Geert Lagemaat, CEO of patent information company Univentio. “Many people, therefore, are concluding that patents are useless.”

At the same time, the costs of patenting are climbing rapidly. It now costs between $20,000- $75,000 per patent application to file in key locations worldwide. And in the US alone, patent litigation cost companies more than $4bn last year. Consequently, even patent-intensive companies like Motorola, which regularly features in the US patenting top ten, are re-assessing the situation.

“Motorola has over 1,000 US patents granted each year,” says Helen Young, a project manager in Motorola’s law department. “But we are now looking hard at what we have patented in the past and asking, ‘Was it really worth the time, effort and cost to go and patent in these cases?’”

Similar issues surround domain names. With seven new generic top-level domains (gTLD) recently approved, including .info and .biz, many are now questioning the business case for acquiring new domain names.

“Where does it all end?” asks Stuart Rowe, e-commerce director for HMV Europe. “When do we stop carrying on buying and buying all sorts of different domain names?” No company, however, can afford to let others wantonly steal its ideas and creations. The issue, therefore, is finding the most effective way of avoiding this.

In 1997, patent guru John Cronin left IBM to set up a new consultancy, ipCapital Group. His aim was to market to other companies a technique he had developed as founder of IBM’s Patent Factory. Known as ‘invention scanning’, this involves talking to engineers, developers and researchers, and identifying patentable innovations – with the aim of building a robust patent portfolio. But Cronin’s technique proved so successful that he was uncovering more innovations than his client companies could afford to patent. Consequently, Cronin frequently recommends alternative ways of protecting inventions. In particular, he has become a strong advocate of defensive publishing. Thus, rather than patenting all its inventions, a company can turn some of them into prior art by publishing them as invention disclosures.

The logic is that once an invention is in the public domain, it cannot be patented. While this means giving up your right to patent it, it allows you to block others from claiming ownership, and takes the pressure off patent offices. Importantly, this is far cheaper than patenting, and today there are a number of specialist web-based sites where invention disclosures can be placed into the public domain. IP.com, for instance, charges just $155 per document. “This compares very favourably with the $20,000 it costs for a patent application,” says IP.com CEO, Tom Colson.

Likewise, as new gTLDs proliferate, the cost and effort of chasing after every relevant domain name is exceeding the benefits obtained. So large multinational companies like BT – which has over 2,000 trademarks – are taking a more sceptical approach. “We don’t just register every domain name – and every variation – for the sake of it,” says Bernadette Mee, a BT trademark attorney. “We take a measured view before deciding on whether or not we need a domain name. If we didn’t we just wouldn’t ever stop applying for them.”

The fact is, says Andy Gibbs, PatentCafe CEO, the rules for managing IP can change, and today choosing not to seek protection can sometimes be the better choice. “The overall aim should be to build an impenetrable web of IP utilising patents, trademarks, copyright and so on, but alternative methods like defensive publishing should also be used when appropriate.”

In short, the rules may change, but the importance of IP looks set only to grow.

Reference

1. Sklyarov was later released on condition that he testified against his employer, ElcomSoft, which has been charged on four counts of circumvention offences, and with aiding and abetting circumvention offences under the DMCA, plus one charge of conspiracy.

Richard Poynder is a freelance journalist. He can be contacted at: richard.poynder@dsl.pipex.com or via www.richardpoynder.com