Companies failing to exploit value of IP, says PwC

While tech execs think lawsuits are harassment techniques

Over half of all technology companies do not extract the full value from their intellectual property, and 69 per cent of executives believe their IP management is too often treated as a legal issue, according to research (pdf) published by PricewaterhouseCoopers this week.

Forty-seven percent of the 195 technology executives taking part in the survey also suggested that a large majority of IP-related lawsuits were spurious and intended simply to harass the competition. The figure was significantly higher among North American respondents, at 63 per cent.

The 76-page report, Technology Executive Connections: Exploiting intellectual property in a complex world, looks at the challenges faced by technology companies, based on research by PwC and the Economic Intelligence Unit.

The view that IP management is too often treated as a legal issue was particularly prevalent among North American and Asian respondents, according to PwC.

An executive from an unidentified European telco told PwC that his company gathers patents as a means of creating "currency" that can be traded with other technology companies in a series of cross-licensing agreements. One goal, he said, "is to reduce the cost of licensing someone else's technologies. If you have enough currency in the form of patents, you can strike a better deal".

But another goal of a broad portfolio is to create a line of defence. An executive at a US tech company told PwC: "It's good to have a broad portfolio, even if it's not something that you yourself are commercialising in your own products."

While the executive insisted that his own company is not litigious, he added: "Let's just say that if you have your competitors' products covered, they're a lot less likely to come after you." Consequently, he said, "we do a tremendous amount of strategic patent mapping".

Others said characterising IP management as a legal issue is an out-of-date approach that will not work in today's technology markets.

On top of the growing concern around the management of IP, there is still a lack of clarity as to where the responsibility for IP sits within an organisation. In 38 per cent of companies, responsibility sits with C-suite executives and only 21 per cent currently have dedicated specialist IP management units, according to PwC.

An area destined for change is the reporting strategy for IP. As demands for transparency around corporate reporting increase, 35 per cent of executives said that they will add IP-related information to their reporting within the next 3-5 years (currently 16 per cent provide supplementary reporting to financial data). Historically, company valuations were determined by capital assets, such as plant and equipment but today intangibles often account for more than half of market value for the average company listed worldwide.

Eighty-five percent of technology executives say that IP will increase in importance for their organisations over the next 3-5 years.

As companies pursue convergence-driven growth, 45 per cent are forecasting an increasing reliance on partnerships though 31 per cent doubted that their agreements with partners adequately accounted for and protected their IP. PwC suggests that one of the first steps to protecting their IP is often to plug licensing revenue leakage. One of the ways companies can manage risk and reduce revenue leakage is to conduct a royalty examination, a forensic investigation to verify royalty yields and highlight any misreporting, it says.

Melanie Butler, PwC's European Licensing Management Leader, said: “Over the last five years, we’ve performed more than 1,000 royalty examinations. In 90 per cent of those examinations we have identified misreported royalties."

“As well as performing royalty examinations and reviewing their IP arrangements with partners, companies also need to create tighter links between their own research, technology acquisition and business objectives in order to maximise and exploit all IP revenues,” she said.

The report quotes an executive from Siemens who explained why the company is linking R&D with business objectives.

"So many companies are prolific in patenting, but we ask ourselves, what is the value of that?," he asked. "To obtain a multi-jurisdictional international patent – the cost of that could exceed €200,000. Patenting something just to hold a patent?"

Instead, Siemens is "actively exploring and debating the relationship between R&D, protected IP and the goals and objectives of business units."

"We can't patent everything," said the unnamed executive. "So what we are doing is trying to evaluate the value of each potential patent. How unique is it? How advanced is it? What can be done with it?"

At a time when significant amounts of IP are being created in emerging markets (43 per cent of respondents confirmed this), protection of IP in some of these territories is perceived as inadequate. Respondents also expect the frequency and degree of worldwide patent infringement to increase considerably and not just in emerging markets. However, PwC believes the tide will turn as countries in Latin America, Eastern Europe and Asia begin to acquire their own portfolios of legitimate IP and therefore increase the need to protect all IP.

In order to protect and maximise their IP assets in the future, PwC says technology companies need to:

• Create closer links between business units and research & development (R&D) activities which will lead to a more accurate valuation of existing IP assets as well as a tighter alignment of research with the needs of customers and markets
• Revisit their processes for determining which, when and where and how they will protect their technologies
• Review their approach to emerging markets. For example, ensure that licensees are paying their fair share and review whether they need to increase their compliance activities
• Treat IP as a portfolio. Business units, IP professionals and R&D should collaboratively and continually review the portfolio to look for emerging opportunities and prepare for potential litigation from competitors
• Do more with their portfolios of protected technology. For example, create central inventories of IP which can be marketed to others, resulting in significant incremental income streams
• Assess whether they are moving as quickly as they can in adapting their IP strategy to meet the requirements of this fast-moving industry sector

Butler concluded: "Companies have little choice but to develop a fully fledged IP strategy in order to stay competitive. IP is the currency of tomorrow for technology companies."

Copyright © 2007, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.