High-Tech Looks To Profit From Patents
(01/28/00, 5:16 p.m. ET) By Margaret Quan, EE Times
A new crop of players, strategic advisers in tow, are elbowing their way to the negotiating table for the next round of intellectual property deals.
Companies like Cisco, Microsoft, andRambus are positioning themselves to play the patent game that's been well-established by the likes of chip giants IBM, Lucent, and Texas Instruments. And a fresh batch of consultants with books and online sites stands ready to help -- for a fee.
Rambus, Mountain View, Calif., signaled its intention to play the patent card when it said it is suing Hitachi over fundamental patents it believes could apply broadly to DRAM and microprocessor makers. Meanwhile, Cisco Systems, San Jose, Calif., and Microsoft, Redmond, Wash., have been quietly bulking up their patent portfolios, a fact closely watched by the growing ranks of attorneys and consultants who believe that intellectual property is becoming the hallmark of high-tech wealth.
"In the 21st century, corporate wealth will not be determined by the number of plants, factories, or real estate a company owns," said James Spears of the Washington law firm Shook, Hardy & Bacon. "Rather, it will be determined by the strength of the company's intellectual property portfolio."
Microsoft would seem to be a new convert to that belief. The software giant owned only five patents in 1990, but bolstered its portfolio to 2,000 as of last year.
Router king Cisco is just "getting religion" about patents, said Kevin G. Rivette, president of Aurigin Systems, Mountain View, and co-author, with David Kline, of a book on intellectual property corporate strategy, "Rembrandts in the Attic: Unlocking the Hidden Value of Patents" (Harvard Business School Press). The book makes the case that patents can provide market advantage, better financials, and enhanced competitiveness.
"In this knowledge-based economy, the only differentiator is a protectable idea," said Rivette, who tutors companies on the use of patents. "Whether companies or individuals have moral issues with patents or not, they'd better have a patent strategy."
Thinking in a similar vein is Bruce Berman, president of Brody Berman Associates, New York, and editor of the book "Hidden Value: Profiting from the Intellectual Property Economy" (Euromoney Publications).
"Companies that fail fully to comprehend [intellectual property] run the risk of lost revenue, poor positioning, and diminished market value," Berman said.
High-tech companies are hearing the call. The annual number of patents filed in the United States rose 30 percent between 1990 and 1998, to 155,000, according to statistics from the U.S. Patent and Trademark Office. The agency issued an estimated 22,500 software patents in 1999, against 17,500 a year earlier.
The patent office ranked long-time intellectual property heavyweight IBM as the top overall patent recipient among private-sector companies in 1999, with 2,756 patents issued. The rest of the top 10 recipients were NEC, Canon, Samsung, Sony, Toshiba, Fujitsu, Motorola, Lucent Technologies, and Mitsubishi.
Some of the same companies showed up on a list of the top 10 recipients of patents issued during the 20th century, assembled by MicroPatent USA, East Haven, Conn. Over the course of 100 years, companies relatively new to filing patents in the United States, such as Samsung and Hitachi, eclipsed some of the old standbys, like General Electric and Westinghouse, said the company, which owns a searchable patents database.
But patent prowess is more than just a numbers game and equating the number of patents a company holds with patent strength is "silly," he said.
"[Patent prowess] has relatively little to do with numbers," Berman said.
The yield of the patent portfolio vs. R&D dollars spent, as well as a company's stock price and financial performance, all must be taken into account, he said. Berman said in the next few weeks he and a partner plan to launch a company -- Intellectual Property Knowledge Resources -- to provide a method for measuring patent quality.
A metric for patent quality is sorely needed, said Greg Aharonian, editor of the Internet Patent News Service, San Francisco. Aharonian, who is often hired by attorneys to "bust" patents, or investigate their value, said many patents are worth little. Often, companies do not find out how strong their patents are until they are dragged into court, he said.
"There are a lot of people out there talking about the need for a patent portfolio, but no one is paying attention to the quality of the patents," Aharonian said.
He included the overtaxed patent office in that assessment, noting that the agency issued 40,000 software patents in 1998 and 1999, roughly 10 times the total in 1992 and 1993, with roughly similar resources.
The problem of quality is especially critical for Internet and software-related patents, which can be more ambiguous than patents for hardware components, Aharonian said. One infamous example is the case involving an Internet company called Interactive Gift Express (since renamed E-Data), which said its patent covering a way of selling soft goods online applied to any Internet commerce. Those claims were shot down in May 1998 in the U.S. District Court for the Southern District of New York. E-Data has appealed the ruling. Oral arguments are set for Feb. 7 in the Court of Appeals for the Federal Circuit in Washington.
"If [E-Data] wins, the company stands to make more money than Microsoft in a single year, and this single patent is the company's only asset," said Carl Oppedahl, partner at Oppedahl & Larson, a Frisco, Colo., law firm.
Other dot-com companies have attempted to get patents on ideas as basic as a business model.
"The increased interest in patents for software and Internet business models may drive the semiconductor industry to patent things like silicon fabrication techniques and software used to control fabrication facilities," Oppedahl said.
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