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 Large companies are learning they can no longer let their IP patents go unenforced. Today's patent landscape is largely colored with lawsuit upon lawsuit stemming from a tangled mix of rights, questions about open-source software and a slew of cases in which sometimes the accuser becomes the accused. All this is a precursor to perhaps the greatest challenge: companies trying to monetize IP, turning protected ideas into dollars.
USING YOUR IP The notion of commoditizing IP is complex, The Deal's Ken Klee and Stacey Higginbotham wrote in February: "As a new frontier for investing, there's something both alluring and discouraging about intellectual property. Perhaps that's to be expected in the land of intangibles. But even that word understates both IP's significance in the economy and the difficulty of reliably capitalizing on it. ...There's an element of trial and error in the efforts of the handful of pioneers now trying to build businesses that can turn IP into money." And many see an untapped opportunity in the IP world. "They're looking beyond the current boom in IP services -- with patent consultants proliferating and big law firms employing IP lawyers by the hundreds -- to a time when IP will go from being a significant sideshow to being a main event," Higginbotham and Klee write. Ocean Tomo LLC, which calls itself an IP merchant bank, IP-oriented PE firm Altitude Capital Partners LLC and Acacia Research Corp., which has an IP licensing unit, are among several riding the movement to turn IP into an asset class ripe for investment. It will almost certainly draw significant investment from private equity and hedge fund players, looking for a place to park some cash. And one source likened IP investing it to venture investing 30 years ago, calling it "a nascent asset class of interest to a handful of specialty investors with clear vision and strong stomachs." But there are hurdles, including the extent to which a patent is only a legal creation, worthless unless the holder files suit. The attempt to extract value from a market sliver yet untapped sparks a public-policy dispute about the purpose of patents. But license they will. SHARE AND SHARE ALIKE Hewlett-Packard, and others, have recently begun managing patents and IP assets more strategically. IBM Corp., began doing so in the mid-1990s, and in late 2005 opened up its patent portfolio--some 40,000 licenses strong--to a select group of startups, just to see what they could do. HP's goal, as The Deal's Andrea Orr explains, is "to better enforce its patent rights among users while promoting its intellectual property to expand the use of HP technology and negotiating better terms for licensing other companies' technologies." A central IP licensing division is distinct to HP and friends, while IP is often managed through a company's legal team. The approach is defensive, rather than proactive, seeking out licensors. HP has looked internationally and regionally, Orr writes, forming a five-year collaboration with Singapore contract manufacturer Flextronics International Ltd to use HP's digital imaging technology into its camera modules for better picture quality and improved clarity. HP has too inked a deal with Bangalore, India's Prodigy Labs Pvt. Ltd. for use of its gesture-based keyboard technology to skirt the difficulty some non-Western users have with Western keyboards. But it's tricky stuff. In a suit of its own in March 2006, HP won a $47 million settlement from PC maker Gateway Inc. to settle 27 patent infringement charges. "While the company uncovers more regional licensing opportunities, Beyers has his hands full navigating the still-uncertain environment of U.S. licensing," Orr writes. "If his method of arm wrestling during negotiations sounds strange, it's actually an apt metaphor for the state of IT licensing: a kind of Wild West. With so many companies having been lax about enforcing patents for so long, it can be tedious untangling rights and determining who is infringing whom. For example, although HP prevailed in its Gateway suit, Gateway initially countersued, alleging that HP had infringed 13 of its patents. The $47 million settlement that was ultimately announced said nothing about who infringed which patents." And on the M&A front, the use of open-source software further clouds the landscape. An acquirer is responsible for knowing the history of a target's application, the origin of its code, however multi-sourced and hard to trace, and any licensing requirements. And on the divestiture side, if a company is spinning off a business, they need to carefully value what t Categories Deal Video
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