The intellectual property residing in companies can be turned into
profit by licensing it to customers. Just make sure you follow the
guidelines, writes Danny Bradbury
People use the term "vapourware" to describe software that is
not released on time. But in the strange, metaphysical world of
intellectual property law, the phrase could arguably be used to
describe software in general. Copyrighting text and music is
relatively easy, but trying to protect and profit from streams of
ones and zeros is an area fraught with difficulty.
The notion of intellectual property in the IT sector has led to
some bizarre legal cases. Last year, British Telecom discovered
that it held what it thought was a patent on the technology
underlying hyperlinks. This prompted the telecoms giant to begin
legal action against Internet service providers, claiming that
their customers have been using technology concepts that it owns.
Search engine company AltaVista also claimed in January that it
owns the patents to several key Internet indexing and spidering
technologies.
By making statements like these, companies are effectively
staking a claim on the very concepts that underlie the Web. The
issue of whether they are legally valid is secondary to the
question of whether it is good for the industry when companies make
such claims. It could be argued that the successful patent claim on
hyperlink technology could stifle innovation in the Internet
community.
Extra revenue
Opportunistic legal bickering aside, intellectual property can
be used for positive ends in the IT sector. In particular,
companies that have developed software for their own internal use
may find that they can make a profit from turning those products
into solutions for sale to their customers. In doing so, they could
conjure revenue out of nowhere, turning an internal research and
development effort that was to be written off as a business cost
into an independent revenue stream.
"The essential thing to recognise with intellectual property is
that it is not just one asset - it is any number of assets in a
number of countries," says Philip Atkinson, IT partner at legal
firm Eversheds. "Once you start looking at it that way, it is
straight to the bottom line because you have done the work
already."
The trick lies in identifying internal intellectual property
that could be turned into a licensable product, Atkinson explains.
This involves pinpointing assets that can exist outside your core
business and which can be provided to customers without damaging
your competitive edge.
Companies need to think about generating leads that can tell
them where to license this intellectual property and that could
involve exploring an entirely new customer base. Any conversion of
internal intellectual property into extra revenue will involve
incremental investment. It is not a case of money for nothing.
It is also wrong to assume that there are no potential pitfalls
when licensing your intellectual property. For one thing, says
Richard Cross, knowledge management principal at Xerox, it is the
application to your own environment which makes a software product
or process work. Companies trying to apply their internal
intellectual property to customers' environments may meet with
varying levels of success.
This leads to issues of internal acceptance. Getting buy-in from
your own employees and management may be easier than getting buy-in
from other companies' staff. Cultural differences are important
here, as is the fact that if a product was developed properly for
internal use, user acceptance testing and requirements management
would have kept your end-users in the loop from an early stage.
Other organisations' staff may react negatively if they are asked
to accept a product or process in which they had no input.
Still, Xerox's experiences in this area are an example of
successful intellectual property conversion. The company took a
product called Eureka, which was developed to manage knowledge
internally, into the public domain and has been making money from
it ever since.
The project started when Xerox appointed a team of social
scientists to examine the activities of its support engineers. The
research group found that there were times when technical problems
had no documented answers. In such situations, the engineers would
exchange information on an informal basis.
"It is almost as though the community itself became the expert
system," says Cross.
The company used this information to structure a more formal
knowledge sharing process, in which solutions and tips from
engineers would be subjected to peer review. Software was developed
to support the process and facilities were introduced that allowed
engineers to take credit for their contributions.
"Eureka started off as applied research and Xerox Service
happened to be a willing guinea pig. As it gained momentum, people
realised it was pretty powerful," says Cross. "Companies have shown
strong interest and we have tested it with a number of external
clients. We said, 'Let's package it up and make it more repeatable
and deliverable.'"
The company is selling the intellectual property as both a
software product and a methodology. Cross explains that he does not
feel that Xerox is giving away a competitive edge by selling the
product, because the real value for Xerox lies in the data being
fed into the software. He claims that the company saved $11.2m
(£7.6m) last year using the product through a 5% reduction in parts
usage and service hours.
"The content of Eureka in terms of our own information about our
own products is not being taken to market," Cross explains. "It is
the tool and the process. We would be delighted if one of our
direct competitors came to us and asked us to implement it in their
business."
Who owns what
One key safeguard when taking intellectual property to market is
to make sure that you own the technology you are selling, says
David Knight, a partner at Lochners Technology Solicitors.
It may seem obvious but it is surprising how often companies
will try to license intellectual property without ensuring that
they own the copyright on it. And just because it has been
developed internally, this does not automatically mean it is
their's.
"So many businesses fail to realise that when they get a
subcontractor in to work on software, unless they agree that all
work will be signed over to the company, the subcontractor retains
all the rights," Knight warns. "That is critical step number one -
get everyone who is not an employee to sign copyright over to
you."
Consequently, keeping the paperwork is important if you think
there is any chance that your intellectual property is to be sold
outside the company.
Another trick is to put things in your code that prove it is
yours, says Knight. Protecting software is difficult these days,
but putting in comments that show it is your code or a blind
sub-routine that can be identified uniquely as yours could provide
some protection in court.
Patents versus copyright
This brings us to the issue of patents versus copyright.
Traditionally, European law has favoured software copyrights over
patents, explains Atkinson. The difference is that, while copyright
protects the direct copying of software code, technology patents
protect authors against infringements of the concepts behind their
code, rather than against the duplication of the code itself.
In practice, if a company can prove a competitor's software does
something in the same way as its own patented software method, it
can sue - even if the software used to do it is written
differently.
But patents are slowly encroaching on the European IT sector. In
the European Patent Convention, there is a clause that prohibits
the patenting of software programs. It is nevertheless possible to
patent the function of the software, Knight says. This may seem
like a semantic issue, but it is enough to open up the patent
process to companies wishing to pursue it.
The more ambiguous nature of the European law has hindered the
growth of the patent market. "We are behind the US because there
are now fewer software patents on the European books than there are
in the US," Knight warns. "Also, there is a lesser skill in dealing
with a software patent."
Eureka is protected under existing copyright law, says Cross,
but the associated consulting methodology carries at least as much
value and yet "copyrighting a methodology is almost
impossible".
"In law, we can copyright the physical material we have written
it on but the ideas are impossible to copyright. A customer would
be able to apply the ideas elsewhere and it would be difficult for
us to take any action," Cross explains.
This situation is changing. Business process patents, which are
already established in the US, are making their way into the UK and
they will make the protection of methodologies more viable,
according to Knight.
While this may make it easier for companies like Xerox to
protect their intellectual property in the open market, it gives
industry pundits cause for concern. Knight describes one true story
in the US where a company patented the process of exercising a cat
with a laser pen. Shining the light from the pen onto the floor
causes the cat to chase it around.
This example raises the issue of misuse. Where patent law
exists, companies will try to use it to prove that they own the
rights to the most basic, taken-for-granted ideas.
Knight suggests that organisations can get around this problem
by registering their own processes first. "It may be worthwhile
doing that to give you a bargaining counter if you ever need it and
to make it publicly noted," he suggests. But this gets expensive
very quickly, putting smaller companies at a disadvantage.
As patents for software (or at least software functions) catch
on in Europe, companies taking their intellectual property to
market will face a legal minefield. They can at least protect
themselves by ensuring that they have legal copyright ownership of
their code and processes before they prepare them for sale to
customers.
Yet2Com finds partners for inventors
Given the current fashion for online exchanges and trading hubs,
it is hardly surprising that a trading facility has emerged for
intellectual property. Yet2.com (www.yet2.com) is an online marketplace for
technologies that could be licensed, enabling companies with a
particular need to find partners that have already conducted the
necessary research and development. The business-to-business
exchange's stated benefits include a reduced time to market for
customers and increased research and development profitability for
suppliers.
The company, founded in 1999, is sponsored by British Telecom,
Boeing and Ford. It has begun offering additional services,
including access to the Derwent World Patents Index, a database
with information on more than 14 million patents.
Tips on managing your intellectual property
- Assess the value of the tool you are thinking of selling
against the data you put in it to see if it threatens your ability
to compete
- Ensure that you own all the copyrights by tightening up your
human resource controls for contractors
- Keep records on all copyright contracts signed
- Insert code that proves it is yours
- Make sure that you build a sales channel that understands the
customers you are trying to sell to
- When selling outside, learn from the processes you went through
to get the intellectual property accepted by your end
users.
Budget update
The recent Budget gave hi-tech companies and IT departments a
boost by providing tax relief on a wide range of intellectual
property, writes Nick Huber.
This relief, subject to consultation, will include expenditure
on computer software development.
This means that companies acquiring hi-tech firms with
intangible assets will receive tax relief, reflecting the
intellectual property value of the company they are buying.
The broader aim is to stimulate IT investment and encourage
growth in the UK's hi-tech firms. Intangible assets on average
account for over 20% of the market capitalisation of UK
high-technology companies, according to a study by Taylor Johnson
Garrett, a City law firm.
Tim Conway, policy director for the Computer Software Suppliers
Association (CSSA), says, "If someone like Marks & Spencer
wants to develop a full-blown dotcom, the tax rates now mean that
it is better off financially if it develops an application in-house
rather than buying a dotcom."
IT directors have also backed the tax reform.
"Bringing intellectual property and goodwill into the tax system
will indirectly benefit UK IT departments as it makes the IT sector
more competitive," says Roger Marshall of the Elite Group of IT
directors. "We have seen UK companies in the retail sector, held
back before investing in e-commerce start-ups."
The proposals are open to consultation until the end of May.