As
a rallying cry for a giant company in urgent need of a turnaround, the
phrase "Uncooled microbolometer infrared imaging technology" falls kind
of flat. But in retrospect, at least, it offers a window into what's
gone right at Honeywell International Inc. since 2002.
Back then, Wall Street was demanding to know how David Cote,
Honeywell's new CEO, was going to get the aerospace and industrial
company to grow. The answer wasn't obvious. Thrown into disarray by one
huge merger (the 1999 combination of AlliedSignal and Honeywell),
bruised by an even bigger merger that was blocked at a late stage
(General Electric Co.'s attempted acquisition of Honeywell, stymied by
European regulators in 2001) and beset by everything from an
underfunded pension plan to a post-Sept. 11 slowdown in the aviation
market, Honeywell was stalled and demoralized in 2002. Sales were
declining, and chairman Lawrence Bossidy, who had led AlliedSignal but
retained the Honeywell name after the 1999 combination, stepped down
after several rounds of painful personnel cuts in the previous two
years. Cote, brought in to succeed Bossidy after a 25-year career at
General Electric and a year as CEO of TRW Inc., went on to note in the
2002 annual report that despite Honeywell's many strengths, the company
was lacking something important. "The only missing ingredient," he
wrote, "has been institutionalizing a growth process. It has not been
part of our psyche."
Honeywell's corporate mindset has changed since then, and its
handling of the infrared technology shows how. The company's
researchers invented the uncooled technology for military applications
such as night vision in the mid-1990s, making smaller systems possible
by eliminating the need for cryogenic encumbrances like liquid
nitrogen. "Now you can use that technology in a whole host of
commercial and military applications," explains Jay Schrankler, vice
president for intellectual property licensing and marketing in
Honeywell's Automation and Control Solutions unit. Indeed, you can put
it in cars or make it available to firefighters, among other uses.
First, though, you'll need to make a licensing deal with Honeywell
Intellectual Properties Inc., as companies such as Raytheon Co. and NEC
Corp. have done. And therein lies the change. "Dave Cote has defined
technology and intellectual property as one of the pillars of growth
for the company," says Loria Yeadon, chief executive officer of HIPI.
Honeywell's improved fortunes - 11% growth in sales for 2004, robust
results so far this year - have multiple causes, of course. One of them
is simply the cyclical turn in its main businesses. And it's not as if
the company discovered out-licensing only recently; HIPI's forerunner
at AlliedSignal was formed in 1995. But it is the case that a far more
active approach to getting value from its patents, know-how and
trademarks is one of the hallmarks of Honeywell's revival. "HIPI is the
IP store," says Yeadon, an electrical engineer and IP lawyer who took
charge at the unit in 2003, moving up from a job as the corporation's
chief IP litigation counsel. "And we're open for business." Schrankler,
an engineer promoted to his current job at the end of 2002 from a post
managing Honeywell's billion-dollar environmental-controls business,
describes the new IP regime this way: "Dave Cote turned this into a
piece of our strategy and a piece of our operating plan, and he got it
deployed through all the businesses. That was a key change."
Cote's IP push at Honeywell comes in a context. Though truly
strategic management of intellectual property is still the exception
rather than the rule, companies in a variety of industries have moved
in that direction in recent years. In May 2004, General Electric hired
Q. Todd Dickinson, a former commissioner of the U.S. Patent and
Trademark Office, for a newly created job as corporate vice president
and chief intellectual property counsel - no small assignment at a
company where the intellectual assets now range from TV shows to
biotech patents. In financial services, American Express Co. hired its
first IP counsel in late 2000 and has since gone from 10 to 50 patents
and launched a licensing program that's delivering tens of millions of
dollars in revenue. In consumer products, Procter & Gamble Co.'s IP
organization dates to 1996 but has more recently blossomed into an
important player across a spectrum of corporate growth efforts (see
Corporate Dealmaker, Winter, 2005).
But as each company tries to get better at using its intellectual
property to drive growth, it has to come up with its own set of answers
to some basic questions. Who should take the lead on IP? How do you
blend technical expertise in licensing and patents at the corporate
level with market knowledge at the business unit level and innovative
talent in R&D? How do you strike the right balance among marketing
your intellectual property to others, keeping it in-house for
competitive advantage and defending your company against infringement?
Most fundamentally, how - in an organization that doesn't just sell its
products globally, but actually creates them that way - do you even
keep track of something so intangible?
|
Honeywell and its intellectual property profile |
|
Sales by business segment ($mill.) |
|
IP Stats |
|
R&D Spending ($mill.) |
|
|
|
|
Active licenses |
>1,000 |
|
|
| Licensing deals in pipeline |
>250 |
| Employees supporting IP in HIPI, legal dept and business units |
>100 |
| Invention disclosures 2004 |
>2,000 |
| Patents in portfolio |
5,500 US; 12,000 non-US |
| Patents issued in 2004 |
>570 |
| Active trademarks |
about 250 |
*Customer sponsored, mainly U.S. Government
Source: Honeywell |
At Honeywell, the answers start with the decision to keep
HIPI's core staff relatively small and tightly intertwined with the
company's four business units - aerospace, automation and control
solutions, transportation systems and specialty materials. The setup
parallels that of the corporate development shop, another important
part of Cote's program for making Honeywell a growth company. Yeadon,
who reports to Honeywell general counsel Peter Kreindler and leads a
14-member team, is based in Tempe, Ariz., rather than in the
Morristown, N.J., corporate headquarters. That partly reflects how much
of HIPI's work is with the aerospace division in nearby Phoenix. HIPI
also has offices in Asia and Europe.
But the HIPI team accounts for only a fraction of the people engaged
in IP commercialization and licensing at Honeywell. Counting those who
work in the general counsel's office and in the business units, Yeadon
says, the number is more than 100. A look at Schrankler's position in
Automation and Control Solutions - an $8 billion business whose
products include familiar household thermostats as well as technology
used in aviation and oil wells - sheds light on how they all work
together. Schrankler reports to the head of strategy in ACS and, in
turn, has five people reporting to him. Other licensing specialists
work in the six ACS strategic business units.
Exactly how much value have these folks generated for Honeywell's
shareholders so far? "We don't disclose revenues," Yeadon says. "But
we're seeing significant growth, and we're focused on increasing
licensing revenue as one of our key long-term growth components for the
company." She does point out that Honeywell now has more than 1,000
active licenses as well as several hundred deals in the pipeline (see
chart). At ACS, meanwhile, Schrankler notes a big change. "We had
almost no licensing revenue in 2001 to 2002," he says. "And since then,
we've literally exploded." Helping fuel that explosion are multiple
deals for the infrared technology.
In any case, the qualitative question is just as interesting as the
quantitative one. How did Honeywell accomplish this piece of the
psychic change Cote set out to catalyze in 2002? Both Yeadon and
Schrankler are quick to answer that the promotion of IP
commercialization is a top-down exercise, and among other things
involves the inclusion of licensing among the goals and objectives that
business leaders must think about in their annual strategic and
operations planning. Business units take credit for revenue resulting
from the commercialization of IP they've generated. That Cote
personally reviews all new licensing deals no doubt helps to get
managers' attention as well. True, for a smaller deal the review may
just be a matter of Cote reading the formatted summary he gets via
e-mail from general counsel Kreindler. But this is a boss who also
likes to pick up the phone.
None of which means that it's a simple task to make these deals
happen at a company with the breadth of Honeywell. There's a big
difference between the consumer market for Prestone antifreeze (now
licensing its trademark for other automotive products, such as chloride
pellets to melt the ice on your driveway) and cockpit avionics for
business jets. R&D is decentralized, largely driven by the business
units, and going ever more global, with centers in such places as Brno,
Czech Republic, and Bangalore, India.
The formal division of duties assigns Schrankler and the other IP
specialists in the business units the main responsibility for
understanding their markets. "Since we are the business, we try to make
the strategic decisions on where we should license and where we should
not. We help market it - we know some of these companies, and we'll go
find them," Schrankler says. Yeadon and HIPI, meanwhile, take the lead
on negotiations, contracts, legal approvals and day-to-day management
of the relationships - including payments - once the deals are in place.
But for HIPI to live up to its billing as Honeywell's IP store,
Yeadon and her team also have to know a lot about their inventory and
who might be interested in it. On a company-wide basis, chief patent
counsel David Hoiriis (who, like Yeadon, reports to general counsel
Kreindler) oversees an IP master database that tracks patents and
trademarks. Trade secrets and know-how are harder to track; they tend
to dwell in repair manuals, software and other places at the business
unit level. Staying connected is made easier for HIPI by the diverse
skills of the 15-member team, whose backgrounds include operational
experience as well as business development, sales, marketing and
engineering. It also helps that the team members specialize by business
unit. For example, Mary Newell-Miller, who came over from General
Electric in 2004 as HIPI's vice president of licensing, leads the
initiatives for the transportation systems business in addition to
overseeing trademark licensing company-wide.
For the outside world, the shop window of Honeywell's IP store is an
online technology licensing portal. HIPI team members also do plenty of
marketing at trade shows and in other settings. Schrankler calls the
process "completely seamless." Says Yeadon: "It's a joint effort by
HIPI and the business units to identify assets that are available and
package those assets in a way that's beneficial for the licensee. By
working closely with the units we are very attuned to our product life
cycles and know when certain technologies are maturing and are becoming
available for licensing."
Packaging the assets is a key consideration, since in order
for Honeywell to benefit from a deal, the licensees obviously have to
succeed. Often, what's being shared is much more than a formula or a
brand, requiring a significant level of engagement between experts in
the Honeywell business and the licensee. HIPI does a fair amount of
patent and trademark licensing, and it wants to grow in both realms.
But a typical deal is more complex than that. "Most of our licensing
relates to our technology solutions," Yeadon explains. "Our trade
secrets, our know-how - for example, the unique things we do in order
to service an aircraft engine."
To be sure, not all licensing relationships are born in a spirit of
partnership. Another of HIPI's responsibilities is protection of
Honeywell's intellectual property, and here, too, the unit has been
raising its profile. In October 2004, Honeywell filed suit in U.S.
District Court for the District of Delaware against 34 electronics
companies, alleging infringement of a patent related to liquid crystal
display products. Yeadon explains that Honeywell's work in LCDs dates
to the early 1980s when the company made key advances to develop the
technology for use in aircraft cockpit displays. The suit is still
pending, but this year Honeywell did reach licensing agreements for the
patent with Sanyo Electric Co. Ltd. and Sharp Corp. Deals in prior
years were struck with Samsung Electronics Co. Ltd. and LG.Phillips LCD
Co. Ltd., among others. "If we had our choice, we wouldn't litigate,"
Yeadon says. "But what we can't tolerate is companies using our
technology without authorization."
In the end, HIPI's mission is to help the company realize the
maximum value from its intellectual property. That's a mandate that
often takes Yeadon and her team beyond the realm of licensing deals and
into the world of acquisitions and divestitures. Targeted acquisitions
are part of Cote's plan for growing Honeywell, as witness the December
2004 purchase of British diversified building-systems company Novar plc
for $2.4 billion. HIPI works with both the business unit and the
corporate development team on such deals.
"Once the decision has been made to engage in acquisition
discussions," Yeadon explains, "the HIPI team, along with the IP
lawyers, gets very involved in assessing the IP assets of the target.
Once the purchase is complete, we already have a plan in place to
decide which assets are available for licensing." Or, perhaps, for
sale, since not every piece of every acquisition will be a perfect
strategic fit. "We put in place licensing programs around some
technologies and position other technologies and product lines for
divestiture," she says.
Whether it's working on collaborative licensing deals, enforcement
or M&A, HIPI's mission requires it to look both inward at
Honeywell's capabilities and outward at the markets where those
capabilities have value. Yeadon has goals in both directions. Inside
Honeywell, she aims "to have an even closer connection to our strategic
planning process in the business units and to be part of our life cycle
planning in an even bigger way."
Looking outward, she sees HIPI expanding its outreach both
geographically and into new market segments. The outreach is taking
multiple forms - trade show attendance, advertising on Web sites, use
of IP brokers, especially in Asia and Europe - and seems sure to
expand. "We figure that there is probably a lot of untapped potential
in markets that we've never really explored," she says. "Because a lot
of our technologies have universal applications, it's just a matter of
doing a better job bringing the needs of companies in various market
spaces together with the technology we have."
A simple task? Not really. But at Honeywell, it's starting to look like a feasible one. - Kenneth Klee
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