U.S. firms leave $1 trillion in potential profits each year by underutilizing their intellectual property. The document discusses how more companies are recognizing intellectual property as valuable business assets and are partnering with experts to better manage their patents, trademarks, and copyrights. As intellectual property becomes more important globally, all companies including small businesses and foreign firms need to understand intellectual property laws to compete effectively in international markets.

1. Getting Smart About Intellectual Property Is A No-Brainer
U.S. firms leave $1 trillion on the table every year by under-using their intellectual property.
Wednesday, July 11, 2007
By Pat Toole, Vice President, Intellectual Property & Standards, IBM
A colleague was talking recently with executives of a company based in India, and they told
him something startling. They said that when their scientists made a breakthrough, they
would scribble notes describing those ideas, and mail them to their lawyer based in the U.S.,
who would then, presumably, apply for American patents on the company's behalf. But they
couldn't immediately recall how many or which ideas had been forwarded, or had actually
earned patent protection.
Soon thereafter, a colleague was talking with a global company with a reputation for
producing products of high quality. Over the years, they had pioneered innovative processes
for developing, engineering and assembling their products, but until recently, had not
aggressively sought patent protection for many of those ideas. They were just now making a
concerted effort to do so.
In both of my conversations, the lesson was clear: businesses are, or should be, waking up
to the idea that their intellectual property may be the most valuable, but under-appreciated,
asset they own. In fact, U.S. firms leave $1 trillion on the table every year by under-using
their intellectual property, according to the Harvard Business Review.
The management of intellectual property has gone from a necessary evil and an expense, to
a competitive advantage and profit center. Businesses now have to not only create and track
R&D and patents, but also increase, improve, license, share, sell and protect intellectual
property. Not surprisingly, the shift of intellectual property from the back to front office was
one of IDC's top 10 trends for 2006.
As with companies that work with experts from outside their company to manage their
information technology operations, we now see companies partnering with experts to
manage intellectual property. These experts not only provide software tools to simplify and
automate the mechanics for accomplishing this, but also help companies think more
strategically about the processes that make intellectual property more of an asset, and less
of a burden.
The need for such management is more pronounced in industries such as financial services,
which traditionally had not sought to patent as many ideas as companies in the technology or
pharmaceutical fields. These days, firms with financial products and services are increasingly
linking their offerings with unique technology that help them conduct research, crunch
numbers, or present information.

2. Correspondingly, the number of financial services patents filed for, and earned, has risen
steeply. A decade ago, there were just under 1,000 patent filings for the sector, while in 2006,
that number had billowed to 6,226. Last year, there were five times as many financial patents
that earned approval than in 1997, which saw only 200 or so granted. The importance of
patents for other industries that deal with intangibles are surely also rising.
Legal matters figure prominently when it comes to intellectual property, given how valuable
and litigious it tends to be. (Hopefully, recent patent reform bills in front of Congress will
make it less prone to abuses.) In fact, intellectual property in the U.S. is worth as much as
$5.5 trillion, more than the gross domestic product of any other country, say economists
Kevin Hassett and Robert Shapiro.
With so much at stake, there was vigorous patent litigation last year, with awards valued at
$3.4 billion. Industries such as financial services are seeing litigation rates of nearly 30 times
the average, according to a study by Harvard Business School professor Josh Lerner.
Companies need to be aware of others that may be infringing on their patents, as well as
ensure that they are not, themselves, infringing. Customers are also increasingly demanding
to be indemnified against legal action, so that they cannot be held liable if the product they
use is found to infringe on the intellectual property of others.
More strategically, businesses need to determine where the company's intellectual property
can best be of use. How can ideas be implemented in products, or reflected in product
branding? Companies may own a great deal of intellectual property, but it is another matter
entirely to put it to work in the right way.
Therefore, companies need to continuously examine their portfolio of intellectual property to
determine which patents might be licensed to others, sometimes in return for cash income,
or other times in return for their rights to use the intellectual property of others. In other
instances, a company may want to assign, or sell, their patents to others. They may also
want to buy unused patents as a defensive measure to take them out of play, so that future
products are not in conflict with anyone else's ideas.
Finally, many companies today are becoming globally integrated, with decentralized
operations in far-flung locales. The intellectual property laws and their enforcement may be
rather different than those of the home country. So, it is not hard to imagine a company with
research laboratories in Brazil, China or India that create enormous amounts of intellectual
property prone to unpredictable or weak protection. Businesses need to be aware of these
imbalances and navigate them.
These days, as American small businesses begin conducting commerce outside the U.S.,
they, too, need to be knowledgeable about at least the ABCs of intellectual property. For
example, the U.S. Patent and Trademark Office found that only 15% of small companies that
do business in foreign markets knew that American patent protection did not extend
overseas.

3. Similarly, foreign companies that seek entry into more developed countries, such as the U.S.
or in Europe, need to educate themselves about intellectual property. For instance, Chinese-
based enterprises may find themselves at a disadvantage because they may not have
obtained the rights to products that they have created, or may not have bothered to license
technology used in their products -- making it hard for them to conduct business in more
regulated marketplaces.
In China-based Lenovo's case, the company positioned itself well to enter the U.S. market by
acquiring IBM's PC business. In one bold stroke, they had ensured the integrity of their
intellectual property. But not everyone can enter a country in such fashion, or acquire a
company with a clean bill of intellectual property health, so most will have to be even more
creative and patient to crack marketplaces with strict intellectual property laws.
What's apparent is that the days of recording ideas on paper and mailing them to the legal
department really are over -- at least for those who hope to compete. The complexities of
intellectual property, and its newfound importance, require deep, strategic knowledge at
many companies, large and small, domestic and foreign. What's more, the people that
manage a company's IP need to wear a variety of hats -- legal, marketing and R&D. In a
world where, increasingly, the idea is the product, having such expertise on hand is a
concept whose time has come.
Pat Toole is a vice president for IBM's Technology & Intellectual Property group. IBM's T&IP
group collaborates with customers and business partners to develop and share intellectual
property, and to promote innovation. It acts as a bridge to the company's manufacturing and
R&D initiatives, spanning such areas as software, hardware and nanotechnology. Aside from
being instrumental in cultivating IBM's scientific talent, Pat's group also works to gain
industry consensus in the area of open computing standards, so that technology can be
universally compatible. http://www.ibm.com/ibm/licensing
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