SAN JOSE, Calif. EDA and technology companies need to strategically build, acquire and protect their intellectual property (IP) if they intend to turn patent and copyright portfolios into revenue, according to members of the EDA Consortium's Emerging Companies Committee.
While "intangible assets" represented only 38 percent of the total market capitalization value of the 500 largest U.S. companies in 1982, "today that percentage has increased enormously," said Irwin Gross, an IP litigator and partner with Wilson Sonsini Goodrich & Rosati (Palo Alto, Calif.), at a recent committee meeting. "Almost 70 percent of the total value measured by the market cap of America's 500 largest companies' profits today is through intellectual property."
In fact, a new breed of insurance carrier and consultant has emerged to help companies protect their IP and absorb the cost of defending an IP litigation, said Julie Davis, executive vice president with Aon Risk Services, a risk management firm.
The number of patents requested and issued has skyrocketed over the last 10 years, Gross said. "In1990 Microsoft had one patent today they have 800," said Gross. "At the same time Dell, Oracle, Sun and Intel have experienced fivefold increases in their portfolios."
Patent and licensing revenue has increased 700 percent over the last eight years to $110 billion in 1999, Gross said. At the same time, patent infringement litigation has increased 100 percent since 1991 and trade secret litigation has also increased, he said.
" 'In many ways intellectual property is the becoming the only sustainable competitive advantage,' " said Gross, quoting Massachusetts Institute of Technology professor of economics and management Lester Thurow. "It is something the EDA industry is aware of and is now something that the rest of the economy is catching on to," Gross said. "Intellectual property is now less of a pure legal creature than [it] had been. In the past it used to be handled exclusively by those in a legal department. It is now more a strategic imperative and a business component."
There are several ways companies can leverage their IP to create a distinct market advantage, Gross said. Companies should not only protect unique parts of their current technologies, but "patent in paths where their technology is headed," he said, thereby creating a competitive advantage.
Gross also suggested that companies create patents with "an eye on infringement," to make sure that a patent can't be infringed and to make a company aware if one of its patents is being infringed upon.
If a company feels it has the best technology or method in its field, it should not only patent that technology or method, Gross said, but also the second-, third- and fourth-best methods to ensure a competitive advantage.
Gross said companies also shouldn't simply focus on protecting their technologies but should also protect their business strategies through copyrights and paten ts. Many companies, such as Rambus Inc. and Numerical Technologies Inc. have built entire businesses out of licensing patented technologies, he said.
Companies also need to know which new standard patents have been granted and which are under development, he said.
In addition, companies need to be aware of which geographic locations are best-suited for IP litigation. Gross said that Silicon Valley is by far the most advanced spot for technology intellectual property litigation, because judges and juries there are fairly technology savvy.
"If you try a case somewhere else, you run the risk of having a jury composed mainly of the second shift at Burger King," said Gross.
Davis, the second speaker at the committee meeting, said that few insurance companies offered policies protecting IP in the past, and those policies were often restrictive in their terms and conditions, had insufficient capacity or coverage, and the underwriting itself was extremely expensive.
Unlike typical IP insurers, Davis said that firms such Aon Risk Services will insure patent portfolios of medium to large companies, and often write policies protecting entire portfolios or segments of a portfolio.
Aon typically offers broader coverage than traditional insurance firms, covering more than IP risks, and offering coverage of $250 million, she said.
Risk-management companies also offer consulting to help companies leverage their patent portfolios.
"With risk-management services we are learning how to take risk and turn it into value creation, and we are also learning how to turn risk into opportunities," said Davis.